1933 Act File No. 33-33852
1940 Act File No. 811-6061
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ....................
Post-Effective Amendment No. 15 ...................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 17 .................................... X
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FEDERATED INDEX TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds, 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b)
_ on ________________ pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a) (i) X on DECEMBER 31, 1998
pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii) on _______________
pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to: Matthew G. Maloney, Esquire
Dickstein, Shapiro, Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS DECEMBER 31, 1998
FEDERATED MAX-CAP FUND
INSTITUTIONAL SHARES
A mutual fund seeking to provide investment results that correspond to the
aggregate price and dividend performance of publicly traded common stocks by
duplicating the composition of the Standard & Poor's 500 Composite Stock Price
Index. The Fund is neither sponsored by or affiliated with Standard & Poor's.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
<PAGE>
RISK/RETURN SUMMARY
===================
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results that correspond
to the aggregate price and dividend performance of publicly-traded common
stocks, by duplicating the composition of the Standard & Poor's 500 Stock Index
(the "Index").
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Index.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Max-Cap Fund as of the
calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with 0 and increasing in
increments of 5 up to 40.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1991 through 1997 are: 30.01%, 7.22%, 9.52%, 1.22%, 36.63%,
22.75% and 32.69%, respectively.
The bar chart shows the variability of the Institutional Shares' actual total
returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
Hence, the total returns displayed above are based upon the net asset value.
The Fund's Institutional Shares' average annual total return from January 1,
1998 to September 30, 1998 was 8.63%.
Within the period shown in the Chart, the Fund's Institutional Shares' highest
quarterly return was 17.39% (quarter ended June 30, 1997). Its lowest quarterly
return was -3.86% (quarter ended March 31, 1994).
Average Annual Total Return for the Fund's Institutional Shares compared to the
S&P 500 Index (S&P 5 00) for the calendar periods ending
December 31, 1997.
CALENDAR PERIOD...INSTITUTIONAL SHARES S&P 500 INDEX
Start of Performance * __ % __%
5 Year ...... __ % __%
1 Year ...... __ % __%
* Since inception date of July 11, 1990.
The table shows the Institutional Shares' total returns averaged over a period
of years relative to the S&P 500 a broad-based market index. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
WHAT ARE THE FUND'S FEES AND EXPENSES?
===================
FEDERATED MAX-CAP FUND
FEES AND EXPENSES.
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MAX-CAP FUND'S INSTITUTIONAL SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee ..................................................... 0.30%
Distribution (12b-1) Fee............................................ None
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
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ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Max-Cap Fund's Institutional Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Federated Max-Cap Fund's
Institutional Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Federated Max-Cap Fund's
Institutional Shares operating expenses are BEFORE WAIVERS as estimated above
and remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
===================
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $43.4 billion.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
===================
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
===================
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
WHAT DO SHARES COST?
===================
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. NAV is
determined at the end of regular trading (normally 4 p.m. Eastern time) each day
the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
===================
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Class C Shares each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Shares. Each share class has
different sales charges and other expenses, which affect their performance. Call
1-800-341-7400 or contact your investment professional for more information
concerning the other classes.
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions acting on behalf of their customers or to
individuals directly or through investment professionals. When the Distributor
receives sales charges and marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
HOW TO PURCHASE SHARES
===================
You may purchase Shares through an investment professional or directly from the
Fund.
The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund on
the same day and the Fund receives payment within one business day. You will
become the owner of Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
In order to maximize the Fund's ability to track the Index, investors are urged
to transmit purchase requests prior to 2:00 p.m. (Eastern time).
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New
Account Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
<PAGE>
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM SHARES
===================
You should redeem Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). However, in order to
maximize the Fund's ability to track the Index, investors are urged to contact
their investment professional prior to 2 p.m. (Eastern time).
The redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV. However, in order to
maximize the Fund's ability to track the Index, investors are urged to telephone
the Fund prior to 2 p.m. (Eastern time).
BY MAIL. You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
<PAGE>
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed; and
o signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of
record;
w your redemption will be sent to an address of record that was changed
within the last thirty days; or
w a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that
is an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
<PAGE>
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
===================
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a Taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase additional Shares
to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
===================
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .30% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of October 31, 1998, placed
approximately $_______ billion in assets with the Sub-Manager. Since 1973, the
Sub-Manager has developed and managed a family of equity and bond index funds in
which some ___ nationwide non-financial institution clients invest. In total,
the Sub-Manager manages __ commingled/common trust funds. Northern Trust is a
bank-holding company and one of the nation's largest trust institutions with
subsidiaries located across the United States and in several other countries. As
of October 31, 1998, total assets of Northern Trust were $__________ and trust
assets under administration were
$------------.
<PAGE>
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
===================
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
Financial statements will be filed by amendment.
<PAGE>
25
FEDERATED MAX-CAP FUND
INSTITUTIONAL SHARES
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E106
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
PROSPECTUS DECEMBER 31, 1998
FEDERATED MAX-CAP FUND
INSTITUTIONAL SERVICE SHARES
A mutual fund seeking to provide investment results that correspond to the
aggregate price and dividend performance of publicly traded common stocks by
duplicating the composition of the Standard & Poor's 500 Composite Stock Price
Index. The Fund is neither sponsored by or affiliated with Standard & Poor's.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
-----------
TABLE OF CONTENTS
-----------
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
RISK/RETURN SUMMARY
===================
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results that correspond
to the aggregate price and dividend performance of publicly-traded common
stocks, by duplicating the composition of the Standard & Poor's 500 Stock Index
(the "Index").
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Index.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Federated Max-Cap Fund
as of the calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with 0 and increasing in
increments of 5 up to 40.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended December 31, 1997. The light gray shaded chart features four distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Institutional Service Shares for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1994 through 1997 are: 0.94%, 36.30%, 22.26% and 32.32%,
respectively.
The bar chart shows the variability of the Institutional Service Shares' actual
total returns on a yearly basis. The Fund's Institutional Service Shares are not
sold subject to a sales charge (load). Hence, the total returns displayed above
are based upon the net asset value.
The Fund's Institutional Service Shares' average annual total return from
January 1, 1998 to September 30, 1998 was 8.29%.
Within the period shown in the Chart, the Fund's Institutional Service Shares'
highest quarterly return was 17.21% (quarter ended June 30, 1997). Its lowest
quarterly return was -3.84% (quarter ended March 31, 1994).
Average Annual Total Return for the Fund's Institutional Service Shares compared
to the S&P 500 Index (S&P 5 00) for the calendar periods endingDecember 31,
1997.
CALENDAR PERIOD INSTITUTIONAL SERVICE SHARES S&P 500 INDEX
Start of Performance * __ % ..... __%
1 Year ......__ % ....... __%
* Since inception date of September 7, 1993.
The table shows the Institutional Service Shares' total returns averaged over a
period of years relative to the S&P 500 a broad-based market index. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
===================
FEDERATED MAX-CAP FUND
FEES AND EXPENSES ..................
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MAX-CAP FUND'S INSTITUTIONAL SERVICE SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee ..................................................... 0.30%
Distribution (12b-1) Fee............................................ 0.30%
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
-----------
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Max-Cap Fund's Institutional Service Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Federated Max-Cap Fund's
Institutional Service Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Federated Max-Cap Fund's
Institutional Service Shares operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
===================
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $43.4 billion.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
===================
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
===================
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
WHAT DO SHARES COST?
===================
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. NAV is
determined at the end of regular trading (normally 4 p.m. Eastern time) each day
the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
===================
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Class C Shares each representing interests in a single portfolio of
securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different sales charges and other expenses, which affect their performance.
Call 1-800-341-7400 or contact your investment professional for more information
concerning the other classes.
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions or individuals, directly or through
investment professionals. When the Distributor receives sales charges and
marketing fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than shares with different sales charges and marketing fees.
HOW TO PURCHASE SHARES
===================
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund on
the same day and the Fund receives payment within one business day. You will
become the owner of Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
In order to maximize the Fund's ability to track the Index, investors are urged
to transmit purchase requests prior to 2:00 p.m. (Eastern time).
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New
Account Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM SHARES
===================
You should redeem Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). However, in order to
maximize the Fund's ability to track the Index, investors are urged to contact
their investment professional prior to 2 p.m. (Eastern time).
The redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV. However, in order to
maximize the Fund's ability to track the Index, investors are urged to telephone
the Fund prior to 2 p.m. (Eastern time).
BY MAIL. You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed; and
o signatures of all Shareholders exactly as registered.
Call your investment professional the Fund or the Fund if you need special
instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of
record;
w your redemption will be sent to an address of record that was changed
within the last thirty days; or
w a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
===================
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
===================
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .30% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of October 31, 1998, placed
approximately $_______ billion in assets with the Sub-Manager. Since 1973, the
Sub-Manager has developed and managed a family of equity and bond index funds in
which some ___ nationwide non-financial institution clients invest. In total,
the Sub-Manager manages __ commingled/common trust funds. Northern Trust is a
bank-holding company and one of the nation's largest trust institutions with
subsidiaries located across the United States and in several other countries. As
of October 31, 1998, total assets of Northern Trust were $__________ and trust
assets under administration were
$------------.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
===================
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
Financial statements will be filed by amendment.
<PAGE>
43
FEDERATED MAX-CAP FUND
INSTITUTIONAL SERVICE SHARES
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E403
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
PROSPECTUS DECEMBER 31, 1998
FEDERATED MAX-CAP FUND
CLASS C SHARES
A mutual fund seeking to provide investment results that correspond to the
aggregate price and dividend performance of publicly traded common stocks by
duplicating the composition of the Standard & Poor's 500 Composite Stock Price
Index. The Fund is neither sponsored by or affiliated with Standard & Poor's.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
-----------
TABLE OF CONTENTS
-----------
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
<PAGE>
RISK/RETURN SUMMARY
===================
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results that correspond
to the aggregate price and dividend performance of publicly-traded common
stocks, by duplicating the composition of the Standard & Poor's 500 Stock Index
(the "Index").
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Index.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Max-Cap Fund as of the
calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with 0 and increasing in
increments of 5 up to 40.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1991 through 1997 are: 30.01%, 7.22%, 9.52%, 1.22%, 36.63%,
22.75% and 32.69%, respectively.
The total returns shown here are for Institutional Shares which is another class
of shares offered by Federated Max-Cap Fund. Institutional Shares are not
offered in this prospectus for the Fund's Class C Shares. The total returns for
Institutional Shares are disclosed here because Class C Shares have only been
offered since November 10, 1997. These total returns would be substantially
similar to the annual returns for Class C Shares over the same period and would
differ only to the extent that the two classes do not have the same expenses. It
is anticipated that expenses of Class C Shares will exceed those of the
Institutional Shares.
The bar chart shows the variability of the Institutional Shares' actual total
returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
Hence, the total returns displayed above are based upon the net asset value.
The Fund's Institutional Shares' average annual total return from January 1,
1998 to September 30, 1998 was 8.63%.
Within the period shown in the Chart, the Fund's Institutional Shares' highest
quarterly return was 17.39% (quarter ended June 30, 1997). Its lowest quarterly
return was -3.86% (quarter ended March 31, 1994).
<PAGE>
Average Annual Total Return for the Fund's Institutional Shares compared to the
S&P 500 Index (S&P 5 00) for the calendar periods
endingDecember 31, 1997.
CALENDAR PERIOD INSTITUTIONAL SHARES S&P 500 INDEX
Start of Performance * __ % ..... __%
5 Year ......__ % ....... __%
1 Year ......__ % ....... __%
* Since inception date of July 11, 1990.
The table shows the Institutional Shares' total returns averaged over a period
of years relative to the S&P 500 a broad-based market index. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
===================
FEDERATED MAX-CAP FUND
FEES AND EXPENSES ..................
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MAX-CAP FUND'S CLASS C SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) (as
a percentage of average net assets)
Management Fee ..................................................... 0.30%
Distribution (12b-1) Fee............................................ 0.75%
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
-----------
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Max-Cap Fund's Class C Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Federated Max-Cap Fund's
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Federated Max-Cap Fund's Class C Shares
operating expenses are BEFORE WAIVERS as estimated above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
.................................... 1 YEAR 3 YEARS
------ -------
Expenses assuming redemption at the end of each time period
Expenses assuming no redemption..... 1 YEAR 3 YEARS
------ -------
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
===================
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $43.4 billion.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
===================
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
===================
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
WHAT DO SHARES COST?
===================
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open.
<PAGE>
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
---------
MAXIMUM SALES CHARGE
SHARES OFFERED MINIMUM FRONT-END CONTINGENT
INITIAL/SUBSEQUENT SALES CHARGE DEFERRED
INVESTMENT SALES
AMOUNTS(1) CHARGE(2)
---------
---------
CLASS C $1500/$100 None 1.00%
---------
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
(2) See Sales Charge When You Redeem below.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
----------------------------
CLASS C SHARES
----------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
----------------------------
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
(other than a money market fund); opurchased through investment
professionals that did not receive advanced sales payments; or oif you
have certain disabilities as defined by the IRS.
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement; oif your redemption is a required
retirement plan distribution; oupon the death of the shareholder(s) of the
account or the redemption of Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
<PAGE>
HOW IS THE FUND SOLD?
===================
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Class C Shares each representing interests in a single portfolio of
securities.
This prospectus relates only to Class C Shares. Each share class has different
sales charges and other expenses, which affect their performance. Contact your
investment professional or call 1-800-341-7400 for more information concerning
the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class C Shares. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees.
HOW TO PURCHASE SHARES
===================
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within one business day. You
will become the owner of the Shares and receive dividends when the Fund
receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become a shareholder and your Shares will be priced at the NAV on the
day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
===================
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
BY MAIL. You may redeem or exchange Shares by mailing a written request to
the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all Shareholders exactly as registered; and
o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund or if you need special
instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days;
w a redemption is payable to someone other than the shareholder(s) of
record; or
oIF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
<PAGE>
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
w ensure that the Share registrations are identical;
w meet any minimum initial investment requirements; and
w receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. Signatures must be guaranteed if you request a transfer
into another fund with a different shareholder registration. The Fund may modify
or terminate the exchange privilege at any time. The Fund's management or
investment adviser may determine from the amount, frequency and pattern of
exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
===================
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
===================
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .30% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of October 31, 1998, placed
approximately $_______ billion in assets with the Sub-Manager. Since 1973, the
Sub-Manager has developed and managed a family of equity and bond index funds in
which some ___ nationwide non-financial institution clients invest. In total,
the Sub-Manager manages __ commingled/common trust funds. Northern Trust is a
bank-holding company and one of the nation's largest trust institutions with
subsidiaries located across the United States and in several other countries. As
of October 31, 1998, total assets of Northern Trust were $__________ and trust
assets under administration were
$------------.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of securities
the Fund may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities, will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
===================
FINANCIAL INFORMATION
===================
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
Financial statements will be filed by amendment.
<PAGE>
71
FEDERATED MAX-CAP FUND
CLASS C SHARES
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E502
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 31, 1998
FEDERATED MAX-CAP FUND
[A PORTFOLIO OF FEDERATED INDEX TRUST]
INSTITUTIONAL SHARES, INSTITUTIONAL SERVICE SHARES, CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares, Institutional
Service Shares, and Class C Shares of Federated Max-Cap Fund (Fund), dated
December 31, 1998.
Obtain the prospectuses without charge by calling 1-800-341-7400.
-----------
TABLE OF CONTENTS
-----------
HOW IS THE FUND ORGANIZED?
SECURITIES IN WHICH THE FUND INVESTS
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
SUBACCOUNTING SERVICES
REDEMPTION IN KIND
ACCOUNT AND SHARE INFORMATION
TAX INFORMATION
WHO MANAGES AND PROVIDES
SERVICES TO THE FUND?
HOW DOES THE FUND MEASURE PERFORMANCE?
WHO IS FEDERATED INVESTORS, INC.?
INVESTMENT RATINGS
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 31420E403
CUSIP 31420E502
CUSIP 31420E106
[Product Code] (12/98)
HOW IS THE FUND ORGANIZED?
===================
The Fund is a diversified portfolio of Federated Index Trust (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on January 30, 1990. The Trust may
offer separate series of shares representing interests in separate portfolios of
securities. The Trust changed its name from Max-Cap Fund to Federated Max-Cap
Fund on December 5, 1994.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares and Class C
Shares (Shares). This SAI relates to all of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
===================
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES. Corporations typically issue
stocks. Other types of entities may issue securities comparable to common or
preferred stocks. These entities include limited partnerships, limited
liability companies, business trusts and companies organized outside the
United States.
REITS are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. RIGHTS are the same as warrants, except they are
typically issued to existing stockholders.
<PAGE>
FIXED INCOME SECURITIES pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.
AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
DERIVATIVE CONTRACTS are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts in an amount
not to exceed 20% of total net assets.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling
a contract or holding a short position. Futures are considered to be
commodity contracts. The Fund may buy and sell Stock Index futures as a hedge
and not for speculative purposes.
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on the Index, stock index futures contracts, and portfolio
securities (in anticipation of an increase in the value of the underlying
asset).
Buy listed put options on the Index (in anticipation of a decrease in the
value of the underlying asset).
Write listed call options on portfolio securities of securities that the Fund
can purchase without further consideration (or has segregated cash
equivalents for such consideration) the Index (to generate income from
premiums, and in anticipation of a decrease or only limited increase in the
value of the underlying asset). If a call written by a Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Buy or write options to close out existing options positions.
<PAGE>
FOREIGN SECURITIES are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S.
DEPOSITARY RECEIPTS represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security. The
foreign securities underlying American Depositary Receipts (ADRs) are traded in
the U.S. ADRs provide a way to buy shares of foreign-based companies in the U.S.
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally or
outside the U.S. Depositary Receipts involve many of the same risks of investing
directly in foreign securities, including Country Risk and Currency Risk.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
REVERSE REPURCHASE AGREEMENTS are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
Repurchase Agreements are subject to Credit Risk. In addition, Reverse
Repurchase Agreements create Leverage Risk because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
SECURITIES LENDING. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
ASSET COVERAGE. In order to secure its obligations in connection with futures
contracts, and when-issued, and delayed-delivery transactions, the Fund will
"cover" such transactions, as required under applicable interpretations of the
SEC, either by owning the underlying securities; entering into an offsetting
transaction; or segregating, earmarking, or depositing into an escrow account
readily marketable securities in an amount at all times equal to or exceeding
the Fund's commitment with respect to these instruments or contracts. As a
result, use of these instruments will impede the Fund's ability to freely trade
the assets being used to cover them, which could result in harm to the Fund.
INVESTMENT RISKS
The following risks relate to investments in equity securities.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may perform differently than other sectors or as the market as a whole. The more
significant a sector is in the composition of the Index, the more the Fund's
performance will be susceptible to any economic, business or other developments
which generally affect that sector.
RISK OF FOREIGN INVESTING
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
The following risks relate to investments in fixed income securities.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations.
CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
RISK 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. Due to these risk factors, foreign securities may be more
volatile and less liquid than similar securities traded in the U.S.
INVESTMENT LIMITATIONS
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. However, the Fund may purchase
put options on stock index futures, put options on financial futures, and stock
index futures contracts.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures contracts, put
options on stock index futures and put options on financial futures, but may
obtain such short-term credits as are necessary for the clearance of
transactions.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities, the market
value of which does not exceed one-third of the total value of the Fund's
assets. This shall not prevent the purchase or holding of corporate or
government bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objective and policies or the Declaration of
Trust of the Trust.
<PAGE>
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE
TRUST
The Fund will not purchase or retain the securities of any issuer in which the
Officers and Trustees of the Trust or the Fund's investment manager own a
substantial financial interest.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may enter into reverse
repurchase agreements and otherwise borrow up to one-third of the value of its
total assets, including the amount borrowed, as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding. During the period any reverse repurchase agreements are outstanding
the Fund will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements, but only to the extent necessary to assure the completion of the
reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of the total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in the
securities of any one issuer, except U.S. government securities, or invest in
more than 10% of the voting securities of one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
securities of companies in any one industry. However, investing in U.S.
government obligations shall not be considered investing in any one industry.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in the
marketable securities of companies whose business involves the purchase or sale
of real estate or in marketable securities which are secured by real estate or
interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest in securities subject to restrictions on resale under
the federal securities laws, unless the securities are determined by the Fund's
manager to be liquid under criteria established by the Fund's Trustees. The Fund
will not invest more than 5% of its total assets in restricted securities.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put options on
stock indices, unless the securities are held in the Fund's portfolio and not
more than 5% of the value of the Fund's total assets would be invested in
premiums on open put option positions.
ACQUIRING SECURITIES
The Fund will not purchase securities of other investment companies except to
the extent permitted by the Investment Company Act of 1940, or except as part of
a merger, consolidation, or other acquisition. It will not invest in securities
for the purpose of exercising control or management.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities which are
illiquid, including certain restricted securities not determined by the Trustees
to be liquid and repurchase agreements providing for settlement more than seven
days after notice.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the past fiscal year and does not expect to do so
during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
===================
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE (CLASS C SHARES)
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
o of Shares that represent a reinvestment within 120 days of a previous
redemption that was assessed a CDSC;
o of Shares held by the Trustees, employees, and sales representatives of the
Fund, the Manager, the Distributor and their affiliates; employees of any
investment professional that sells Shares pursuant to a sales agreement with
the Distributor; and the immediate family members of the foregoing persons;
and
o of Shares originally purchased through a bank trust department, a registered
investment manager or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
===================
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES AND CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of bank, and registered investment managerss)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Manager or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 1.00% of the NAV of Class C Shares.
SUBACCOUNTING SERVICES
===================
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
===================
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
<PAGE>
MASSACHUSETTS PARTNERSHIP LAW
===================
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
===================
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of October 9, 1998, the following shareholders of record, beneficially, or
both, 5% or more of outstanding Shares: Ingersoll & Co., Brenton National Bank,
Des Moines, Iowa, 7.66% of Class C Shares; PFF Bank and Trust, RPO M K Smith
Chevrolet Inc. 401(k), Claremont, California, 5.46% of Class C Shares; Laurel
Trust Company, Johnstown, Pennsylvania, 21.79% of Class C Shares; Federated
Investors Trust Co., Pittsburgh, Pennsylvania, 5.89% of Class C Shares; Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, 13.69% of
Institutional Shares; Resources Trust Company for the exclusive benefit of
various customers of IMS, Englewood, Colorado, 7.93% of Institutional Service
Shares; andn Fort Wayne National Bank, RPO HWI Restated Employees S & PSP, Fort
Wayne, Indiana, 5.95% of Institutional Service Shares.
TAX INFORMATION
===================
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
===================
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of three funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Manager.As of October 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Institutional
Shares, Institutional Service Shares and Class C Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
-----------
<PAGE>
THOMAS G. BIGLEY
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
JOHN T. CONROY, JR.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
NICHOLAS CONSTANTAKIS
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Partner,
Andersen Worldwide SC.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
<PAGE>
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly: Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
JAMES E. DOWD, ESQ.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
<PAGE>
PETER E. MADDEN
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
WESLEY W. POSVAR
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Akistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
MARJORIE P. SMUTS
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
-----------
<PAGE>
GLEN R. JOHNSON
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
-----------
J. CHRISTOPHER DONAHUE*
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
-----------
EDWARD C. GONZALES
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation fromTrust $0
Compensation from Federated Fund Complex $0
-----------
JOHN W. MCGONIGLE
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
-----------
<PAGE>
RICHARD B. FISHER
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
-----------
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, who conducts investment
research and makes investment decisions for the Fund. The directors of the
Sub-Manager are James M. Snyder, Barry G. Hastings, Perry R. Pero, Sheila A.
Penrose and Jeffrey H. Wessel. The officers of the Sub-manager are James M.
Snyder, Chief Executive Officer and Jeffrey H. Wessel, President.
Subject to the supervision and direction of the Trustees, the Manager provides
to the Fund investment management evaluation services principally by performing
initial due diligence on the Sub-Manager for the Fund and thereafter monitoring
and evaluating the performance of the Sub-Manager through quantitative and
qualitative analyses. In addition, the Manager conducts periodic in-person,
telephonic and written consultations with the Sub-Manager. In initially
evaluating the Sub-Manager, the Manager considered, among other factors, the
Sub-Manager's level of expertise; relative performance over a minimum period of
five years; level of efficiency; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. On an ongoing basis, the Manager is responsible for
communicating performance expectations and evaluations to the Sub-Manager;
monitoring tracking errors; monitoring and analyzing the use of futures
contracts; monitoring the futures holdings of the Fund as a percentage of Fund
assets; monitoring market timing in the Fund; discussing with the Sub-Manager
the portfolio sampling techniques employed by the Sub-Manager; defining with the
Sub-Manager the universe of stocks that comprise the small capitalization sector
of the United States equity market; and ultimately recommending to the Trustees
whether the Sub-Management Contract should be renewed, modified or terminated.
The Manager provides written reports to the Trustees regarding the results of
its evaluation and monitoring functions. In addition, the Manager is responsible
for providing the Fund with administrative services, including, but not limited
to, shareholder servicing and certain legal and accounting services. The Manager
is also responsible for conducting all operations of the Fund, except those
operations contracted to the Sub-Manager, custodian, transfer agent and dividend
disbursing agent. As described below, the Manager receives an annual fee from
the Fund for performing its responsibilities under the Management Contract.
The Manager and the Sub-Manager shall not be liable to the Trust, the Fund, or
any Fund shareholder for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
The Manager and the Sub-Manager shall not be liable to the Trust, the Fund, or
any Fund shareholder for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES. Affiliates of the Manager may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
<PAGE>
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
OCTOBER 31,
1998 1997 1996
Management Fee Earned..........$............$.............$
Management Fee Reduction.......$............$.............$
Sub-Management Fee.............$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Institutional Service Shares............$
Class C Shares.............$
Shareholder Services Fee.......$
Institutional Shares.......$
Institutional Service Shares............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
===================
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998. Yield given for the 30-day period ended OCTOBER 31, 1998.
-----------------------
INSTITUTIONAINSTITUTIONAL CLASS C
SHARES SERVICE SHARES
SHARES
-----------------------
-----------------------
TOTAL RETURN
-----------------------
-----------------------
One Year: % % N/A
Five Year: % % N/A
Since Inception: %* %* %*
-----------------------
-----------------------
YIELD
-----------------------
-----------------------
% % %
-----------------------
*Institutional Shares inception date was July 2, 1990. Institutional Service
Shares inception date was September 6, 1993. Class C Shares inception date was
November 10, 1997.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
information including, but not limited to, international financial and economic
data.
DOW JONES INDUSTRIAL AVERAGE (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
LIPPER ANALYTICAL SERVICES, INC. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
MORNINGSTAR, INC. An independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
WHO IS FEDERATED INVESTORS, INC.?
===================
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
EQUITY FUNDS. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
CORPORATE BOND FUNDS. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
GOVERNMENT FUNDS. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
MONEY MARKET FUNDS. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
<PAGE>
STANDARD & POOR'S
===================
The Fund is not sponsored, endorsed, sold or promoted by, or affiliated with,
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or
implied, to the owners of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Fund particularly or
the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to Federated Securities Corp. (the "Licensee") is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the
Licensee or the Fund. S&P has no obligation to take the needs of the Licensee or
the owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of, the timing of, prices at, or quantities of
the Fund to be issued or in the determination or calculation of the equation by
which the Fund is to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein. S&P makes no warranty, express or implied, as to
results to be obtained by Licensee, owners of the Fund, or any other person or
entity from the use of the S&P 500 Index or any data included therein in
connection with the rights licensed hereunder or for any other use. S&P makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified of
the possibility of such damages.
<PAGE>
85
ADDRESSES
===================
FEDERATED MAX-CAP FUND
Institutional Shares
Institutional Service Shares Federated Investors Funds
Class C Shares 5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
-----------
Distributor
FEDERATED SECURITIES CORP. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
-----------
Investment Manager
FEDERATED MANAGEMENT Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Sub-Manager 50 North LaSalle Street
NORTHERN TRUST QUANTITATIVE ADVISORS, INC. Chicago, Illinois 60690
Custodian
STATE STREET BANK AND TRUST COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
ERNST & YOUNG LLP One Oxford Centre
Pittsburgh, PA 15219
-----------
PROSPECTUS DECEMBER 31, 1998
FEDERATED MID-CAP FUND
A mutual fund seeking to provide investment results generally corresponding to
the aggregate price and dividend performance of publicly traded common stocks
comprising the Standard & Poor's MidCap 400 Index. The Fund is neither sponsored
by or affiliated with Standard & Poor's.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
-----------
TABLE OF CONTENTS
-----------
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
<PAGE>
RISK/RETURN SUMMARY
===================
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment generally corresponding
to the aggregate price and dividend performance of the publicly-traded common
stocks that comprise the mid-level stock capitalization sector of the United
States equity market.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Standard & Poor's MidCap 400 Index (the "Index").
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns Federated Mid-Cap Fund as of the calendar year-end for each
of five years.
The `y' axis reflects the "% Total Return" beginning with -5 and increasing in
increments of 0 up to35.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1997. The light gray shaded chart features seven distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1993 through 1997 are:
11.21%, -4.29%, 29.02%, 18.27% and 31.05%, respectively.
The bar chart shows the variability of the Fund's actual total returns on a
yearly basis.
The Fund is not sold subject to a sales charge (load). Hence, the total returns
displayed above are based upon the net asset value.
The Fund's average annual total return from January 1, 1998 to September
30, 1998 was -7.06%.
Within the period shown in the Chart, the Fund's highest quarterly return was
15.86% (quarter ended September 30, 1997). Its lowest quarterly return was
- -3.95% (quarter ended June 30, 1994).
Average Annual Total Return for the Fund compared to the S&P 500 Index (S&P 5
00) for the calendar periods ending December 31, 1997.
CALENDAR PERIOD...FUND S&P 500 INDEX
Start of Performance * __ % ..... __%
5 Year ............__ % ....... __%
1 Year ............__ % ....... __%
* Since inception date of November 5, 1992.
The table shows the Fund's total returns averaged over a period of years
relative to the S&P 500 a broad-based market index. While past performance does
not necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
===================
FEDERATED MID-CAP FUND
FEES AND EXPENSES...................
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MID-CAP FUND.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee ..................................................... 0.40%
Distribution (12b-1) Fee............................................ None
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
-----------
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Mid-Cap Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Federated Mid-Cap Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Federated Mid-Cap Fund's operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
===================
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $2.8 billion.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
===================
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
===================
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
WHAT DO SHARES COST?
===================
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. NAV is
determined at the end of regular trading (normally 4 p.m. Eastern time) each day
the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
===================
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions acting on behalf of their customers or to
individuals directly or through investment professionals. When the Distributor
receives sales charges and marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
HOW TO PURCHASE SHARES
===================
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund on
the same day and the Fund receives payment within one business day. You will
become the owner of Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New
Account Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
<PAGE>
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM SHARES
===================
You should redeem Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time).
The redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
<PAGE>
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV.
BY MAIL. You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed; and
o signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of
record;
w your redemption will be sent to an address of record that was changed
within the last thirty days; or
w a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
===================
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, the
shareholder will be notified and allowed 30 days to purchase additional Shares
to meet the minimum.
<PAGE>
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax preparer regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
===================
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .40% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of [insert most recent date for which
data is available] placed approximately $_______ billion in assets with the
Sub-Manager. Since 1973, the Sub-Manager has developed and managed a family of
equity and bond index funds in which some ___ nationwide non-financial
institution clients invest. In total, the Sub-Manager manages __
commingled/common trust funds. Northern Trust is a bank-holding company and one
of the nation's largest trust institutions with subsidiaries located across the
United States and in several other countries. As of October 31, 1998, total
assets of Northern Trust were $__________ and trust assets under administration
were $____________.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
===================
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements will be filed by amendment.)
<PAGE>
FEDERATED MID-CAP FUND
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E205
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
22
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 31, 1998
FEDERATED MID-CAP FUND
[A PORTFOLIO OF FEDERATED INDEX TRUST]
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus of Federated Mid-Cap Fund (Fund), dated
December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
----------------
TABLE OF CONTENTS
----------------
HOW IS THE FUND ORGANIZED?
SECURITIES IN WHICH THE FUND INVESTS
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
SUBACCOUNTING SERVICES
REDEMPTION IN KIND
ACCOUNT AND SHARE INFORMATION
TAX INFORMATION
WHO MANAGES AND PROVIDES
SERVICES TO THE FUND?
HOW DOES THE FUND MEASURE PERFORMANCE?
WHO IS FEDERATED INVESTORS, INC.?
INVESTMENT RATINGS
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 31420E205
[Product Code](12/98)
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HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Index Trust (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on January 30, 1990. On December 5,
1994, the Trustees changed the name of the Fund from Mid-Cap Fund to the
Federated Mid-Cap Fund. The Trust may offer separate series of shares
representing interests in separate portfolios of securities.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES. Corporations typically issue
stocks. Other types of entities may issue securities comparable to common or
preferred stocks. These entities include limited partnerships, limited
liability companies, business trusts and companies organized outside the
United States.
REITS are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. RIGHTS are the same as warrants, except they are
typically issued to existing stockholders.
FIXED INCOME SECURITIES pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.
AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
DERIVATIVE CONTRACTS are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts in an amount
not to exceed 20% of total net assets.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling
a contract or holding a short position. Futures are considered to be
commodity contracts. The Fund may buy and sell Stock Index futures as a hedge
and not for speculative purposes.
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on the Index (in anticipation of an increase in the value of
the underlying asset).
Buy listed put options on the Index, stock index futures contracts, and
portfolio securities (in anticipation of a decrease in the value of the
underlying asset).
Write listed call options on portfolio securities of securities that the Fund
can purchase without further consideration (or has segregated cash
equivalents for such consideration) the Index (to generate income from
premiums, and in anticipation of a decrease or only limited increase in the
value of the underlying asset). If a call written by a Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Buy or write options to close out existing options positions.
FOREIGN SECURITIES are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S.
DEPOSITARY RECEIPTS represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security. The
foreign securities underlying American Depositary Receipts (ADRs) are traded in
the U.S. ADRs provide a way to buy shares of foreign-based companies in the U.S.
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally or
outside the U.S. Depositary Receipts involve many of the same risks of investing
directly in foreign securities, including Country Risk and Currency Risk.
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SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
REVERSE REPURCHASE AGREEMENTS are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
Repurchase Agreements are subject to Credit Risk. In addition, Reverse
Repurchase Agreements create Leverage Risk because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
SECURITIES LENDING. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
ASSET COVERAGE. In order to secure its obligations in connection with futures
contracts, and when-issued, and delayed-delivery transactions, the Fund will
"cover" such transactions, as required under applicable interpretations of the
SEC, either by owning the underlying securities; entering into an offsetting
transaction; or segregating, earmarking, or depositing into an escrow account
readily marketable securities in an amount at all times equal to or exceeding
the Fund's commitment with respect to these instruments or contracts. As a
result, use of these instruments will impede the Fund's ability to freely trade
the assets being used to cover them, which could result in harm to the Fund.
INVESTMENT RISKS
The following risks relate to investments in equity securities.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than more
widely held securities. This limits trading opportunity making it more difficult
to sell or buy the securities at a favorable price or time. In response, the
fund may have to lower the price, sell other securities, or give up an
investment opportunity, any of which could have a negative effect on its
performance. Infrequent trading may also lead to greater price volatility.
RISK OF FOREIGN INVESTING
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
The following risks relate to investments in fixed income securities.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations.
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CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
RISK 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. Due to these risk factors, foreign securities may be more
volatile and less liquid than similar securities traded in the U.S.
INVESTMENT LIMITATIONS
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. However, the Fund may purchase
stock index futures contracts and put options on stock indices and stock index
futures contracts to the extent that not more than 5% of the Fund's total assets
are required as initial margin deposit for futures contracts and not more than
20% of the Fund's total net assets are invested in futures contracts and options
at any time.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures contracts and
put options on stock index futures contracts, but may obtain such short-term
credits as are necessary for the clearance of transactions.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market instruments,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities; entering into repurchase agreements; or engaging in other
transactions where permitted by the Fund's investment objective and policies and
the Declaration of Trust of the Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed. The Fund will not
borrow money or engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in the
securities of any one issuer, except U.S. government securities, or invest in
more than 10% of the voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
securities of companies in any one industry. However, investing in U.S.
government obligations shall not be considered investing in any one industry.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including partnership interests in
real estate, although it may invest in securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will limit its investment in restricted securities to 5% of the value
of its total assets in securities subject to restrictions on resale under the
Securities Act of 1933.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put options on
stock, stock indices and stock index futures contracts, unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the Fund's
total assets would be invested in premiums on open put option positions and not
more than 20% of the Fund's total net assets are invested in put options and
futures contracts at any time.
ACQUIRING SECURITIES
The Fund will not purchase securities of other investment companies except to
the extent permitted by the Investment Company Act of 1940, or except as part of
a merger, consolidation, or other acquisition. It will not invest in securities
for the purpose of exercising control or management.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities which are
illiquid, including certain restricted securities not determined by the Trustees
to be liquid and repurchase agreements providing for settlement more than seven
days after notice.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the past fiscal year and does not expect to do so
during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Manager or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Charles Schwab & Co. Inc., San
Francisco, California, 12.59% of Shares; Covie Co., Covenant Trust Company,
Chicago, Illinois, 11.04% of Shares; Firnaticia, First National Bank of Iowa
City, Iowa City, Iowa, 5.08% of Shares; and Resources Trust Company, for the
exclusive benefit of various customers of IMS, Englewood, Colorado, 5.33% of
Shares.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of three funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Manager.As of October 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
----------------
<PAGE>
THOMAS G. BIGLEY
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
JOHN T. CONROY, JR.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
NICHOLAS CONSTANTAKIS
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Partner,
Andersen Worldwide SC.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
<PAGE>
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly: Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
JAMES E. DOWD, ESQ.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
<PAGE>
PETER E. MADDEN
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
WESLEY W. POSVAR
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Akistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
MARJORIE P. SMUTS
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
<PAGE>
GLEN R. JOHNSON
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
----------------
J. CHRISTOPHER DONAHUE*
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F.
Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
----------------
EDWARD C. GONZALES
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation fromTrust $0
Compensation from Federated Fund Complex $0
----------------
JOHN W. MCGONIGLE
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
----------------
<PAGE>
RICHARD B. FISHER
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
----------------
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, who conducts investment
research and makes investment decisions for the Fund. The directors of the
Sub-Manager are James M. Snyder, Barry G. Hastings, Perry R. Pero, Sheila A.
Penrose and Jeffrey H. Wessel. The officers of the Sub-manager are James M.
Snyder, Chief Executive Officer and Jeffrey H. Wessel, President.
Subject to the supervision and direction of the Trustees, the Manager provides
to the Fund investment management evaluation services principally by performing
initial due diligence on the Sub-Manager for the Fund and thereafter monitoring
and evaluating the performance of the Sub-Manager through quantitative and
qualitative analyses. In addition, the Manager conducts periodic in-person,
telephonic and written consultations with the Sub-Manager. In initially
evaluating the Sub-Manager, the Manager considered, among other factors, the
Sub-Manager's level of expertise; relative performance over a minimum period of
five years; level of efficiency; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. On an ongoing basis, the Manager is responsible for
communicating performance expectations and evaluations to the Sub-Manager;
monitoring tracking errors; monitoring and analyzing the use of futures
contracts; monitoring the futures holdings of the Fund as a percentage of Fund
assets; monitoring market timing in the Fund; discussing with the Sub-Manager
the portfolio sampling techniques employed by the Sub-Manager; defining with the
Sub-Manager the universe of stocks that comprise the small capitalization sector
of the United States equity market; and ultimately recommending to the Trustees
whether the Sub-Management Contract should be renewed, modified or terminated.
The Manager provides written reports to the Trustees regarding the results of
its evaluation and monitoring functions. In addition, the Manager is responsible
for providing the Fund with administrative services, including, but not limited
to, shareholder servicing and certain legal and accounting services. The Manager
is also responsible for conducting all operations of the Fund, except those
operations contracted to the Sub-Manager, custodian, transfer agent and dividend
disbursing agent. As described below, the Manager receives an annual fee from
the Fund for performing its responsibilities under the Management Contract.
The Manager and the Sub-Manager shall not be liable to the Trust, the Fund, or
any Fund shareholder for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES. Affiliates of the Manager may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated Investors in advising other accounts. To the extent that receipt of
these services may replace services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The Adviser
and its affiliates exercise reasonable business judgment in selecting those
brokers who offer brokerage and research services to execute securities
transactions. They determine in good faith that commissions charged by such
persons are reasonable in relationship to the value of the brokerage and
research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
OCTOBER 31,
1998 1997 1996
Management Fee Earned..........$............$.............$
Management Fee Reduction.......$............$.............$
Sub-Management Fee.............$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
Shareholder Services Fee.......$
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998. Yield given for the 30-day period ended OCTOBER 31, 1998.
--
TOTAL RETURN YIELD
--
--
One Year: % %
Five Year: %
Since Inception
(November 5, 1992): %
--
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
MORNINGSTAR, INC. An independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
RUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.
WILSHIRE 5000 EQUITY INDEXES consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds WHOSE PORTFOLIOS ARE INVESTED
PRIMARILY IN COMMON STOCKS.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
EQUITY FUNDS. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
CORPORATE BOND FUNDS. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
GOVERNMENT FUNDS. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
MONEY MARKET FUNDS. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
STANDARD & POOR'S
"Standard and Poor's," "S&P," "S&P MidCap 400 Index," and "Standard & Poor's
MidCap 400 Index" are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use by Federated Securities Corp. The Fund is not sponsored,
endorsed, sold, or promoted by S&P, and S&P makes no representation regarding
the advisability of investing in the Fund.
<PAGE>
35
ADDRESSES
FEDERATED MID-CAP FUND
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
FEDERATED SECURITIES CORP. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Manager
FEDERATED MANAGEMENT Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Sub-Manager 50 North LaSalle Street
NORTHERN TRUST QUANTITATIVE ADVISORS, INC. Chicago, Illinois 60690
Custodian
STATE STREET BANK AND TRUST COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
ERNST & YOUNG LLP One Oxford Centre
Pittsburgh, PA 15219
PROSPECTUS DECEMBER 31, 1998
FEDERATED MINI-CAP FUND
INSTITUTIONAL SHARES
A mutual fund seeking to provide investment results generally corresponding to
the aggregate price and dividend performance of publicly traded common stocks
comprising the Russell 2000(R) Index (Index).
The Fund is neither affiliated with nor promoted, sponsored, or endorsed by the
Frank Russell Company. Frank Russell's only relationship to the Fund is the
licensing of the use of the Index. Frank Russell Company is the owner of the
trademarks and copyrights relating to the Index. The Russell 2000(R) Index is a
trademark/service mark of the Frank Russell Company. Russell(TM) is a trademark
of the Frank Russell Company. Frank Russell Company is not responsible for and
has not reviewed the Fund or any associated literature or publications and Frank
Russell Company makes no representation or warranty, express or implied, as to
their accuracy, or completeness, or otherwise.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results that generally
correspond to the aggregate price and dividend performance of the approximately
2,000 publicly traded common stocks that are ranked in terms of capitalization
below the top 1,000 stocks that comprise the large and mid-range capitalization
sector of the United States equity market.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Russell 2000(R) Index (the "Index").
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Mini-Cap Fund as of
the calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with -5 and increasing in
increments of 5 up to 30.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1993 through 1997 are: 15.29%, -2.84%, 26.34%, 15.31% and 20.26%,
respectively.
The bar chart shows the variability of the Institutional Shares' actual total
returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
Hence, the total returns displayed above are based upon the net asset value.
The Fund's Institutional Shares' average annual total return from January 1,
1998 to September 30, 1998 was 20.26%.
Within the period shown in the Chart, the Fund's Institutional Shares' highest
quarterly return was 15.83% (quarter ended June 30, 1997). Its lowest quarterly
return was -5.62% (quarter ended March 31, 1997).
Average Annual Total Return for the Fund's Institutional Shares compared to the
S&P 500 Index (S&P 5 00) for the calendar periods ending
December 31, 1997.
CALENDAR PERIOD...INSTITUTIONAL SHARES S&P 500 INDEX
Start of Performance * __ % __%
5 Year ............__ % __%
1 Year ............__ % __%
* Since inception date of August 11, 1992.
The table shows the Institutional Shares' total returns averaged over a period
of years relative to the S&P 500 a broad-based market index. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED MINI-CAP FUND
FEES AND EXPENSES.......
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MINI-CAP FUND'S INSTITUTIONAL SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee ..................................................... 0.50%
Distribution (12b-1) Fee............................................ None
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Mini-Cap Fund's Institutional Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Federated Mini-Cap Fund's
Institutional Shares for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Federated Mini-Cap Fund's
Institutional Shares operating expenses are BEFORE WAIVERS as estimated above
and remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $613 million.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
<PAGE>
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. NAV is
determined at the end of regular trading (normally 4 p.m. Eastern time) each day
the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Class C Shares each
representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different sales charges and other expenses, which affect their performance. Call
1-800-341-7400 or contact your investment professional for more information
concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions investing on behalf of their customers or to
individuals directly or through investment professionals. When the Distributor
receives sales charges and marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund on
the same day and the Fund receives payment within one business day. You will
become the owner of the Shares and receive dividends when the Fund receives your
payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New
Account Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become a shareholder and your Shares will be priced at the NAV on the
day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the
Fund and the Shares will be priced at the NAV on the day the Fund receives the
order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to
someone other than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser.
You may be charged an annual IRA account fee.
HOW TO REDEEM SHARES
You should redeem Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time).
The redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV.
<PAGE>
BY MAIL. You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed; and
o signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of
record;
w your redemption will be sent to an address of record that was changed
within the last thirty days; or
w a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that
is an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
<PAGE>
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
<PAGE>
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .50% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of October 31, 1998, placed
approximately $_______ billion in assets with the Sub-Manager. Since 1973, the
Sub-Manager has developed and managed a family of equity and bond index funds in
which some ___ nationwide non-financial institution clients invest. In total,
the Sub-Manager manages __ commingled/common trust funds. Northern Trust is a
bank-holding company and one of the nation's largest trust institutions with
subsidiaries located across the United States and in several other countries. As
of October 31, 1998, total assets of Northern Trust were $__________ and trust
assets under administration were $____________.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements will be filed by amendment.)
<PAGE>
50
FEDERATED MINI-CAP FUND
INSTITUTIONAL SHARES
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E304
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
PROSPECTUS DECEMBER 31, 1998
FEDERATED MINI-CAP FUND
CLASS C SHARES
A mutual fund seeking to provide investment results generally corresponding to
the aggregate price and dividend performance of publicly traded common stocks
comprising the Russell 2000(R) Index (Index).
The Fund is neither affiliated with nor promoted, sponsored, or endorsed by the
Frank Russell Company. Frank Russell's only relationship to the Fund is the
licensing of the use of the Index. Frank Russell Company is the owner of the
trademarks and copyrights relating to the Index. The Russell 2000(R) Index is a
trademark/service mark of the Frank Russell Company. Russell(TM) is a trademark
of the Frank Russell Company. Frank Russell Company is not responsible for and
has not reviewed the Fund or any associated literature or publications and Frank
Russell Company makes no representation or warranty, express or implied, as to
their accuracy, or completeness, or otherwise.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS? WHAT ARE THE
SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results that generally
correspond to the aggregate price and dividend performance of the approximately
2,000 publicly traded common stocks that are ranked in terms of capitalization
below the top 1,000 stocks that comprise the large and mid-range capitalization
sector of the United States equity market.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the common stocks comprising the
Russell 2000 Index (the "Index").
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Mini-Cap Fund as of
the calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with -5 and increasing in
increments of 5 up to 30.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
December 31, 1997. The light gray shaded chart features seven distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1993 through 1997 are: 15.29%, -2.84%, 26.34%, 15.31% and 20.26%,
respectively.
The total returns shown here are for Institutional Shares which is another class
of shares offered by Federated Mini-Cap Fund. Institutional Shares are not
offered in this prospectus for the Fund's Class C Shares. The total returns for
Institutional Shares are disclosed here because Class C Shares have only been
offered since November 10, 1997. These total returns would be substantially
similar to the annual returns for Class C Shares over the same period and would
differ only to the extent that the two classes do not have the same expenses. It
is anticipated that expenses of Class C Shares will exceed those of the
Institutional Shares.
The bar chart shows the variability of the Institutional Shares' actual total
returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
Hence, the total returns displayed above are based upon the net asset value.
The Fund's Institutional Shares' average annual total return from January 1,
1998 to September 30, 1998 was 20.26%.
Within the period shown in the Chart, the Fund's Institutional Shares' highest
quarterly return was 15.83% (quarter ended June 30, 1997). Its lowest quarterly
return was -5.62% (quarter ended March 31, 1997).
<PAGE>
Average Annual Total Return for the Fund's Institutional Shares compared to the
S&P 500 Index (S&P 5 00) for the calendar periods
endingDecember 31, 1997.
CALENDAR PERIOD INSTITUTIONAL SHARES S&P 500 INDEX
Start of Performance * __ % ..... __%
5 Year ......__ % ....... __%
1 Year ......__ % ....... __%
* Since inception date of August 11, 1992.
The table shows the Institutional Shares' total returns averaged over a period
of years relative to the S&P 500 a broad-based market index. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED MINI-CAP FUND
FEES AND EXPENSES ..................
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FEDERATED MINI-CAP FUND'S CLASS C SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as applicable)..................... 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Maximum Account Fee................................................. None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee ..................................................... 0.50%
Distribution (12b-1) Fee............................................ 0.75%
Other Expenses .....................................................
Shareholder Services Fee .......................... 0.25%
Total Annual Fund Operating Expenses (before waivers)...............
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (1)(2)......................................
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).........
(1) The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was _____% for the year ended October 31,
1998.
(2) The distribution (12b-1) fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The distribution (12b-1) fee paid by
the Fund (after the voluntary reduction) was ______% for the year ended October
31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Federated Mini-Cap Fund's Class C Shares with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Federated Mini-Cap Fund's
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Federated Mini-Cap Fund's Class C Shares
operating expenses are BEFORE WAIVERS as estimated above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
.................................... 1 YEAR 3 YEARS
------ -------
Expenses assuming redemption at the end of each time period
Expenses assuming no redemption..... 1 YEAR 3 YEARS
------ -------
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing in the stocks of the
Index in the same weights as the Index. This is called a "full replication"
strategy. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. As of September 30,
1998, the weighted median market capitalization of the Fund was $613 million.
The Fund purchases Index futures contracts in order to more closely track the
performance of the Index, while maintaining cash equivalent positions as
necessary for the Fund's operations.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
STOCK INDEX FUTURES provide for the future sale by one party and purchase by
another party of a specified amount of an Index at a price, date, and time
specified when the contract is made. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Futures are considered to be commodity contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
<PAGE>
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
---------
MAXIMUM SALES CHARGE
SHARES OFFERED MINIMUM FRONT-END CONTINGENT
DEFERRED
INITIAL/SUBSEQUENT SALES CHARGE SALES
CHARGE(2)
INVESTMENT
AMOUNTS(1)
---------
---------
CLASS C $1500/$100 None 1.00%
---------
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amount for
Systematic Investment Programs is $50. Investment professionals may impose
higher or lower minimum investment requirements on their customers than those
imposed by the Fund.
(2) See Sales Charge When You Redeem below.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
----------------------------
CLASS C SHARES
----------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
----------------------------
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
(other than a money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or
oif you have certain disabilities as defined by the IRS.
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing
to meet the minimum balance requirement;
oif your redemption is a required retirement plan distribution;
oupon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, WE SELL YOUR SHARES IN THE
FOLLOWING ORDER:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of otherFederated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Class C Shares each
representing interests in a single portfolio of securities.
This prospectus relates only to Class C Shares. Each share class has different
sales charges and other expenses, which affect their performance. Call
1-800-341-7400 or contact your investment professional for more information
concerning the other class.
The Fund's Distributor, Federated Securities Corp. markets the Shares
described in this prospectus to institutions or individuals, directly or through
investment professionals. When the Distributor receives sales charges and
marketing fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class C Shares. Because these Shares pay
marketing fees on an ongoing basis, your investment cost may be higher over time
than other shares with different sales charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and
w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser.
You may be charged an annual IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
BY MAIL. You may redeem or exchange Shares by mailing a written request to the
Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all Shareholders exactly as registered; and
o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days;
w a redemption is payable to someone other than the shareholder(s) of
record; or
w IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
<PAGE>
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
w ensure that the Share registrations are identical;
w meet any minimum initial investment requirements; and
w receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. The Fund may modify or terminate the exchange privilege at
any time. The Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
<PAGE>
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Management. The Manager, in turn, oversees the management of
the Fund's assets by the Sub-Manager, Northern Trust Quantitative Advisors, Inc.
The Manager's responsibilities include selecting the Sub-Manager and continued
review and evaluation of the Sub-Manager's performance. The Manager's address is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Manager and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Manager receives an annual management fee equal to .50% of the Fund's
average daily net assets. The Manager may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
The Manager delegates daily management of the Fund assets to the Sub-Manager,
who is paid by the Manager and not by the Fund, based on net assets under
management. The Sub-Manager develops, maintains and runs the computer program
designed to determine which securities are purchased and sold to replicate the
composition of the Index. The Sub-Manager has complete discretion, subject to
the Manager's oversight, to purchase and sell portfolio securities for the Fund.
The Sub-Manager's address is 50 North LaSalle Street , Chicago, IL 60690.
The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans. These plans have, as of October 31, 1998, placed
approximately $_______ billion in assets with the Sub-Manager. Since 1973, the
Sub-Manager has developed and managed a family of equity and bond index funds in
which some ___ nationwide non-financial institution clients invest. In total,
the Sub-Manager manages __ commingled/common trust funds. Northern Trust is a
bank-holding company and one of the nation's largest trust institutions with
subsidiaries located across the United States and in several other countries. As
of October 31, 1998, total assets of Northern Trust were $__________ and trust
assets under administration were $____________.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements will be filed by amendment.)
<PAGE>
5
FEDERATED MINI-CAP FUND
CLASS C SHARES
[A PORTFOLIO OF FEDERATED INDEX TRUST]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
INVESTMENT COMPANY ACT FILE NO. 811-6061
CUSIP 31420E601
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
_______________ (12/98) [PRODUCT CODE]
FEDERATED SECURITIES CORP., DISTRIBUTOR
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 31, 1998
FEDERATED MINI-CAP FUND
[A PORTFOLIO OF FEDERATED INDEX TRUST]
INSTITUTIONAL SHARES, CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares and Class C
Shares of Federated Mini-Cap Fund (Fund), dated December 31, 1998. Obtain the
prospectuses without charge by calling 1-800-341-7400.
TABLE OF CONTENTS
HOW IS THE FUND ORGANIZED?
SECURITIES IN WHICH THE FUND INVESTS
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
SUBACCOUNTING SERVICES
REDEMPTION IN KIND
ACCOUNT AND SHARE INFORMATION
TAX INFORMATION
WHO MANAGES AND PROVIDES
SERVICES TO THE FUND?
HOW DOES THE FUND MEASURE PERFORMANCE?
WHO IS FEDERATED INVESTORS, INC.?
INVESTMENT RATINGS
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 31420E601
CUSIP 31420E304
[Product Code] (12/98)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Index Trust (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on January 30, 1990. On December 5,
1994, the Trustees changed the name of the Fund from Mini-Cap Fund to the
Federated Mini-Cap Fund. The Trust may offer separate series of shares
representing interests in separate portfolios of securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares and Class C Shares (Shares). This SAI
relates to all of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES. Corporations typically issue
stocks. Other types of entities may issue securities comparable to common or
preferred stocks. These entities include limited partnerships, limited
liability companies, business trusts and companies organized outside the
United States.
REITS are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. RIGHTS are the same as warrants, except they are
typically issued to existing stockholders.
FIXED INCOME SECURITIES pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.
AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
DERIVATIVE CONTRACTS are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts in an amount
not to exceed 20% of total net assets.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling
a contract or holding a short position. Futures are considered to be
commodity contracts. The Fund may buy and sell Stock Index futures as a hedge
and not for speculative purposes.
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on the Index (in anticipation of an increase in the value of
the underlying asset).
Buy listed put options on the Index, stock index futures contracts, and
portfolio securities (in anticipation of a decrease in the value of the
underlying asset).
Write listed call options on portfolio securities of securities that the Fund
can purchase without further consideration (or has segregated cash
equivalents for such consideration) the Index (to generate income from
premiums, and in anticipation of a decrease or only limited increase in the
value of the underlying asset). If a call written by a Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Buy or write options to close out existing options positions.
<PAGE>
FOREIGN SECURITIES are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S.
DEPOSITARY RECEIPTS represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security. The
foreign securities underlying American Depositary Receipts (ADRs) are traded in
the U.S. ADRs provide a way to buy shares of foreign-based companies in the U.S.
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally or
outside the U.S. Depositary Receipts involve many of the same risks of investing
directly in foreign securities, including Country Risk and Currency Risk.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
REVERSE REPURCHASE AGREEMENTS are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
Repurchase Agreements are subject to Credit Risk. In addition, Reverse
Repurchase Agreements create Leverage Risk because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
SECURITIES LENDING. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
ASSET COVERAGE. In order to secure its obligations in connection with futures
contracts, and when-issued, and delayed-delivery transactions, the Fund will
"cover" such transactions, as required under applicable interpretations of the
SEC, either by owning the underlying securities; entering into an offsetting
transaction; or segregating, earmarking, or depositing into an escrow account
readily marketable securities in an amount at all times equal to or exceeding
the Fund's commitment with respect to these instruments or contracts. As a
result, use of these instruments will impede the Fund's ability to freely trade
the assets being used to cover them, which could result in harm to the Fund.
INVESTMENT RISKS
The following additional risks relate to investments in equity securities.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. This will result in changes in
the Fund's share price.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies will similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. The more significant a sector is in the composition of the Index, the
more the Fund's performance will be susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than more
widely held securities. This limits trading opportunity making it more difficult
to sell or buy the securities at a favorable price or time. In response, the
fund may have to lower the price, sell other securities, or give up an
investment opportunity, any of which could have a negative effect on its
performance. Infrequent trading may also lead to greater price volatility.
RISK OF FOREIGN INVESTING
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
The following risks relate to investments in fixed income securities.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations.
CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
RISK 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. Due to these risk factors, foreign securities may be more
volatile and less liquid than similar securities traded in the U.S.
<PAGE>
INVESTMENT LIMITATIONS
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. However, the Fund may purchase
stock index futures contracts and put options on stock indices and stock index
futures contracts to the extent that not more than 5% of the Fund's total assets
are required as initial margin deposit for futures contracts and not more than
20% of the Fund's total net assets are invested in futures and options at any
time.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures contracts and
put options on stock index futures contracts, but may obtain such short-term
credits as are necessary for the clearance of transactions.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market instruments,
bonds, debentures, notes, certificates of indebtedness or other debt securities,
entering into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective and policies and the Declaration of
Trust of the Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed. The Fund will not
borrow money or engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in the
securities of any one issuer, except U.S. government securities, or invest in
more than 10% of the voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
securities of companies in any one industry. However, investing in U.S.
government obligations shall not be considered investing in any one industry.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including partnership interests in
real estate, although it may invest in securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will limit its investment in restricted securities to 5% of the value
of its total assets in securities subject to restrictions on resale under the
Securities Act of 1933.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put options on
stock, stock indices and stock index futures contracts, unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the Fund's
total assets would be invested in premiums on open put option positions and not
more than 20% of the Fund's total net assets are invested in put options and
future contracts at any time.
ACQUIRING SECURITIES
The Fund will not purchase securities of other investment companies except to
the extent permitted by the Investment Company Act of 1940, or except as part of
a merger, consolidation, or other acquisition. It will not invest in securities
for the purpose of exercising control or management.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities which are
illiquid, including repurchase agreements providing for settlement more than
seven days after notice.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE (CLASS C SHARES)
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;
o of Shares that represent a reinvestment within 120 days of a previous
redemption that was assessed a CDSC;
o of Shares held by the Trustees, employees, and sales representatives of the
Fund, the Manager, the Distributor and their affiliates; employees of any
investment professional that sells Shares pursuant to a sales agreement with
the Distributor; and the immediate family members of the foregoing persons;
and
o of Shares originally purchased through a bank trust department, a registered
investment manager or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
<PAGE>
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of bank, and registered investment managerss)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Manager or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 1.00% of the NAV of C Shares.
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Merrill Lynch Pierce Fenner & Smith,
for the sole benefit of its customers, Jacksonville, Florida, 22.93% of Class C
Shares; Painewebber, for the benefit of Bertch Cabinet Mfg. Inc., Waterloo,
Iowa, 24.50% of Class C Shares; John Jay Hanson, Minneapolis, Minnesota, 6.47%
of Class C Shares; Charles Schwab & Co. Inc., San Francisco, California, 8.78%
of Institutional Shares; Frojack Co., Grand Forks, North Dakota, 5.09% of
Institutional Shares; Resources Trust Company, for the exclusive benefit of
various customers of IMS, Englewood, Colorado, 5.40% of Institutional Shares;
and Ingersoll & Co., Brenton National Bank, Des Moines, Iowa, 5.27% of
Institutional Shares.
<PAGE>
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of three funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Manager.As of October 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Institutional
Shares and Class C Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
JOHN T. CONROY, JR.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
NICHOLAS CONSTANTAKIS
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Partner,
Andersen Worldwide SC.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly: Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
JAMES E. DOWD, ESQ.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
PETER E. MADDEN
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
----------------
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
WESLEY W. POSVAR
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Akistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
MARJORIE P. SMUTS
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
GLEN R. JOHNSON
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
J. CHRISTOPHER DONAHUE*
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Trustee
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F.
Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
<PAGE>
EDWARD C. GONZALES
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation fromTrust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, who conducts investment
research and makes investment decisions for the Fund. The directors of the
Sub-Manager are James M. Snyder, Barry G. Hastings, Perry R. Pero, Sheila A.
Penrose and Jeffrey H. Wessel. The officers of the Sub-manager are James M.
Snyder, Chief Executive Officer and Jeffrey H. Wessel, President.
Subject to the supervision and direction of the Trustees, the Manager provides
to the Fund investment management evaluation services principally by performing
initial due diligence on the Sub-Manager for the Fund and thereafter monitoring
and evaluating the performance of the Sub-Manager through quantitative and
qualitative analyses. In addition, the Manager conducts periodic in-person,
telephonic and written consultations with the Sub-Manager. In initially
evaluating the Sub-Manager, the Manager considered, among other factors, the
Sub-Manager's level of expertise; relative performance over a minimum period of
five years; level of efficiency; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. On an ongoing basis, the Manager is responsible for
communicating performance expectations and evaluations to the Sub-Manager;
monitoring tracking errors; monitoring and analyzing the use of futures
contracts; monitoring the futures holdings of the Fund as a percentage of Fund
assets; monitoring market timing in the Fund; discussing with the Sub-Manager
the portfolio sampling techniques employed by the Sub-Manager; defining with the
Sub-Manager the universe of stocks that comprise the small capitalization sector
of the United States equity market; and ultimately recommending to the Trustees
whether the Sub-Management Contract should be renewed, modified or terminated.
The Manager provides written reports to the Trustees regarding the results of
its evaluation and monitoring functions. In addition, the Manager is responsible
for providing the Fund with administrative services, including, but not limited
to, shareholder servicing and certain legal and accounting services. The Manager
is also responsible for conducting all operations of the Fund, except those
operations contracted to the Sub-Manager, custodian, transfer agent and dividend
disbursing agent. As described below, the Manager receives an annual fee from
the Fund for performing its responsibilities under the Management Contract.
The Manager and the Sub-Manager shall not be liable to the Trust, the Fund, or
any Fund shareholder for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
OTHER RELATED SERVICES. Affiliates of the Manager may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated Investors in advising other accounts. To the extent that receipt of
these services may replace services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The Adviser
and its affiliates exercise reasonable business judgment in selecting those
brokers who offer brokerage and research services to execute securities
transactions. They determine in good faith that commissions charged by such
persons are reasonable in relationship to the value of the brokerage and
research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
OCTOBER 31,
1998 1997 1996
Management Fee Earned..........$............$.............$
Management Fee Reduction.......$............$.............$
Sub-Management Fee.............$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class C Shares.............$
Shareholder Services Fee.......$
Institutional Shares.......$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998. Yield given for the 30-day period ended OCTOBER 31, 1998.
----------
INSTITUTIONAL CLASS C
SHARES SHARES
----------
----------
TOTAL RETURN
----------
----------
One Year: % %
Five Year: % %
Since Inception: %* %*
----------
----------
YIELD
----------
----------
% %
----------
*Institutional Shares inception date was August 11, 1992. Class C Shares
inception date was November 10, 1997.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
DOW JONES INDUSTRIAL AVERAGE (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
LIPPER ANALYTICAL SERVICES, INC. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
MORNINGSTAR, INC. An independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
<PAGE>
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
RUSSELL 2000 INDEX is a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to compare to the
total returns of funds whose portfolios are invested primarily in small
capitalization common stocks.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS is a composite
index of common stocks in industry, transportation, and financial and public
utility companies that can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestments of all dividends paid by stocks
listed on its index. Taxes due on any of these distributions are not included,
nor are brokerage or other fees calculated in Standard & Poor's figures.
WILSHIRE 5000 EQUITY INDEXES consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
EQUITY FUNDS. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
CORPORATE BOND FUNDS. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
GOVERNMENT FUNDS. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
MONEY MARKET FUNDS. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FRANK RUSSELL COMPANY
Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change its Index. Frank Russell Company
has no obligation to take the needs of any particular fund or its participants
or any other product or person into consideration in determining, composing or
calculating the index.
Frank Russell Company's publication of the Index in no way suggests or implies
an opinion by Frank Russell Company as to the attractiveness or appropriateness
of investment in any or all securities upon which the Index is based. Frank
Russell Company makes no representation, warranty, or guarantee as to the
accuracy, completeness, reliability, or otherwise of the Index or any data
included in the Index. Frank Russell Company makes no representation or warranty
regarding the use or the results of use, of the Index or any data included
therein, or any security (or combination thereof) comprising the Index. Frank
Russell Company makes no other express or implied warranty, and expressly
disclaims any warranty, of any kind, including, without means of limitation, any
warranty of merchantability or fitness for a particular purpose with respect to
the Index or any data or any security (or combination thereof) included therein.
<PAGE>
23
ADDRESSES
FEDERATED MINI-CAP FUND
Institutional Shares, Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
FEDERATED SECURITIES CORP. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Manager
FEDERATED MANAGEMENT Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Sub-Manager 50 North LaSalle Street
NORTHERN TRUST QUANTITATIVE ADVISORS, INC. Chicago, Illinois 60690
Custodian
STATE STREET BANK AND TRUST COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
ERNST & YOUNG LLP One Oxford Centre
Pittsburgh, PA 15219
PART C. OTHER INFORMATION
Item 23.
(a)Conformed copy of Declaration of Trust of the Registrant,
as amended (10);
(i) Conformed copy of Amendment No. 2 to the Declaration of
Trust dated January 30, 1992 (10);
(ii) Conformed copy of Amendment No. 3 to the Declaration of
Trust dated June 18, 1992 (10);
(iii) Conformed copy of Amendment No. 4 to the Declaration of
Trust dated June 3, 1993 (10);
(iv) Conformed copy of Amendment No. 6 to the Declaration of
Trust dated November 18, 1994 (11);
(v) Conformed copy of Amendment No. 7 to the Declaration of
Trust dated December 5, 1994 (11);
(b)Copy of By-Laws of the Registrant as amended (5);
(i) Copy of Amendment No. 1 to the By-Laws of the
Registrant dated November 18, 1997; +
(ii) Copy of Amendment No. 2 to the By-Laws of the
Registrant dated February 2, 1987 (6);
(iii) Copy of Amendment No. 2 to the By-Laws of the
Registrant dated February 23, 1998; +
(iv) Copy of Amendment No. 3 to the By-Laws of the
Registrant dated February 27, 1998; +
(v) Copy of Amendment No. 4 to the By-Laws of the
Registrant dated May 12, 1998; +
(c)(i) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Federated Mid-Cap and Federated Mini-Cap
Funds (11);
(ii) Copy of Specimen Certificates for Shares of Beneficial
Interest of the Institutional Service and Institutional
Service Shares of the Federated Max-Cap Fund (11);
(d)Conformed copy of Investment Advisory Contract of the
Registrant (10);
(i) Conformed copy of Sub-Management Contract for the Federated
Max-Cap Fund and Federated Mid-Cap and Federated Mini-Cap
Funds; +
+ All exhibits have been filed electronically.
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed September 12, 1991. (File Nos. 33-33852
and 811-6061)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed May 8, 1992 (File Nos. 33-33852 and
811-6061)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed December 29, 1993. (File Nos. 33-33852
and 811-6061)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed December 29, 1994. (File Nos. 33-33852
and 811-6061)
<PAGE>
(e)Conformed copy of Distributor's Contract (10); (i) Conformed copy
of Exhibit D to Distributor's Contract (10); (ii)Conformed copy
of Exhibit E to Distributor's
Contract (14);
(iii)Conformed copy of Exhibit F to Distributor's
Contract (14);
(iv)The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement; Mutual
Funds Service Agreement and Plan Trustee/Mutual Funds Service
Agreement from Item 24(b)6 of the Cash Trust Series II
Registration Statement on Form N-1A, filed with
the Commission on July 24, 1995. (File Nos. 33-38550 and
811-6269);
(f)Not applicable;
(g)Conformed copy of Custodian Contract of the Registrant(12); (i)
Conformed copy of Domestic Custody Fee Schedule (14);
(h)(i) Conformed copy of Amended and Restated Agreement for Fund
Accounting Services, Administrative Services, Transfer
Agency Services and Custody Services Procurement; +
(ii) Conformed copy of Amended and Restated Shareholder Services
Agreement (14); (iii)The responses described in Item 24(b)6
are hereby incorporated by reference;
(iv) The Registrant hereby incorporates the conformed copy of
the Shareholder Services Sub-Contract between National
Pensions Alliance, Ltd. and Federated Shareholder Services
from Item 24(b)(9)(ii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996. (File Nos. 2-75670 and
811-3375);
(i) Conformed copy of the Opinion and Consent of Counsel as to
legality of shares being registered (12); (j) Conformed Copy of
Independent Auditors' Consent (To be filed by Amendment); (k) Not
applicable; (l) Conformed copy of Initial Capital Understanding (3);
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A dated June 29, 1990. (File Nos. 33-33852 and
811-6061)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed December 29, 1993. (File Nos. 33-33852
and 811-6061)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed December 28, 1995. (File Nos. 33-33852
and 811-6061)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 7, 1997. (File Nos. 33-33852
and 811-6061)
<PAGE>
(m) (i) Conformed copy of Rule 12b-1 Plan (10); (ii) Conformed copy
of Exhibit B to the
Rule 12b-1 Plan (14);
(iii) Conformed copy of Exhibit C to the
Rule 12b-1 Plan (14);
(iv) The responses described in Item 24(b)6 are hereby
incorprated by reference; (n) Copy of Financial Data Schedules (15);
(o) The Registrant hereby incorporates the conformed copy of the
specimen Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A,
filed with the Commission on January 26, 1996. (File Nos.
33-52149 and 811-07141);
(p) Conformed copy of Power of Attorney; +
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND:
None
Item 25. INDEMNIFICATION: (3)
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A dated June 29, 1990. (File Nos. 33-33852 and
811-6061)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed December 24, 1992. (File Nos. 33-33852
and 811-6061)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed December 29, 1993. (File Nos. 33-33852
and 811-6061)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 24, 1996. (File Nos. 33-33852
and 811-6061)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 7, 1997. (File Nos. 33-33852
and 811-6061)
15. Response is incorporated by reference to Registrant's Post-Effective
Amenmdnet No. 14 on Form N-1A filed December 29, 1997. (File Nos. 33-33852
and 811-6061)
<PAGE>
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "Who Manages the Fund"in Part A. The affiliations
with the Registrant of four of the Trustees and one of the Officers of
the investment adviser are included in Part B of this Registration
Statement under "Who Manages and Provides Services to the Fund." The
remaining Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation is:
Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B of
this Registration Statement.
Northern Trust Quantitative Advisors, Inc. ("Northern Trust") is the
Sub-Manager to the Trust. Northern Trust, incorporated in the State of
Illinois on July 1, 1988, is a registered investment adviser under the
Investment Advisers Act of 1940. Northern Trust is a wholly-owned
subsidiary of Northern Trust Corporation.
The executive officers of Northern Trust are: J. Stephen Baine, Chairman
and President; Susan O. Jones, Chief Operating Officer; Neil R. Wright, Chief
Investment Officer; and Thomas P. Michaels, Secretary and Treasurer. The
Directors of Northern Trust are J. Stephen Baine, Susan O. Jones, Nick G. Preda,
J. Dirk Vos, Richard R. Wade, Thomas P. Michaels and Neil R. Wright. The
business address of Northern Trust and each of the above officers and Directors
is 50 North LaSalle Street, Chicago, Illinois 60690.
<PAGE>
ITEM 27.PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Independence
One Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust
II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The
Planters Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual
Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
World Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree Funds; Star
Funds; Targeted Duration Trust; The Virtus Funds; Trust for Financial
Institutions;
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President, Federated
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promugated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the
Agent for Service at above
address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent and Dividend Boston, MA 02266-8600
Disbursing Agent")
<PAGE>
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Manager") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Northern Trust Quantitative Advisors,
Inc. One North LaSalle Street
("Sub-Manager") Chicago, Illinois 60690
State Street Bank and Trust Co. P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. MANAGEMENT SERVICES: Not applicable.
Item 30. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of Section
16 (c) of the 1940 Act with respect to the removal of Trustees and
the calling of special shareholder meetings by shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INDEX TRUST has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 30th day of October, 1998.
FEDERATED INDEX TRUST
BY: /s/Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue
October 30, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis Attorney In Fact October 30, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
J. Christopher Donahue* Executive Vice President
and Trustee
John W. McGonigle* Treasurer, Executive Vice
President and Secretary
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
Nicholas P. Constantakis* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 23 b(i) under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
Federated Index Trust
Amendment No. 1
to the By-Laws
Effective November 18, 1997
Delete Article III, Section 7 and replace with the following:
ACTION BY CONSENT OF THE BOARD OF TRUSTEES, EXECUTIVE COMMITTEE OR OTHER
COMMITTEE. Subject to Article V, Section 2 of these By-Laws, any action required
or permitted to be taken at any meeting of the Trustees, Executive Committee or
any other duly appointed Committee may be taken without a meeting if consents in
writing setting forth such action are signed by all members of the Board or such
committee and such consents are filed with the records of the Trust. In the
event of the death, removal, resignation or incapacity of any Board or committee
member prior to that Trustee signing such consent, the remaining Board or
committee members may re-constitute themselves as the entire Board or committee
until such time as the vacancy is filled in order to fulfill the requirement
that such consents be signed by all members of the Board of committee.
Exhibit 23 b(iii) under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
FEDERATED INDEX TRUST
AMENDMENT #2
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 23, 1998)
Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:
Section 1. OFFICERS. The Officers of the Trust shall be a President, one
or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of the
Board of Trustees (who must be a Trustee) and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by a
single person except the offices of President and Vice President may not
be held by the same person concurrently. It shall not be necessary for any
Trustee or any Officer to be a holder of shares in any Series or Class of
the Trust.
Section 2. ELECTION OF OFFICERS. The Officers shall be elected annually by
the Trustees. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier resignation
or removal. The Chairman of the Board of Trustees, if there is one, shall
be elected annually by and from the Trustees, and serve until a successor
is so elected and qualified, or until earlier resignation or removal.
Section 3. RESIGNATIONS AND REMOVALS AND VACANCIES. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with the
President, or with the Secretary. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Officer
elected by the Board of Trustees or whose appointment has been ratified by
the Board of Trustees may be removed with or without cause at any time by
a majority vote of all of the Trustees. Any other employee of the Trust
may be removed or dismissed at any time by the President. Any vacancy in
any of the offices, whether by resignation, removal or otherwise, may be
filled for the unexpired portion of the term by the President. A vacancy
in the office of Assistant Vice President may be filled by a Vice
President; in the office of Assistant Secretary by the Secretary; or in
the office of Assistant Treasurer by the Treasurer. Any appointment to
fill any vacancy shall serve subject to ratification by the Board of
Trustees at its next regular meeting.
Exhibit 23 b(iv) under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
FEDERATED INDEX TRUST
AMENDMENT #3
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 27, 1998)
Delete Section 5 PROXIES of Article IV SHAREHOLDERS' MEETINGS, and replace with
the following:
Section 5. PROXIES. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic means
including facsimile, or by proxy, but no proxy which is dated more than
six months before the meeting named therein shall be accepted unless
otherwise provided in the proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized agent or be in such
other form as may be permitted by law, including documents conveyed by
electronic transmission. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. The placing of a shareholder's name on
a proxy or authorizing another to act as the shareholder's agent, pursuant
to telephone or electronically transmitted instructions obtained in
accordance with procedures reasonably designed to verify that such
instructions have been authorized by such shareholder, shall constitute
execution of a proxy by or on behalf of such shareholder. Where Shares are
held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy or give authority to an agent, unless the Secretary of
the Trust is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.
Exhibit 23 b(v) under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
FEDERATED INDEX TRUST
AMENDMENT #4
TO THE BY-LAWS
(EFFECTIVE MAY 12, 1998)
Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:
Section 3. PLACE OF MEETING. Meetings of the shareholders of the Trust or
a particular Series or Class shall be held at such place within or without
The Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.
Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:
Section 6. PLACE OF MEETING. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.
Exhibit 23 d(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FEDERATED INDEX TRUST
SUB-MANAGEMENT CONTRACT
This Contract is made between FEDERATED MANAGEMENT, a Delaware business
trust, having its principal place of business in Pittsburgh, Pennsylvania
(hereinafter referred to as "Manager"), and ANB Investment Management and Trust
Company, an Illinois corporation, having its principal place of business in
Chicago, Illinois (hereinafter referred to as "ANB").
WHEREAS the Federated Index Trust (the "Trust"), an open-end management
investment company, as that term is defined in the Investment Company Act
of 1940 ("Act"), that is registered as such with the Securities and
Exchange Commission has appointed Federated Management as investment
manager for its portfolios (the "Funds"); and
WHEREAS ANB is engaged in the business of rendering investment management
services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Manager hereby retains ANB to assist Manager in its capacity as
investment manager for the Funds. Subject to the direction of the Manager and
the Trustees of the Trust, ANB shall provide of appropriate sale of other
disposition and reinvestment of the assets of the Funds assigned to ANB.
2. ANB, in its supervision of the investments of the Funds, will be guided
by the Funds' investment objectives and policies and the provisions and
restrictions contained in the Declaration of Trust and By-Laws of the Trust and
as set forth in the Registration Statements and exhibits as may be on file with
the Securities and Exchange Commission, all as communicated by the Manager to
ANB.
3. Manager shall pay to ANB, for all services rendered to the Funds by ANB
hereunder, the fees set forth in the Exhibit attached
hereto.
4. The term of this Contract shall begin on the date of its execution and
shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and all of the other terms
and conditions hereof if: (a) such continuation shall be specifically approved
at least annually by the vote of a majority of the Trustees of the Trust,
including a majority of the Trustees who are not interested persons, as defined
in Section 2(a)(19) of the Act, of any party (other than as Trustees of the
Trust) cast in person at a meeting called for that purpose; and (b) Manager
shall not have notified the Trust in writing at least sixty (60) days prior to
the anniversary date of this Contract in any year thereafter that it does not
desire such continuation with respect to that Fund.
5. Notwithstanding any provision in this Contract, it may be terminated at
any time without the payment of any penalty, by the Trustees of the Trust or by
a vote of a majority of the outstanding voting securities of the Funds, as
defined in Section 2(a)(42) of the Act, on sixty (60) days' written notice to
ANB, or by the Manager or ANB upon not less than sixty (60) days' written notice
to the other party.
6. This Contract may not be assigned by Manager or ANB and shall
automatically terminate in the event of any assignment. ANB may employ or
contract with such other person, persons, corporation, or corporations at its
own cost and expense as it shall determine in order to assist it in carrying out
this Contract.
7. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties under this Contract on the part
of ANB, ANB shall not be liable to the Manager, the Trust, the Funds, or to any
shareholder for any act or omission in the course of or connected in any way
with rendering services or for any losses that may be sustained in the purchase,
holding, or sale of any securities.
8. This Contract may be amended at any time by agreement of the parties,
provided that the amendment shall be approved both by the vote of a majority of
the Trustees of the Trust, including a majority of the Trustees who are not
interested persons, as defined in Section 2(a)(19) of the Act, of any party to
this Contract (other than as Trustees of the Trust) cast in person at a meeting
called for that purpose, and on behalf of the Funds by the holders of a majority
of the outstanding voting securities of the Funds, as defined in Section
2(a)(42) of the Act.
9. ANB is hereby expressly put on notice of the limitation of liability as
set forth in the Declaration of Trust of the Manager and agrees that the
obligations assumed by the Manager pursuant to this Contract shall be limited in
any case to the Manager and its assets and shall not seek satisfaction of any
such obligation from the shareholders of the Manager, the Trustees, officers,
employees or agents of the Manager, or any of them.
10. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
11. This Contract will become binding on the parties hereto upon this
execution of the attached exhibits to this Contract.
<PAGE>
EXHIBIT A
FEDERATED INDEX TRUST
SUB-MANAGEMENT CONTRACT
FEDERATED MAX-CAP FUND
For all services rendered by ANB hereunder, the Manager shall pay to ANB
and ANB agrees to accept as full compensation for all services rendered
hereunder, an annual fee as follows:
.05 of 1% on an annualized basis of the first $100 million of net assets
under management.
.02 of 1% on an annualized basis of any net assets under management over
and above $100 million but not exceeding $200 million.
.01 of 1% on an annualized basis of any net assets under management over
and above $200 million.
Such fee shall accrue daily and be paid monthly.
Witness the due execution hereof this 31st day of December, 1997.
FEDERATED MANAGEMENT
By: /S/ THOMAS M. FRANKS
Name: Thomas M. Franks
Title: Vice President
NORTHERN TRUST QUANTITATIVE ADVISORS, INC.
f/k/a ANB INVESTMENT MANAGEMENT
AND TRUST COMPANY
By: /S/ JAMES M. SNYDER
Name: James M. Snyder
Title: Chairman, Director & Chief Executive Officer
<PAGE>
EXHIBIT B
FEDERATED INDEX TRUST
SUB-MANAGEMENT CONTRACT
FEDERATED MID-CAP FUND
For all services rendered by ANB hereunder, the Manager shall pay to ANB
and ANB agrees to accept as full compensation for all services rendered
hereunder .035 of 1% on an annualized basis of net assets under management.
Such fee shall accrue daily and be paid monthly.
Witness the due execution hereof this 31st day of December, 1997.
FEDERATED MANAGEMENT
By: /S/ THOMAS M. FRANKS
Name: Thomas M. Franks
Title: Vice President
NORTHERN TRUST QUANTITATIVE ADVISORS, INC.
f/k/a ANB INVESTMENT MANAGEMENT
AND TRUST COMPANY
By: /S/ JAMES M. SNYDER
Name: James M. Snyder
Title: Chairman, Director & Chief Executive Officer
<PAGE>
EXHIBIT C
FEDERATED INDEX TRUST
SUB-MANAGEMENT CONTRACT
FEDERATED MINI-CAP FUND
For all services rendered by ANB hereunder, the Manager shall pay to ANB
and ANB agrees to accept as full compensation for all services rendered
hereunder .065 of 1% on an annualized basis of net assets under management.
Such fee shall accrue daily and be paid monthly.
Witness the due execution hereof this 31st day of December, 1997.
FEDERATED MANAGEMENT
By: /S/ THOMAS M. FRANKS
Name: Thomas M. Franks
Title: Vice President
NORTHERN TRUST QUANTITATIVE ADVISORS, INC.
f/k/a ANB INVESTMENT MANAGEMENT
AND TRUST COMPANY
By: /S/ JAMES M. SNYDER
Name: James M. Snyder
Title: Chairman, Director & Chief Executive Officer
Exhibit 23 h(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDED & RESTATED
AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, and amended and restated as of September
1, 1997, by and between those investment companies listed on Exhibit 1 as may be
amended from time to time, having their principal office and place of business
at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment
Company"), on behalf of the portfolios (individually referred to herein as a
"Fund" and collectively as "Funds") of the Investment Company, and FEDERATED
SERVICES COMPANY, a Pennsylvania corporation, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 on behalf of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain pricing
and accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to
exercise reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received from
such agents and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net asset value
per share of such Fund or Class when the calculations are based upon
such prices. All of the above sources of prices used as described are
deemed by the Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board and
as set forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Investment Company are the
property of the Investment Company and further agrees to surrender
promptly to the Investment Company such records upon the Investment
Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other applicable
laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees of
Trustees or Directors of the Investment Company; independent auditors
expenses; legal and audit department expenses billed to the Company for
work performed related to the Investment Company, the Funds, or the
Classes; law firm expenses; organizational expenses; or other expenses
not specified in this Article 3 which may be properly payable by the
Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
Fund Accounting Services. Such person or persons may be affiliates of
the Company, third-party service providers, or they may be officers and
employees who are employed by both the Company and the Investment
Company; provided, however, that the Company shall be as fully
responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no obligation
shall be incurred on behalf of the Investment Company, the Funds, or the
Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board and
in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already
been prepared and filed), the By-laws and minutes of meetings of the
Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for
the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous offering
of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who will
be responsible for the management of certain of the Investment Company's
affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall be
accrued by the Fund and paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)
However, in no event shall the administrative fee received during any year of
the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. Any person, even though also
an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall
in such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case
in which the Investment Company will be asked to indemnify the Company
except with the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, the Company shall, on or before the payment date
of any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution which is
payable in cash and request the Custodian to make available
sufficient funds for the cash amount to be paid out. The Company
shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to the
Shareholder's account; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class
and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on
accounts subject to back-up or other withholding (including
non-resident alien accounts), preparing and filing reports on
U.S. Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information; and
(b) provide a system which will enable the Fund to monitor the total
number of Shares of each Fund (and/or Class) sold in each state
("blue sky reporting"). The Fund shall by Proper Instructions (i)
identify to the Company those transactions and assets to be
treated as exempt from the blue sky reporting for each state and
(ii) verify the classification of transactions for each state on
the system prior to activation and thereafter monitor the daily
activity for each state. The responsibility of the Company for
each Fund's (and/or Class's) state blue sky registration status
is limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky compliance
and the reporting of such transactions and accounts to the Fund
as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain faclities and procedures
for safekeeping of check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such forms and devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."
<PAGE>
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.
Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Investment Company and the Company. Pursuant to
information in the Fund Prospectus or other information or instructions
from the Fund, the Company may sub-divide any Fund into Classes or other
sub-components for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the same as if
each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act
and has been approved by the Board as being eligible for selection by
the Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature and
amount of disbursements made on account of the each Fund with respect to
each custodial agreement; and (iii) such other information as the Board
shall reasonably request to enable it to fulfill its duties and
obligations under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree in
writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
<PAGE>
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent pursuant
to Section 17A(c)(1) of the Securities Exchange Act of 1934, as
amended, or any succeeding statute ("Section 17A(c)(1)"); or
(2) such other provider of services duly registered as a transfer agent
under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on
the part of the Investment Company subcontract for the performance of
such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Investment Company and all
amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Printed documentation from the recordkeeping system representing
outstanding Share certificates of the Investment Company or the Funds;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of
Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and the
By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Such other certifications, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(6) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good standing
under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and in
the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize it to
enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement;
(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform its obligations under this Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its obligations
under this Agreement;
(4) The Investment Company is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company
or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of Fund
for use in the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment
Company or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the
offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article
23 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
to participate with the party seeking indemnification in the defense of
such claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior
written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from September 1, 1997, and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18
month terms. The Agreement can be terminated by either party upon 18 months
notice to be effective as of the end of such 18 month period. In the event,
however, of willful misfeasance, bad faith, negligence or reckless disregard of
its duties by the Company, the Investment Company has the right to terminate the
Agreement upon 60 days written notice, if Company has not cured such willful
misfeasance, bad faith, negligence or reckless disregard of its duties within 60
days. The termination date for all original or after-added Investment companies
which are, or become, a party to this Agreement. shall be coterminous.
Investment Companies that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed by
both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original. ARTICLE 30. LIMITATIONS OF LIABILITY
OF TRUSTEES AND SHAREHOLDERS OF THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)
By: /S/ S. ELLIOTT COHAN
Name: S. Elliott Cohan
Title: Assistant Secretary
FEDERATED SERVICES COMPANY
By: /S/ THOMAS J. WARD
Name: Thomas J. Ward
Title: Secretary
<PAGE>
Exhibit 1
CONTRACT
DATE INVESTMENT COMPANY
3/1/96 FEDERATED INDEX TRUST
3/1/96 Federated Max-Cap Fund
3/1/96 Institutional Service Shares
3/1/96 Institutional Shares
11/10/97 Class C Shares
3/1/96 Federated Mid-Cap Fund
3/1/96 Federated Mini-Cap Fund
3/1/96 Institutional Shares
(FORMERLY THE ORIGINAL SHARES - REDESIGNATED ON 11/10/97)
11/10/97 Class C Shares
Exhibit 23 p under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of FEDERATED INDEX TRUST
- ------
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/S/JOHN F. DONAHUE Chairman and Trustee October 6, 1998
John F. Donahue (Chief Executive Officer)
/S/GLEN R. JOHNSON President October 6, 1998
Glen R. Johnson
/S/J. CHRISTOPHER DONAHUE Executive Vice President October 6, 1998
-
J. Christopher Donahue and Trustee
/S/JOHN W. MCGONIGLE Treasurer, Executive October 6, 1998
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)
/S/THOMS G. BIGLEY Trustee October 6, 1998
Thomas G. Bigley
/S/NICHOLAS P. CONSTANTAKIS Trustee October 6, 1998
Nicholas P. Constantakis
SIGNATURES TITLE DATE
/S/JOHN T. CONROY, JR. Trustee October 6, 1998
John T. Conroy, Jr.
/S/WILLIAM J. COPELAND Trustee October 6, 1998
William J. Copeland
/S/JAMES E. DOWD Trustee October 6, 1998
James E. Dowd
/S/LAWRENCE D. ELLIS, M.D. Trustee October 6, 1998
Lawrence D. Ellis, M.D.
/S/EDWARD L. FLAHERTY, JR. Trustee October 6, 1998
Edward L. Flaherty, Jr.
/S/PETER E. MADDEN Trustee October 6, 1998
Peter E. Madden
/S/JOHN E. MURRAY, JR. Trustee October 6, 1998
John E. Murray, Jr.
/S/WESLEY W. POSVAR Trustee October 6, 1998
Wesley W. Posvar
/S/MARJORIE P. SMUTS Trustee October 6, 1998
Marjorie P. Smuts
Sworn to and subscribed before me this 6 day of OCTOBER , 1998
----- -------------
/S/CHERI S. GOOD
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
FEDERATED INDEX TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
October 30, 1998
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
RE: FEDERATED INDEX TRUST (the "Trust")
Federated Max-Cap Fund
Federated Mid-Cap Fund
Federated Mini-Cap Fund
1933 Act File No. 33-33852
1940 ACT FILE NO. 811-6061
Dear Sir or Madam:
Post-Effective Amendment No. 15 under the Securities Act of 1933 and
Amendment No. 17 under the Investment Company Act of 1940 to the Registration
Statement of the above-referenced Trust is hereby electronically transmitted.
As indicated on the facing page of the Amendment, the Registrant has
specified that it is to become effective December 31, 1998 pursuant to the
provisions of Rule 485(a) under the Securities Act of 1933. Consistent with the
position of the Division of Investment Management, a Rule 485(a) filing is being
made to make changes to the Registrant's registration statement to comply with
the requirements of "New" Form N-1A and Rule 421 under the Securities Act of
1933, as amended effective October 1, 1998.
The Registrant's Risk/Return Bar Charts and Tables as required under Item
2 and a form of the Risk/Return Summary: Fee Tables as required under Item 3
will be separately transmitted via fax to (202)628-9002 within 3 business days
of this filing.
Because we have essentially re-drafted the Trust's prospectuses and
statements of additional information to comply with New N-1A, it is our opinion
that it would not be productive or useful to mark the changes in the document.
Therefore, this registration statement is not redlined to reflect differences
from the Trust's currently effective prospectuses and statements of additional
information.
In addition, we respectfully request SEC comments within 45 days of the
date of this filing in order to meet our print production and shareholder
mailing schedules. The Registrant's prospectuses and statements of additional
information must release to print no later than December 18, 1998 in order to
mail to shareholders on December 30, 1998 so that financial statements are
provided to shareholders within sixty days of the Registrant's fiscal year end.
<PAGE>
Registrant anticipates filing the Trust's updated financial statements by
post-effective amendment pursuant to Rule 485(b) on or about December 22, 1998
to become effective on December 31, 1998, simultaneously with the effectiveness
of Registrant's Rule 485(a) post-effective amendment.
If you have any questions regarding this filing, please call me at (412)
288-8489.
Very truly yours,
/s/ Lisa C. McGaffick
Lisa C. McGaffick
Compliance Analyst
Enclosures
