PROSPECTUS
Federated Max-Cap Fund
A Portfolio of Federated Index Trust
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 nor affiliated with Standard & Poor's.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
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CONTENTS
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Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What do Shares Cost? 4
How is the Fund Sold? 4
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 7
Who Manages the Fund? 8
Financial Information 9
Report of Ernst & Young LLP, Independent Auditors 34
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NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
DECEMBER 31, 1999
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 Composite
Stock Price Index (Index). While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN
INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the large capitalization 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. The primary factors that may reduce the Fund's returns
include:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly
or over a sustained period of time.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[BAR CHART APPEARS HERE]
The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.
The Fund's Institutional Service Shares are sold without a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Institutional Service Shares total return for the nine-month period
from January 1, 1999 to September 30, 1999 was 4.77%.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 21.13% (quarter ended December 31, 1998). Its
lowest quarterly return was (10.05%) (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar periods ended December 31, 1998. The table
shows the Fund's Institutional Service Shares total returns averaged over a
period of years relative to the Standard & Poor's 500 Index, a broad based
market index. Total returns for the index shown do not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
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Calendar Period Institutional
Service Shares S&P 500
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1 Year 27.85% 28.58%
5 Years 23.26% 24.06%
Start of Performance/1/ 22.14% 23.08%
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/1/ The Fund's Institutional Service Shares start of performance date was
September 7, 1993.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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
the Fund's Institutional Service Shares.
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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
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/........................................................................................................... 0.30%
Distribution (12b-1) Fee/3/................................................................................................. 0.30%
Shareholder Services Fee/4/................................................................................................. 0.25%
Other Expenses.............................................................................................................. 0.05%
Total Annual Fund Operating Expenses........................................................................................ 0.90%
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/1/ Although not contractually obligated to do so, the manager, distributor and
shareholder services provider waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year
ended October 31, 1999.
Total Waivers of Fund Expenses.................................. 0.28%
Total Actual Annual Fund Operating Expenses (after waivers)..... 0.62%
/2/ The manager voluntarily waived a portion of the management fee. The manager
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.27% for the fiscal year ended
October 31, 1999.
/3/ The distributor voluntarily waived a portion of the distribution (12b-1)
fee. This voluntary waiver can be terminated at any time. The distribution
(12b-1) fee paid by the Fund's Institutional Service Shares (after the
voluntary waiver) was 0.08% for the fiscal year ended October 31, 1999.
/4/ The shareholder services provider voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any
time. The shareholder services fee paid by the Fund's Institutional Service
Shares (after the voluntary waiver) was 0.22% for the fiscal year ended
October 31, 1999.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the 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 Fund's Institutional Service Shares operating
expenses are before waivers as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
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1 Year $ 92
3 Years $ 287
5 Years $ 498
10 Years $1,108
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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,
1999, the capitalization range of the Index was $222 million to $462.2 billion.
As of the same date, the weighted median market capitalization of the Fund was
$65.4 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?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
STOCK INDEX FUTURES
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 rise and fall. 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. Consequently, the Fund's share price may
decline.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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 (as
described in the prospectus), it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values 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).
Futures contracts are generally valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are generally valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option.
The 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 a smaller minimum
investment amount. 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
Services 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 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives 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 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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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
. Establish your account with the Fund by submitting a completed New Account
Form; and
. 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non-financial institution clients invest. In total, the Sub-Manager
manages 67 commingled/ common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
MANAGEMENT FEES
The Manager receives an annual management fee equal to 0.30% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses.
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 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. 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 Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. 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 any
dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 34.
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Year Ended October 31 1999 1998 1997 1996 1995
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Net Asset Value, Beginning of Period $ 22.86 $ 19.66 $ 15.47 $ 14.72 $ 12.02
Income From Investment Operations:
Net investment income 0.23 0.25 0.26 0.30 0.33
Net realized and unrealized gain on
investments and futures contracts 5.37 3.82 4.45 2.79 2.69
TOTAL FROM INVESTMENT OPERATIONS 5.60 4.07 4.71 3.09 3.02
Less Distributions:
Distributions from net investment income (0.21) (0.25) (0.28) (0.31) (0.30)
Distributions from net realized gain on
investments and futures contracts (0.22) (0.62) (0.24) (2.03) (0.02)
TOTAL DISTRIBUTIONS (0.43) (0.87) (0.52) (2.34) (0.32)
Net Asset Value, End of Period $ 28.03 $ 22.86 $ 19.66 $ 15.47 $ 14.72
Total Return/1/ 24.76% 21.21% 31.07% 23.39% 25.52%
Ratios to Average Net Assets:
Expenses/2/ 0.90% 0.88% 0.92% 0.92% 0.94%
Net investment income/2/ 0.60% 0.82% 1.06% 1.66% 2.22%
Expenses (after waivers) 0.62% 0.61% 0.62% 0.61% 0.61%
Net investment income (after waivers) 0.88% 1.09% 1.36% 1.97% 2.55%
Supplemental Data:
Net assets, end of period (000 omitted) $ 726,976 $ 477,760 $ 245,986 $58,741 $35,195
Portfolio turnover 3% 3% 16% 3% 57%
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/1/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/2/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
OCTOBER 31, 1999
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Shares Value
<S> <C> <C>
COMMON STOCKS93.7%/1/
Basic Materials2.8%
54,000 Air Products & Chemicals, Inc. $ 1,485,000
53,600 Alcan Aluminum, Ltd. 1,765,450
86,400 Alcoa, Inc. 5,248,800
46,192 Allegheny Teledyne, Inc. 701,541
146,351 Archer-Daniels-Midland Co. 1,801,947
91,800 Barrick Gold Corp. 1,681,088
12,300 Bemis Co., Inc. 429,731
30,600 /2/Bethlehem Steel Corp. 212,288
13,300 Boise Cascade Corp. 473,812
22,500 Champion International Corp. 1,300,780
52,100 Dow Chemical Co. 6,160,825
245,381 Du Pont (E.I.) de Nemours & Co. 15,811,764
18,625 Eastman Chemical Co. 718,226
30,480 Ecolab, Inc. 1,030,605
33,762 Engelhard Corp. 595,055
7,800 /2/FMC Corp. 317,362
39,000 Freeport-McMoRan Copper & Gold, Inc., Class B 650,812
41,400 Georgia-Pacific Corp. 1,643,062
25,800 Goodrich (B.F.) Co. 611,137
17,300 /2/Grace (W.R.) & Co. 258,419
13,900 Great Lakes Chemical Corp. 493,450
23,700 Hercules, Inc. 570,281
61,200 Homestake Mining Co. 512,550
25,000 International Flavors & Fragrances, Inc. 956,250
96,545 International Paper Co. 5,080,681
25,600 Louisiana-Pacific Corp. 324,800
24,000 Mead Corp. 864,000
147,500 Monsanto Co. 5,678,750
39,357 Newmont Mining Corp. 863,394
20,600 Nucor Corp. 1,068,625
41,400 PPG Industries, Inc. 2,509,875
21,108 Phelps Dodge Corp. 1,189,935
76,600 Placer Dome, Inc. 928,775
6,800 Potlatch Corp. 286,875
37,100 Praxair, Inc. 1,734,425
15,500 Reynolds Metals Co. 936,781
49,973 Rohm & Haas Co. 1,911,467
23,700 Sigma-Aldrich Corp. 675,450
13,100 Temple-Inland, Inc. 761,437
20,820 USX-U.S. Steel Group, Inc. 532,211
31,300 Union Carbide Corp. 1,909,300
23,800 Vulcan Materials Co. 983,237
23,650 Westvaco Corp. 702,109
46,900 Weyerhaeuser Co. 2,799,344
26,100 Willamette Industries, Inc. 1,084,781
21,750 Worthington Industries, Inc. 361,594
TOTAL 78,618,081
Capital Goods7.9%
44,000 /2/Allied Waste Industries, Inc. 462,000
131,200 Allied-Signal, Inc. 7,470,200
27,400 Avery Dennison Corp. 1,712,500
7,300 Ball Corp. 294,281
225,808 Boeing Co. 10,401,281
5,500 Briggs & Stratton Corp. 321,406
17,400 Case Corp. 922,200
84,500 Caterpillar, Inc. 4,668,625
22,200 Cooper Industries, Inc. 955,987
57,400 Corning, Inc. 4,513,075
16,175 Crane Co. 330,576
28,800 Crown Cork & Seal Co., Inc. 689,400
9,900 Cummins Engine Co., Inc. 501,806
56,200 Deere & Co. 2,037,250
49,000 Dover Corp. 2,085,562
16,800 Eaton Corp. 1,264,200
103,000 Emerson Electric Co. 6,186,437
17,800 Fluor Corp. 709,775
9,600 Foster Wheeler Corp. 108,000
46,840 General Dynamics Corp. 2,596,692
771,200 General Electric Co. 104,545,800
29,700 Honeywell, Inc. 3,131,494
58,900 Illinois Tool Works, Inc. 4,314,425
42,600 Inco Ltd. 862,650
38,700 Ingersoll-Rand Co. 2,022,075
20,000 Johnson Controls, Inc. 1,215,000
92,376 Lockheed Martin Corp. 1,847,520
13,900 McDermott International, Inc. 251,937
9,100 Milacron, Inc. 149,581
10,400 Millipore Corp. 331,500
94,600 Minnesota Mining & Manufacturing Co. 8,992,912
1,948 NACCO Industries, Inc., Class A 90,338
9,700 National Service Industries, Inc. 312,825
15,570 /2/Navistar International Corp. 649,074
16,200 Northrop Grumman, Corp. 888,975
36,600 /2/Owens-Illinois, Inc. 876,112
18,380 PACCAR, Inc. 866,157
29,333 Pall Corp. 643,493
25,500 Parker-Hannifin Corp. 1,168,219
64,200 Pitney Bowes, Inc. 2,925,112
44,700 Rockwell International Corp. 2,165,156
19,600 /2/Sealed Air Corp. 1,085,350
63,200 /2/Solectron Corp. 4,755,800
40,100 Tenneco, Inc. 641,600
35,500 Textron, Inc. 2,740,156
37,400 /2/Thermo Electron Corp. 504,900
13,400 Thomas & Betts Corp. 601,325
14,600 Timken Co. 261,887
393,468 Tyco International Ltd. 15,714,128
113,500 United Technologies Corp. 6,866,750
143,328 Waste Management, Inc. 2,633,652
TOTAL 222,287,156
Communication Services8.3%
748,772 AT&T Corp. 35,005,091
71,800 Alltel Corp. 5,977,350
365,484 Bell Atlantic Corp. 23,733,617
445,700 BellSouth Corp. 20,056,500
32,500 CenturyTel, Inc. 1,314,219
230,600 GTE Corp. 17,295,000
180,820 /2/Global Crossing Ltd. 6,260,892
440,397 /2/MCI Worldcom, Inc. 37,791,567
142,900 /2/MediaOne Group, Inc. 10,154,831
78,000 /2/NEXTEL Communications, Inc., Class A 6,722,625
802,626 SBC Communications, Inc. 40,883,762
203,600 Sprint Corp. 15,130,025
103,550 /2/Sprint PCS Group 8,588,178
118,455 U.S. West, Inc. 7,233,158
TOTAL 236,146,815
Consumer Cyclicals8.3%
16,500 American Greetings Corp., Class A 426,937
9,400 Armstrong World Industries, Inc. 351,325
35,300 /2/AutoZone, Inc. 937,656
32,800 /2/Bed Bath & Beyond, Inc. 1,092,650
48,400 /2/Best Buy Co., Inc. 2,689,225
20,700 Black & Decker Corp. 890,100
23,000 Block (H&R), Inc. 978,937
21,600 Brunswick Corp. 488,700
170,107 /2/Cendant Corp. 2,806,765
14,000 Centex Corp. 375,375
47,400 Circuit City Stores, Inc. 2,023,387
25,800 /2/Consolidated Stores Corp. 472,462
17,800 Cooper Tire & Rubber Co. 299,262
51,350 /2/Costco Wholesale Corp. 4,124,047
39,045 Dana Corp. 1,154,268
31,500 Danaher Corp. 1,521,844
103,800 Dayton-Hudson Corp. 6,708,075
132,705 Delphi Auto Systems Corp. 2,181,338
25,200 Dillards, Inc., Class A 475,650
52,062 Dollar General Corp. 1,373,135
22,100 Dow Jones & Co. 1,359,150
38,900 Dun & Bradstreet Corp. 1,142,687
49,400 /2/Federated Department Stores, Inc. 2,108,762
8,200 Fleetwood Enterprises, Inc. 178,862
284,900 Ford Motor Co. 15,633,887
66,300 Gannett Co., Inc. 5,113,387
201,375 Gap (The), Inc. 7,476,047
151,400 General Motors Corp. 10,635,850
42,350 Genuine Parts Co. 1,103,747
36,700 Goodyear Tire & Rubber Co. 1,516,169
16,700 Harcourt General, Inc. 642,950
29,750 /2/Harrah's Entertainment, Inc. 860,891
46,200 Hasbro, Inc. 952,875
61,400 Hilton Hotels Corp. 567,950
348,600 Home Depot, Inc. 26,319,300
75,000 IMS Health, Inc. 2,175,000
20,700 ITT Industries, Inc. 707,681
65,500 Interpublic Group Cos., Inc. 2,660,937
8,352 Jostens, Inc. 176,436
116,100 /2/KMart Corp. 1,168,256
11,300 Kaufman & Broad Homes Corp. 226,706
18,500 Knight-Ridder, Inc. 1,174,750
38,300 /2/Kohl's Corp. 2,865,319
77,700 Laidlaw, Inc. 475,912
46,300 Leggett and Platt, Inc. 1,027,281
51,790 Limited, Inc. 2,129,864
15,200 Liz Claiborne, Inc. 608,000
87,400 Lowe's Cos., Inc. 4,807,000
58,700 Marriott International, Inc., Class A 1,977,456
104,100 Masco Corp. 3,175,050
98,125 Mattel, Inc. 1,312,422
78,600 May Department Stores Co. 2,726,437
21,200 Maytag Corp. 849,325
46,300 McGraw-Hill Cos., Inc. 2,760,636
12,300 Meredith Corp. 438,956
46,300 /2/Mirage Resorts, Inc. 674,244
5,032 /2/Neiman-Marcus Group, Inc., Class B 107,867
42,900 New York Times Co., Class A 1,726,725
66,500 Nike, Inc., Class B 3,753,094
33,500 Nordstrom, Inc. 835,406
88,200 /2/Office Depot, Inc. 1,096,987
42,100 Omnicom Group, Inc. 3,704,800
12,800 Owens Corning 262,400
62,000 Penney (J.C.) Co., Inc. 1,573,250
12,356 Pep Boys-Manny Moe & Jack 154,450
10,200 Pulte Corp. 205,275
13,300 /2/Reebok International Ltd. 130,506
8,500 Russell Corp. 129,094
90,200 Sears, Roebuck & Co. 2,542,512
64,400 Service Corp. International 615,825
40,500 Sherwin-Williams Co. 906,187
15,400 Snap-On Tools Corp. 467,775
4,300 Springs Industries, Inc., Class A 171,194
20,900 Stanley Works 579,975
108,500 /2/Staples, Inc. 2,407,344
76,100 TJX Cos., Inc. 2,064,212
28,200 TRW, Inc. 1,209,075
46,660 Tandy Corp. 2,936,664
16,900 Times Mirror Co., Class A 1,218,912
59,300 /2/Toys `R' Us, Inc. 837,612
56,000 Tribune Co. 3,360,000
28,200 V.F. Corp. 847,761
1,047,000 Wal-Mart Stores, Inc. 59,351,812
17,900 Whirlpool Corp. 1,247,406
TOTAL 235,545,440
Consumer Staples10.3%
13,400 Alberto-Culver Co., Class B 315,737
98,561 Albertsons, Inc. 3,578,996
109,900 Anheuser-Busch Cos., Inc. 7,892,194
61,800 Avon Products, Inc. 1,993,050
67,300 BestFoods 3,953,875
16,100 Brown-Forman Corp., Class B 1,086,750
91,800 CVS Corp. 3,987,562
104,700 Campbell Soup Co. 4,711,500
64,050 Cardinal Health, Inc. 2,762,156
78,100 /2/Clear Channel Communications, Inc. 6,277,287
55,200 Clorox Co. 2,259,750
99,900 Coca Cola Enterprises, Inc. 2,553,694
580,400 Coca-Cola Co. 34,243,600
137,800 Colgate-Palmolive Co. 8,336,900
115,200 ConAgra, Inc. 3,002,400
8,600 Coors Adolph Co., Class B 477,300
32,400 Darden Restaurants, Inc. 617,625
18,900 Deluxe Corp. 533,925
484,000 Disney (Walt) Co. 12,765,500
31,600 Donnelley (R.R.) & Sons Co. 766,300
51,900 Fort James Corp. 1,365,619
40,300 Fortune Brands, Inc. 1,428,131
36,100 General Mills, Inc. 3,147,469
255,100 Gillette Co. 9,231,431
9,000 Great Atlantic & Pacific Tea Co., Inc. 257,062
85,200 Heinz (H.J.) Co. 4,068,300
33,700 Hershey Foods Corp. 1,701,850
95,400 Kellogg Co. 3,798,112
125,248 Kimberly-Clark Corp. 7,906,280
16,800 /2/King World Productions, Inc. 651,000
193,600 /2/Kroger Co., Inc. 4,029,300
9,200 Longs Drug Stores Corp. 250,700
318,600 McDonald's Corp. 13,142,250
65,226 McKesson HBOC, Inc. 1,308,597
76,500 Nabisco Group Holdings Corp. 980,156
66,144 Newell Rubbermaid, Inc. 2,290,236
347,500 PepsiCo, Inc. 12,053,906
561,900 Philip Morris Cos., Inc. 14,152,856
312,600 Procter & Gamble Co. 32,783,925
32,100 Quaker Oats Co. 2,247,000
77,300 Ralston Purina Co. 2,430,119
60,900 Rite Aid Corp. 532,875
120,000 /2/Safeway, Inc. 4,237,500
214,700 Sara Lee Corp. 5,810,319
100,700 Seagram Co. Ltd. 4,972,062
28,300 Supervalu, Inc. 594,300
78,400 Sysco Corp. 3,013,500
304,080 Time Warner, Inc. 21,190,575
35,930 /2/Tricon Global Restaurants, Inc. 1,443,937
13,600 Tupperware Corp. 269,450
43,800 UST, Inc. 1,212,712
134,572 Unilever N.V., ADR 8,974,295
163,836 /2/Viacom, Inc., Class B 7,331,661
235,100 Walgreen Co. 5,921,581
29,300 Wendy's International, Inc. 699,538
35,000 Winn-Dixie Stores, Inc. 947,188
27,300 Wrigley (Wm.), Jr. Co. 2,182,294
TOTAL 290,674,187
Energy5.6%
44,800 /2/AES Corp. 2,528,400
21,300 Amerada-Hess Corp. 1,222,088
28,300 Anadarko Petroleum Corp. 871,994
26,100 Apache Corp. 1,017,900
17,500 Ashland, Inc. 577,500
76,800 Atlantic Richfield Co. 7,156,800
76,990 Baker Hughes, Inc. 2,150,908
41,765 Burlington Resources, Inc. 1,456,554
27,600 CMS Energy Corp. 1,017,750
154,200 Chevron Corp. 14,080,388
147,779 Conoco, Inc., Class B 4,008,505
570,800 Exxon Corp. 42,274,875
103,500 Halliburton Co. 3,900,656
11,600 Helmerich & Payne, Inc. 276,225
20,376 Kerr-McGee Corp. 1,095,210
183,600 Mobil Corp. 17,717,400
81,400 Occidental Petroleum Corp. 1,856,938
59,900 Phillips Petroleum Co. 2,785,350
19,700 /2/Rowan Companies, Inc. 306,581
504,900 Royal Dutch Petroleum Co., ADR 30,262,444
128,500 Schlumberger Ltd. 7,782,281
22,037 Sunoco, Inc. 531,643
129,900 Texaco, Inc. 7,972,613
35,800 Tosco Corp. 906,188
72,400 USX Marathon Group 2,108,650
59,094 Union Pacific Resources Group, Inc. 856,863
56,800 Unocal Corp. 1,959,600
TOTAL 158,682,304
Financials14.5%
60,075 AON Corp. 2,132,663
33,655 Aetna, Inc. 1,691,164
62,900 Aflac, Inc. 3,215,763
187,710 Allstate Corp. 5,396,663
105,600 American Express Co. 16,262,400
59,330 American General Corp. 4,401,544
364,416 American International Group, Inc. 37,512,072
92,600 Amsouth Bancorporation 2,384,450
171,432 Associates First Capital Corp., Class A 6,257,268
73,200 BB&T Corp. 2,662,650
277,886 Bank One Corporation 10,438,082
406,092 Bank of America Corp. 26,142,173
172,900 Bank of New York Co., Inc. 7,240,188
26,625 Bear Stearns Cos., Inc. 1,134,891
46,800 CIGNA Corp. 3,498,300
46,200 Capital One Financial Corp. 2,448,600
195,740 Chase Manhattan Corp. 17,102,783
41,700 Chubb Corp. 2,288,288
39,300 Cincinnati Financial Corp. 1,407,431
793,975 Citigroup, Inc. 42,973,897
36,650 Comerica, Inc. 2,178,384
75,461 Conseco, Inc. 1,834,646
26,500 Countrywide Credit Industries, Inc. 899,344
163,600 Federal Home Loan Mortgage Corp. 8,844,625
241,200 Federal National Mortgage Association 17,064,900
62,600 Fifth Third Bancorp 4,620,663
227,698 First Union Corp. 9,719,858
232,967 Firstar Corp. 6,843,406
216,491 Fleet Boston Corp. 9,444,425
59,500 Franklin Resources, Inc. 2,082,500
13,400 Golden West Financial Corp. 1,497,450
55,000 Hartford Financial Services Group, Inc. 2,849,688
113,659 Household International, Inc. 5,072,033
54,560 Huntington Bancshares, Inc. 1,616,340
41,700 J.P. Morgan & Co., Inc. 5,457,488
24,937 Jefferson-Pilot Corp. 1,871,834
107,200 KeyCorp 2,994,900
27,900 Lehman Brothers Holdings, Inc. 2,055,881
47,600 Lincoln National Corp. 2,195,550
26,800 Loews Corp. 1,899,450
23,400 MBIA Insurance Corp. 1,335,263
188,727 MBNA Corp. 5,213,583
25,800 MGIC Investment Corp. 1,541,550
61,900 Marsh & McLennan Cos., Inc. 4,893,969
123,000 Mellon Financial Corp. 4,543,313
86,600 Merrill Lynch & Co., Inc. 6,798,100
134,257 Morgan Stanley, Dean Witter & Co. 14,810,225
148,000 National City Corp. 4,366,000
70,800 PNC Bank Corp. 4,221,450
33,600 PaineWebber Group, Inc. 1,369,200
17,100 Progressive Corp., Ohio 1,582,819
33,300 Providian Financial Corp. 3,629,700
52,100 Regions Financial Corp. 1,566,256
25,300 Republic New York Corp. 1,598,644
32,100 SAFECO Corp. 882,750
39,000 SLM Holding Corp. 1,908,563
192,150 Schwab (Charles) Corp. 7,481,841
38,900 SouthTrust Corp. 1,556,000
55,452 St. Paul Cos., Inc. 1,774,464
37,800 State Street Corp. 2,877,525
40,900 Summit Bancorp 1,416,163
75,500 SunTrust Banks, Inc. 5,525,656
62,950 Synovus Financial Corp. 1,349,491
28,500 T. Rowe Price Associates 1,011,750
33,000 Torchmark Corp. 1,029,188
171,565 U.S. Bancorp, Inc. 6,358,628
55,814 UNUMProvident Corp. 1,838,374
33,600 Union Planters Corp. 1,495,200
47,700 Wachovia Corp. 4,114,125
139,676 Washington Mutual, Inc. 5,019,606
388,860 Wells Fargo Co. 18,616,673
TOTAL 409,360,704
Health Care10.0%
357,300 Abbott Laboratories 14,425,988
15,500 Allergan, Inc. 1,664,313
23,500 /2/Alza Corp. 1,006,094
307,200 American Home Products Corp. 16,051,200
119,800 /2/Amgen, Inc. 9,554,050
12,600 Bard (C.R.), Inc. 679,613
13,200 Bausch & Lomb, Inc. 712,800
68,600 Baxter International, Inc. 4,450,425
58,600 Becton, Dickinson & Co. 1,486,975
26,400 Biomet, Inc. 795,300
97,200 /2/Boston Scientific Corp. 1,956,150
467,900 Bristol-Myers Squibb Co. 35,940,569
133,707 Columbia/HCA Healthcare Corp. 3,225,681
70,900 Guidant Corp. 3,500,688
99,600 /2/HEALTHSOUTH, Corp. 572,700
39,400 /2/Humana, Inc. 270,875
316,600 Johnson & Johnson 33,163,850
256,900 Lilly (Eli) & Co. 17,693,988
16,800 Mallinckrodt, Inc. 570,150
26,050 /2/Manor Care, Inc. 410,288
275,000 Medtronic, Inc. 9,521,875
551,400 Merck & Co., Inc. 43,870,763
911,000 Pfizer, Inc. 35,984,500
119,655 Pharmacia & Upjohn, Inc. 6,453,892
346,000 Schering Plough Corp. 17,127,000
19,841 /2/St. Jude Medical, Inc. 543,147
73,000 /2/Tenet Healthcare Corp. 1,418,938
40,700 United Healthcare Corp. 2,103,681
200,200 Warner-Lambert Co. 15,978,463
22,400 /2/Watson Pharmaceuticals, Inc. 711,200
15,900 /2/Wellpoint Health Networks, Inc. 922,200
TOTAL 282,767,356
Technology22.0%
84,500 /2/3Com Corp. 2,450,500
31,600 /2/ADC Telecommunications, Inc. 1,506,925
24,300 /2/Adaptec, Inc. 1,093,500
29,600 Adobe System, Inc. 2,070,150
34,100 /2/Advanced Micro Devices, Inc. 675,606
260,500 /2/America Online, Inc. 33,783,594
40,900 /2/Analog Devices, Inc. 2,172,813
19,462 /2/Andrew Corp. 250,573
37,400 /2/Apple Computer, Inc. 2,996,675
87,800 /2/Applied Materials, Inc. 7,885,538
14,000 Autodesk, Inc. 262,500
145,000 Automatic Data Processing, Inc. 6,987,188
55,500 /2/BMC Software, Inc. 3,562,406
40,500 /2/Cabletron Systems, Inc. 670,781
33,700 /2/Ceridian Corp. 739,294
764,300 /2/Cisco Systems, Inc. 56,558,200
399,961 Compaq Computer Corp. 7,599,259
126,862 Computer Associates International, Inc. 7,167,703
37,400 /2/Computer Sciences Corp. 2,568,913
86,500 /2/Compuware Corp. 2,405,781
16,400 /2/Comverse Technology, Inc. 1,861,400
599,100 /2/Dell Computer Corp. 24,038,888
241,887 /2/EMC Corp. Mass 17,657,751
74,400 Eastman Kodak Co. 5,128,950
116,000 Electronic Data Systems Corp. 6,786,000
34,700 Equifax, Inc. 936,900
100,900 First Data Corp. 4,609,869
73,600 /2/Gateway 2000, Inc. 4,862,200
40,600 /2/General Instrument Corp. 2,184,788
22,400 Grainger (W.W.), Inc. 949,200
18,600 Harris Corp. 417,338
239,000 Hewlett-Packard Co. 17,700,938
34,800 Ikon Office Solutions, Inc. 239,250
777,700 Intel Corp. 60,223,144
425,300 International Business Machines Corp. 41,838,888
20,700 /2/KLA-Tencor Corp. 1,639,181
33,300 /2/LSI Logic Corp. 1,771,144
30,200 /2/Lexmark Intl. Group, Class A 2,357,488
720,328 Lucent Technologies, Inc. 46,281,074
58,300 Micron Technology, Inc. 4,157,519
1,200,900 /2/Microsoft Corp. 111,158,306
141,900 Motorola, Inc. 13,826,381
39,300 /2/National Semiconductor Corp. 1,176,544
17,000 /2/Network Appliance, Inc. 1,258,000
312,520 Nortel Networks Corp. 19,356,708
79,500 /2/Novell, Inc. 1,594,969
338,962 /2/Oracle Corp. 16,121,880
23,400 PE Corp.-PE Biosystems Group 1,518,075
63,000 /2/Parametric Technology Corp. 1,200,938
57,750 Paychex, Inc. 2,273,906
54,900 /2/Peoplesoft, Inc. 823,500
10,500 Perkin-Elmer, Inc. 428,531
10,300 Polaroid Corp. 229,819
37,700 /2/Qualcomm, Inc. 8,397,675
79,300 Raytheon Co., Class B 2,309,613
17,800 Scientific-Atlanta, Inc. 1,019,050
52,400 /2/Seagate Technology, Inc. 1,542,525
6,300 Shared Medical Systems Corp. 237,825
44,200 /2/Silicon Graphics, Inc. 342,550
181,400 /2/Sun Microsystems, Inc. 19,194,388
11,000 Tektronix, Inc. 371,250
91,400 /2/Tellabs, Inc. 5,781,050
184,400 Texas Instruments, Inc. 16,549,900
71,900 /2/Unisys Corp. 1,743,575
155,600 Xerox Corp. 4,356,800
TOTAL 621,863,567
Transportation1.0%
36,100 /2/AMR Corp. 2,292,350
110,433 Burlington Northern Santa Fe 3,520,052
51,100 CSX Corp. 2,095,100
144,330 Carnival Corp., Class A 6,422,685
33,400 Delta Air Lines, Inc. 1,818,213
69,680 /2/FDX Corp. 3,000,595
25,800 Kansas City Southern Industries, Inc. 1,223,888
89,300 Norfolk Southern Corp. 2,182,269
16,900 Ryder Systems, Inc. 361,238
118,725 Southwest Airlines Co. 1,996,064
17,400 /2/US Airways Group, Inc. 487,200
58,200 Union Pacific Corp. 3,244,650
TOTAL 28,644,304
Utilities3.0%
32,300 Ameren Corp. 1,221,344
45,100 American Electric Power Co., Inc. 1,555,950
167,500 CBS Corp. 8,176,094
35,600 Carolina Power & Light Co. 1,228,200
50,100 Central & SouthWest Corp. 1,111,594
37,340 Cinergy Corp. 1,054,855
50,100 Coastal Corp. 2,110,463
19,650 Columbia Energy Group 1,277,250
174,100 Comcast Corp., Class A 7,333,962
54,900 Consolidated Edison Co. 2,096,494
22,600 Consolidated Natural Gas Co. 1,446,400
35,150 Constellation Energy Group 1,078,666
34,200 DTE Energy Co. 1,135,013
45,950 Dominion Resources, Inc. 2,211,344
85,272 Duke Energy Corp. 4,817,868
5,300 Eastern Enterprises 270,963
83,000 Edison International 2,458,875
53,100 El Paso Energy Corp. 2,177,100
165,400 Enron Corp. 6,605,663
58,100 Entergy Corp. 1,739,369
42,600 FPL Group, Inc. 2,143,313
55,800 FirstEnergy Corp. 1,454,288
24,000 Florida Progress Corp. 1,099,500
30,100 GPU, Inc. 1,021,519
11,200 NICOR, Inc. 434,000
26,900 New Century Energies, Inc. 875,931
44,100 Niagara Mohawk Holdings, Inc. 700,088
35,900 Northern States Power Co. 771,850
7,400 ONEOK, Inc. 215,988
90,100 PG & E Corp. 2,066,669
35,591 PP & L Resources, Inc. 963,181
70,000 Pacificorp 1,443,750
45,100 Peco Energy Co. 1,722,256
8,400 Peoples Energy Corp. 319,200
19,900 Pinnacle West Capital Corp. 733,813
52,500 Public Service Enterprises Group, Inc. 2,077,031
69,751 Reliant Energy, Inc. 1,900,713
56,518 Sempra Energy 1,155,087
164,200 Southern Co. 4,361,563
66,425 Texas Utilities Co. 2,573,969
51,100 Unicom Corp. 1,957,769
100,700 Williams Cos., Inc. (The) 3,776,250
TOTAL 84,875,195
TOTAL COMMON STOCKS (IDENTIFIED COST $1,487,992,058) 2,649,465,109
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
SHORT-TERM U.S. GOVERNMENT OBLIGATION0.3%/3/
$ 10,000,000 United States Treasury Bill, 1/6/2000 (IDENTIFIED COST $9,915,667) $ 9,916,000
REPURCHASE AGREEMENT5.5%/4/
154,380,000 ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT AMORTIZED COST) 154,380,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,652,287,725)/5/ $ 2,813,761,109
</TABLE>
/1/ The Fund purchases Index futures contracts to efficiently manage cash
flows resulting from shareholder purchases and redemptions, dividend and
capital gain payments to shareholders and corporate actions while
maintaining exposure to the Index and minimizing trading costs. The total
market value of open Index futures contracts is $166,864,250 at October 31,
1999, which represents 5.9% of net assets. Taking into consideration these
open Index futures contracts, the Fund's effective total exposure to the
Index is 99.6%.
/2/ Non-income producing security.
/3/ Represents a security held as collateral which is used to ensure the Fund
is able to satisfy the obligations of its outstanding long future
contracts.
/4/ The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
/5/ The cost of investments for federal tax purposes amounts to $1,652,287,725.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,161,473,384 which is comprised of $1,229,296,328 appreciation
and $67,822,944 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,826,817,480) at October 31, 1999.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified and tax cost $1,652,287,725) $ 2,813,761,109
Cash 528,630
Income receivable 2,658,943
Receivable for shares sold 11,019,548
Receivable for daily variation margin 3,032,262
TOTAL ASSETS 2,831,000,492
Liabilities:
Payable for shares redeemed $ 3,502,903
Payable for taxes withheld 53,383
Accrued expenses 626,726
TOTAL LIABILITIES 4,183,012
Net assets for 100,687,896 shares outstanding $ 2,826,817,480
Net Assets Consist of:
Paid in capital $ 1,638,802,010
Net unrealized appreciation of investments and futures contracts 1,164,012,124
Accumulated net realized gain on investments and futures contracts 20,647,333
Accumulated undistributed net investment income 3,356,013
TOTAL NET ASSETS $ 2,826,817,480
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
Net Asset Value and Offering Price Per Share
($2,003,589,699 / 71,314,846 shares outstanding) $ 28.09
Redemption Proceeds Per Share $ 28.09
Institutional Service Shares:
Net Asset Value and Offering Price Per Share
($726,976,397 / 25,931,064 shares outstanding) $ 28.03
Redemption Proceeds Per Share $ 28.03
Class C Shares:
Net Asset Value and Offering Price Per Share
($96,251,384 / 3,441,986 shares outstanding) $ 27.96
Redemption Proceeds Per Share (99/100 of $27.96)/1/ $ 27.68
</TABLE>
/1/ See "What Do Shares Cost?"
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $213,782) $ 31,831,796
Interest 5,844,814
TOTAL INCOME 37,676,610
Expenses:
Investment advisory fee $ 7,509,707
Custodian fees 133,244
Transfer and dividend disbursing agent fees and expenses 506,382
Directors'/Trustees' fees 14,836
Auditing fees 15,356
Legal fees 10,302
Portfolio accounting fees 176,572
Distribution services fee--Institutional Service Shares 1,946,654
Distribution services fee--Class C Shares 388,614
Shareholder services fee--Institutional Shares 4,504,786
Shareholder services fee--Institutional Service Shares 1,622,211
Shareholder services fee--Class C Shares 129,538
Share registration costs 370,457
Printing and postage 66,166
Insurance premiums 6,068
Miscellaneous 19,345
TOTAL EXPENSES 17,420,238
Waivers:
Waiver of investment advisory fee $ (759,554)
Waiver of distribution services fee--Institutional Service Shares (1,427,546)
Waiver of shareholder services fee--Institutional Shares (4,504,786)
Waiver of shareholder services fee--Institutional Service Shares (194,666)
TOTAL WAIVERS (6,886,552)
Net expenses 10,533,686
Net investment income 27,142,924
Realized and Unrealized Gain on Investments and Futures Contracts:
Net realized gain on investments and futures contracts 27,327,240
Net change in unrealized appreciation of investments and
futures contracts 454,485,986
Net realized and unrealized gain on investments and futures contracts 481,813,226
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 508,956,150
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 27,142,924 $ 23,545,370
Net realized gain on investments and futures contracts ($26,799,393 and
$18,621,157, respectively, as computed for federal tax purposes) 27,327,240 15,258,606
Net change in unrealized appreciation of investments and futures contracts 454,485,986 284,412,168
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 508,956,150 323,216,144
Distributions to Shareholders:
Distributions from net investment income
Institutional Shares (19,497,540) (19,446,188)
Institutional Service Shares (5,207,706) (4,226,227)
Class C Shares (111,070) (43,855)
Distributions from net realized gain on investments and futures contracts
Institutional Shares (13,803,989) (36,852,857)
Institutional Service Shares (4,665,973) (8,247,035)
Class C Shares (161,153) (554)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (43,447,431) (68,816,716)
Share Transactions:
Proceeds from sale of shares 1,456,300,443 1,232,374,399
Net asset value of shares issued to shareholders in payment of distributions
declared 28,068,153 40,899,081
Cost of shares redeemed (1,061,778,792) (977,021,217)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 422,589,804 296,252,263
Change in net assets 888,098,523 550,651,691
Net Assets:
Beginning of period 1,938,718,957 1,388,067,266
End of period (including accumulated undistributed net investment income of
$3,356,013 and $1,029,405, respectively) $ 2,826,817,480 $ 1,938,718,957
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999
ORGANIZATION
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Max-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund 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 Index.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's manager to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed
Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cash flows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $9,743,049.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. At October 31, 1999, the Fund had outstanding futures
contracts as set forth below:
<TABLE>
<CAPTION>
Contracts
Expiration to Deliver/ Unrealized
Date Receive Position Appreciation
<S> <C> <C> <C>
December 1999 485 S&P 500
Index Futures Long $2,538,740
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Institutional Service Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 16,555,183 $ 439,185,232 18,076,229 $ 397,272,246
Shares issued to shareholders in payment of distributions
declared 356,733 8,891,933 546,583 11,354,168
Shares redeemed (11,882,321) (316,985,650) (10,230,460) (223,926,039)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE
TRANSACTIONS 5,029,595 $ 131,091,515 8,392,352 $ 184,700,375
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Institutional Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 34,438,353 $ 914,112,968 37,421,180 $ 818,155,777
Shares issued to shareholders in payment of distributions
declared 755,144 18,919,768 1,421,571 29,500,992
Shares redeemed (26,964,995) (715,289,313) (33,733,666) (751,275,289)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 8,228,502 $ 217,743,423 5,109,085 $ 96,381,480
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998/1/
Class C Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 3,834,755 $ 103,002,243 771,237 $ 16,946,376
Shares issued to shareholders in payment of
distributions declared 10,371 256,452 1,948 43,921
Shares redeemed (1,094,794) (29,503,829) (81,531) (1,819,889)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 2,750,332 $ 73,754,866 691,654 $ 15,170,408
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 16,008,429 $ 422,589,804 14,193,091 $ 296,252,263
</TABLE>
/1/ Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
MANAGEMENT FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
Management Fee
Federated Investment Management Company, the Fund's manager (the "Manager"),
receives for its services an annual investment advisory fee equal to 0.30% of
the Fund's average daily net assets. Under the terms of a sub-advisory agreement
between the Manager and Northern Trust Quantitative Advisors, Inc. (the "Sub-
Manager"), the Sub-Manager receives an annual fee from the manager based on the
average daily net assets of the Fund as follows: 0.05% on the first $100
million, 0.02% on the next $100 million, and 0.01% thereafter. The Manager may
voluntarily choose to waive any portion of its fee. The Manager can modify or
terminate this voluntary waiver at any time at its sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholders
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Class C Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of Class
<S> <C>
Institutional Service Shares 0.30%
Class C Shares 0.75%
</TABLE>
Transfer and Dividend Disbursing Agent Fees
and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $342,091,548
Sales $ 64,263,083
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST AND SHAREHOLDERS OF FEDERATED
MAX-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Max-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Max-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 16, 1999
[FEDERATED LOGO]
World-Class Investment Manager(SM)
Federated
Max-Cap Fund
A Portfolio of Federated Index Trust
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion and Analysis discusses market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
To obtain the SAI, Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[FEDERATED LOGO]
Federated Max-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E403
0032104A-SS (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C)Federated Investors, Inc.
[RECYCLED LOGO]
DECEMBER 31, 1999
PROSPECTUS
FEDERATED MAX-CAP FUND
A Portfolio of Federated Index Trust
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 nor affiliated with Standard & Poor's.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 36
</TABLE>
- -------------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
- -------------------
DECEMBER 31, 1999
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 Composite
Stock Price Index (Index). While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN
INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the large capitalization 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. The primary factors that may reduce the Fund's returns
include:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly
or over a sustained period of time.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[BAR CHART APPEARS HERE]
The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares total return for the nine-month period from
January 1, 1999 to September 30, 1999 was 4.99%.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 21.22% (quarter ended December 31, 1998). Its lowest
quarterly return was (9.97%) (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Institutional Shares Average Annual
Total Returns for the calendar period ended December 31, 1998. The table shows
the Fund's Institutional Shares total returns averaged over a period of years
relative to the Standard & Poor's 500 Index, a broad based market index. Total
returns for the index shown do not reflect sales charges, expenses or other fees
that the SEC requires to be reflected in the Fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.
<TABLE>
<CAPTION>
Institutional
Calendar Period Shares S&P 500
- ------------------------------------------------------------------
<S> <C> <C>
1 Year 28.27% 28.58%
- ------------------------------------------------------------------
5 Years 23.64% 24.06%
- ------------------------------------------------------------------
Start of Performance/1/ 18.40% 18.55%
- ------------------------------------------------------------------
</TABLE>
1 The Fund's Institutional Shares start of performance date was July 11, 1990.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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
the Fund's Institutional Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee/2/........................................................................................................... 0.30%
Distribution (12b-1) Fee.................................................................................................... None
Shareholder Services Fee/3/................................................................................................. 0.25%
Other Expenses.............................................................................................................. 0.05%
Total Annual Fund Operating Expenses........................................................................................ 0.60%
- -----------------------------------------------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the manager and shareholder services provider waived certain amounts.
These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses........................................................................................... 0.28%
Total Actual Annual Fund Operating Expenses (after waivers).............................................................. 0.32%
2 The manager voluntarily waived a portion of the management fee. The manager
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.27% for the fiscal year ended
October 31, 1999.
3 The shareholder services provider voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any
time. The shareholder services fee paid by the Fund's Institutional Shares
(after the voluntary waiver) was 0.00% for the fiscal year ended October 31,
1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the 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 Fund's Institutional Shares operating expenses are before
waivers as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $61 $192 $335 $750
</TABLE>
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,
1999, the capitalization range of the Index was $222 million to $462.2 billion.
As of the same date, the weighted median market capitalization of the Fund was
$65.4 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?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
STOCK INDEX FUTURES
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 rise and fall. 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. Consequently, the Fund's share price may
decline.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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 (as
described in the prospectus), it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values 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).
Futures contracts are generally valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are generally valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option.
The 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 a smaller minimum
investment amount. 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 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, 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.
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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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
. Establish your account with the Fund by submitting a completed New Account
Form; and
. 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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.
HOW TO REDEEM SHARES
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non- financial institution clients invest. In total, the Sub- Manager
manages 67 commingled/common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
MANAGEMENT FEES
The Manager receives an annual management fee equal to 0.30% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses.
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 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
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 Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. 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 any
dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 36.
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.91 $19.70 $15.49 $14.74 $12.02
- -------------------------------------------
Income From Investment Operations:
- -------------------------------------------
Net investment income 0.31 0.31 0.31 0.34 0.38
- -------------------------------------------
Net realized and unrealized gain on
investments and futures contracts 5.38 3.83 4.47 2.80 2.70
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.69 4.14 4.78 3.14 3.08
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
- -------------------------------------------
Distributions from net
investment income (0.29) (0.31) (0.33) (0.36) (0.34)
- -------------------------------------------
Distributions from net realized
gain on investments and
futures contracts (0.22) (0.62) (0.24) (2.03) (0.02)
- -------------------------------------------
TOTAL DISTRIBUTIONS (0.51) (0.93) (0.57) (2.39) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $28.09 $22.91 $19.70 $15.49 $14.74
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return/1/ 25.11% 21.56% 31.51% 23.71% 26.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses/2/ 0.60% 0.58% 0.61% 0.62% 0.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/2/ 0.90% 1.13% 1.40% 1.98% 2.58%
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses (after waivers) 0.32% 0.31% 0.31% 0.31% 0.31%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (after waivers) 1.18% 1.40% 1.70% 2.29% 2.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $2,003,590 $1,445,175 $1,142,081 $900,131 $679,237
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 3% 3% 16% 3% 57%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.7%/1/
Basic Materials--2.8%
<S> <C> <C>
54,000 Air Products & Chemicals, Inc. $ 1,485,000
53,600 Alcan Aluminum, Ltd. 1,765,450
86,400 Alcoa, Inc. 5,248,800
46,192 Allegheny Teledyne, Inc. 701,541
146,351 Archer-Daniels-Midland Co. 1,801,947
91,800 Barrick Gold Corp. 1,681,088
12,300 Bemis Co., Inc. 429,731
30,600 /2/Bethlehem Steel Corp. 212,288
13,300 Boise Cascade Corp. 473,812
22,500 Champion International Corp. 1,300,780
52,100 Dow Chemical Co. 6,160,825
245,381 Du Pont (E.I.) de Nemours & Co. 15,811,764
18,625 Eastman Chemical Co. 718,226
30,480 Ecolab, Inc. 1,030,605
33,762 Engelhard Corp. 595,055
7,800 /2/FMC Corp. 317,362
39,000 Freeport-McMoRan Copper & Gold, Inc., Class B 650,812
41,400 Georgia-Pacific Corp. 1,643,062
25,800 Goodrich (B.F.) Co. 611,137
17,300 /2/Grace (W.R.) & Co. 258,419
13,900 Great Lakes Chemical Corp. 493,450
23,700 Hercules, Inc. 570,281
61,200 Homestake Mining Co. 512,550
25,000 International Flavors & Fragrances, Inc. 956,250
96,545 International Paper Co. 5,080,681
25,600 Louisiana-Pacific Corp. 324,800
24,000 Mead Corp. 864,000
147,500 Monsanto Co. 5,678,750
39,357 Newmont Mining Corp. 863,394
20,600 Nucor Corp. 1,068,625
41,400 PPG Industries, Inc. 2,509,875
21,108 Phelps Dodge Corp. 1,189,935
76,600 Placer Dome, Inc. 928,775
6,800 Potlatch Corp. 286,875
37,100 Praxair, Inc. 1,734,425
15,500 Reynolds Metals Co. 936,781
49,973 Rohm & Haas Co. 1,911,467
23,700 Sigma-Aldrich Corp. 675,450
13,100 Temple-Inland, Inc. 761,437
20,820 USX-U.S. Steel Group, Inc. 532,211
31,300 Union Carbide Corp. 1,909,300
23,800 Vulcan Materials Co. 983,237
23,650 Westvaco Corp. 702,109
46,900 Weyerhaeuser Co. 2,799,344
26,100 Willamette Industries, Inc. 1,084,781
21,750 Worthington Industries, Inc. 361,594
TOTAL 78,618,081
Capital Goods--7.9%
44,000 /2/Allied Waste Industries, Inc. 462,000
131,200 Allied-Signal, Inc. 7,470,200
27,400 Avery Dennison Corp. 1,712,500
7,300 Ball Corp. 294,281
225,808 Boeing Co. 10,401,281
5,500 Briggs & Stratton Corp. 321,406
17,400 Case Corp. 922,200
84,500 Caterpillar, Inc. 4,668,625
22,200 Cooper Industries, Inc. 955,987
57,400 Corning, Inc. 4,513,075
16,175 Crane Co. 330,576
28,800 Crown Cork & Seal Co., Inc. 689,400
9,900 Cummins Engine Co., Inc. 501,806
56,200 Deere & Co. 2,037,250
49,000 Dover Corp. 2,085,562
16,800 Eaton Corp. 1,264,200
103,000 Emerson Electric Co. 6,186,437
17,800 Fluor Corp. 709,775
9,600 Foster Wheeler Corp. 108,000
46,840 General Dynamics Corp. 2,596,692
771,200 General Electric Co. 104,545,800
29,700 Honeywell, Inc. 3,131,494
58,900 Illinois Tool Works, Inc. 4,314,425
42,600 Inco Ltd. 862,650
38,700 Ingersoll-Rand Co. 2,022,075
20,000 Johnson Controls, Inc. 1,215,000
92,376 Lockheed Martin Corp. 1,847,520
13,900 McDermott International, Inc. 251,937
9,100 Milacron, Inc. 149,581
10,400 Millipore Corp. 331,500
94,600 Minnesota Mining & Manufacturing Co. 8,992,912
1,948 NACCO Industries, Inc., Class A 90,338
9,700 National Service Industries, Inc. 312,825
15,570 /2/Navistar International Corp. 649,074
16,200 Northrop Grumman, Corp. 888,975
36,600 /2/Owens-Illinois, Inc. 876,112
18,380 PACCAR, Inc. 866,157
29,333 Pall Corp. 643,493
25,500 Parker-Hannifin Corp. 1,168,219
64,200 Pitney Bowes, Inc. 2,925,112
44,700 Rockwell International Corp. 2,165,156
19,600 /2/Sealed Air Corp. 1,085,350
63,200 /2/Solectron Corp. 4,755,800
40,100 Tenneco, Inc. 641,600
35,500 Textron, Inc. 2,740,156
37,400 /2/Thermo Electron Corp. 504,900
13,400 Thomas & Betts Corp. 601,325
14,600 Timken Co. 261,887
393,468 Tyco International Ltd. 15,714,128
113,500 United Technologies Corp. 6,866,750
143,328 Waste Management, Inc. 2,633,652
TOTAL 222,287,156
Communication Services--8.3%
748,772 AT&T Corp. 35,005,091
71,800 Alltel Corp. 5,977,350
365,484 Bell Atlantic Corp. 23,733,617
445,700 BellSouth Corp. 20,056,500
32,500 CenturyTel, Inc. 1,314,219
230,600 GTE Corp. 17,295,000
180,820 /2/Global Crossing Ltd. 6,260,892
440,397 /2/MCI Worldcom, Inc. 37,791,567
142,900 /2/MediaOne Group, Inc. 10,154,831
78,000 /2/NEXTEL Communications, Inc., Class A 6,722,625
802,626 SBC Communications, Inc. 40,883,762
203,600 Sprint Corp. 15,130,025
103,550 /2/Sprint PCS Group 8,588,178
118,455 U.S. West, Inc. 7,233,158
TOTAL 236,146,815
Consumer Cyclicals--8.3%
16,500 American Greetings Corp., Class A 426,937
9,400 Armstrong World Industries, Inc. 351,325
35,300 /2/AutoZone, Inc. 937,656
32,800 /2/Bed Bath & Beyond, Inc. 1,092,650
48,400 /2/Best Buy Co., Inc. 2,689,225
20,700 Black & Decker Corp. 890,100
23,000 Block (H&R), Inc. 978,937
21,600 Brunswick Corp. 488,700
170,107 /2/Cendant Corp. 2,806,765
14,000 Centex Corp. 375,375
47,400 Circuit City Stores, Inc. 2,023,387
25,800 /2/Consolidated Stores Corp. 472,462
17,800 Cooper Tire & Rubber Co. 299,262
51,350 /2/Costco Wholesale Corp. 4,124,047
39,045 Dana Corp. 1,154,268
31,500 Danaher Corp. 1,521,844
103,800 Dayton-Hudson Corp. 6,708,075
132,705 Delphi Auto Systems Corp. 2,181,338
25,200 Dillards, Inc., Class A 475,650
52,062 Dollar General Corp. 1,373,135
22,100 Dow Jones & Co. 1,359,150
38,900 Dun & Bradstreet Corp. 1,142,687
49,400 /2/Federated Department Stores, Inc. 2,108,762
8,200 Fleetwood Enterprises, Inc. 178,862
284,900 Ford Motor Co. 15,633,887
66,300 Gannett Co., Inc. 5,113,387
201,375 Gap (The), Inc. 7,476,047
151,400 General Motors Corp. 10,635,850
42,350 Genuine Parts Co. 1,103,747
36,700 Goodyear Tire & Rubber Co. 1,516,169
16,700 Harcourt General, Inc. 642,950
29,750 /2/Harrah's Entertainment, Inc. 860,891
46,200 Hasbro, Inc. 952,875
61,400 Hilton Hotels Corp. 567,950
348,600 Home Depot, Inc. 26,319,300
75,000 IMS Health, Inc. 2,175,000
20,700 ITT Industries, Inc. 707,681
65,500 Interpublic Group Cos., Inc. 2,660,937
8,352 Jostens, Inc. 176,436
116,100 /2/K Mart Corp. 1,168,256
11,300 Kaufman & Broad Homes Corp. 226,706
18,500 Knight-Ridder, Inc. 1,174,750
38,300 /2/Kohl's Corp. 2,865,319
77,700 Laidlaw, Inc. 475,912
46,300 Leggett and Platt, Inc. 1,027,281
51,790 Limited, Inc. 2,129,864
15,200 Liz Claiborne, Inc. 608,000
87,400 Lowe's Cos., Inc. 4,807,000
58,700 Marriott International, Inc., Class A 1,977,456
104,100 Masco Corp. 3,175,050
98,125 Mattel, Inc. 1,312,422
78,600 May Department Stores Co. 2,726,437
21,200 Maytag Corp. 849,325
46,300 McGraw-Hill Cos., Inc. 2,760,636
12,300 Meredith Corp. 438,956
46,300 /2/Mirage Resorts, Inc. 674,244
5,032 /2/Neiman-Marcus Group, Inc., Class B 107,867
42,900 New York Times Co., Class A 1,726,725
66,500 Nike, Inc., Class B 3,753,094
33,500 Nordstrom, Inc. 835,406
88,200 /2/Office Depot, Inc. 1,096,987
42,100 Omnicom Group, Inc. 3,704,800
12,800 Owens Corning 262,400
62,000 Penney (J.C.) Co., Inc. 1,573,250
12,356 Pep Boys-Manny Moe & Jack 154,450
10,200 Pulte Corp. 205,275
13,300 /2/Reebok International Ltd. 130,506
8,500 Russell Corp. 129,094
90,200 Sears, Roebuck & Co. 2,542,512
64,400 Service Corp. International 615,825
40,500 Sherwin-Williams Co. 906,187
15,400 Snap-On Tools Corp. 467,775
4,300 Springs Industries, Inc., Class A 171,194
20,900 Stanley Works 579,975
108,500 /2/Staples, Inc. 2,407,344
76,100 TJX Cos., Inc. 2,064,212
28,200 TRW, Inc. 1,209,075
46,660 Tandy Corp. 2,936,664
16,900 Times Mirror Co., Class A 1,218,912
59,300 /2/Toys `R' Us, Inc. 837,612
56,000 Tribune Co. 3,360,000
28,200 V.F. Corp. 847,761
1,047,000 Wal-Mart Stores, Inc. 59,351,812
17,900 Whirlpool Corp. 1,247,406
TOTAL 235,545,440
Consumer Staples--10.3%
13,400 Alberto-Culver Co., Class B 315,737
98,561 Albertsons, Inc. 3,578,996
109,900 Anheuser-Busch Cos., Inc. 7,892,194
61,800 Avon Products, Inc. 1,993,050
67,300 BestFoods 3,953,875
16,100 Brown-Forman Corp., Class B 1,086,750
91,800 CVS Corp. 3,987,562
104,700 Campbell Soup Co. 4,711,500
64,050 Cardinal Health, Inc. 2,762,156
78,100 /2/Clear Channel Communications, Inc. 6,277,287
55,200 Clorox Co. 2,259,750
99,900 Coca Cola Enterprises, Inc. 2,553,694
580,400 Coca-Cola Co. 34,243,600
137,800 Colgate-Palmolive Co. 8,336,900
115,200 ConAgra, Inc. 3,002,400
8,600 Coors Adolph Co., Class B 477,300
32,400 Darden Restaurants, Inc. 617,625
18,900 Deluxe Corp. 533,925
484,000 Disney (Walt) Co. 12,765,500
31,600 Donnelley (R.R.) & Sons Co. 766,300
51,900 Fort James Corp. 1,365,619
40,300 Fortune Brands, Inc. 1,428,131
36,100 General Mills, Inc. 3,147,469
255,100 Gillette Co. 9,231,431
9,000 Great Atlantic & Pacific Tea Co., Inc. 257,062
85,200 Heinz (H.J.) Co. 4,068,300
33,700 Hershey Foods Corp. 1,701,850
95,400 Kellogg Co. 3,798,112
125,248 Kimberly-Clark Corp. 7,906,280
16,800 /2/King World Productions, Inc. 651,000
193,600 /2/Kroger Co., Inc. 4,029,300
9,200 Longs Drug Stores Corp. 250,700
318,600 McDonald's Corp. 13,142,250
65,226 McKesson HBOC, Inc. 1,308,597
76,500 Nabisco Group Holdings Corp. 980,156
66,144 Newell Rubbermaid, Inc. 2,290,236
347,500 PepsiCo, Inc. 12,053,906
561,900 Philip Morris Cos., Inc. 14,152,856
312,600 Procter & Gamble Co. 32,783,925
32,100 Quaker Oats Co. 2,247,000
77,300 Ralston Purina Co. 2,430,119
60,900 Rite Aid Corp. 532,875
120,000 /2/Safeway, Inc. 4,237,500
214,700 Sara Lee Corp. 5,810,319
100,700 Seagram Co. Ltd. 4,972,062
28,300 Supervalu, Inc. 594,300
78,400 Sysco Corp. 3,013,500
304,080 Time Warner, Inc. 21,190,575
35,930 /2/Tricon Global Restaurants, Inc. 1,443,937
13,600 Tupperware Corp. 269,450
43,800 UST, Inc. 1,212,712
134,572 Unilever N.V., ADR 8,974,295
163,836 /2/Viacom, Inc., Class B 7,331,661
235,100 Walgreen Co. 5,921,581
29,300 Wendy's International, Inc. 699,538
35,000 Winn-Dixie Stores, Inc. 947,188
27,300 Wrigley (Wm.), Jr. Co. 2,182,294
TOTAL 290,674,187
Energy--5.6%
44,800 /2/AES Corp. 2,528,400
21,300 Amerada-Hess Corp. 1,222,088
28,300 Anadarko Petroleum Corp. 871,994
26,100 Apache Corp. 1,017,900
17,500 Ashland, Inc. 577,500
76,800 Atlantic Richfield Co. 7,156,800
76,990 Baker Hughes, Inc. 2,150,908
41,765 Burlington Resources, Inc. 1,456,554
27,600 CMS Energy Corp. 1,017,750
154,200 Chevron Corp. 14,080,388
147,779 Conoco, Inc., Class B 4,008,505
570,800 Exxon Corp. 42,274,875
103,500 Halliburton Co. 3,900,656
11,600 Helmerich & Payne, Inc. 276,225
20,376 Kerr-McGee Corp. 1,095,210
183,600 Mobil Corp. 17,717,400
81,400 Occidental Petroleum Corp. 1,856,938
59,900 Phillips Petroleum Co. 2,785,350
19,700 /2/Rowan Companies, Inc. 306,581
504,900 Royal Dutch Petroleum Co., ADR 30,262,444
128,500 Schlumberger Ltd. 7,782,281
22,037 Sunoco, Inc. 531,643
129,900 Texaco, Inc. 7,972,613
35,800 Tosco Corp. 906,188
72,400 USX Marathon Group 2,108,650
59,094 Union Pacific Resources Group, Inc. 856,863
56,800 Unocal Corp. 1,959,600
TOTAL 158,682,304
Financials--14.5%
60,075 AON Corp. 2,132,663
33,655 Aetna, Inc. 1,691,164
62,900 Aflac, Inc. 3,215,763
187,710 Allstate Corp. 5,396,663
105,600 American Express Co. 16,262,400
59,330 American General Corp. 4,401,544
364,416 American International Group, Inc. 37,512,072
92,600 Amsouth Bancorporation 2,384,450
171,432 Associates First Capital Corp., Class A 6,257,268
73,200 BB&T Corp. 2,662,650
277,886 Bank One Corporation 10,438,082
406,092 Bank of America Corp. 26,142,173
172,900 Bank of New York Co., Inc. 7,240,188
26,625 Bear Stearns Cos., Inc. 1,134,891
46,800 CIGNA Corp. 3,498,300
46,200 Capital One Financial Corp. 2,448,600
195,740 Chase Manhattan Corp. 17,102,783
41,700 Chubb Corp. 2,288,288
39,300 Cincinnati Financial Corp. 1,407,431
793,975 Citigroup, Inc. 42,973,897
36,650 Comerica, Inc. 2,178,384
75,461 Conseco, Inc. 1,834,646
26,500 Countrywide Credit Industries, Inc. 899,344
163,600 Federal Home Loan Mortgage Corp. 8,844,625
241,200 Federal National Mortgage Association 17,064,900
62,600 Fifth Third Bancorp 4,620,663
227,698 First Union Corp. 9,719,858
232,967 Firstar Corp. 6,843,406
216,491 Fleet Boston Corp. 9,444,425
59,500 Franklin Resources, Inc. 2,082,500
13,400 Golden West Financial Corp. 1,497,450
55,000 Hartford Financial Services Group, Inc. 2,849,688
113,659 Household International, Inc. 5,072,033
54,560 Huntington Bancshares, Inc. 1,616,340
41,700 J.P. Morgan & Co., Inc. 5,457,488
24,937 Jefferson-Pilot Corp. 1,871,834
107,200 KeyCorp 2,994,900
27,900 Lehman Brothers Holdings, Inc. 2,055,881
47,600 Lincoln National Corp. 2,195,550
26,800 Loews Corp. 1,899,450
23,400 MBIA Insurance Corp. 1,335,263
188,727 MBNA Corp. 5,213,583
25,800 MGIC Investment Corp. 1,541,550
61,900 Marsh & McLennan Cos., Inc. 4,893,969
123,000 Mellon Financial Corp. 4,543,313
86,600 Merrill Lynch & Co., Inc. 6,798,100
134,257 Morgan Stanley, Dean Witter & Co. 14,810,225
148,000 National City Corp. 4,366,000
70,800 PNC Bank Corp. 4,221,450
33,600 PaineWebber Group, Inc. 1,369,200
17,100 Progressive Corp., Ohio 1,582,819
33,300 Providian Financial Corp. 3,629,700
52,100 Regions Financial Corp. 1,566,256
25,300 Republic New York Corp. 1,598,644
32,100 SAFECO Corp. 882,750
39,000 SLM Holding Corp. 1,908,563
192,150 Schwab (Charles) Corp. 7,481,841
38,900 SouthTrust Corp. 1,556,000
55,452 St. Paul Cos., Inc. 1,774,464
37,800 State Street Corp. 2,877,525
40,900 Summit Bancorp 1,416,163
75,500 SunTrust Banks, Inc. 5,525,656
62,950 Synovus Financial Corp. 1,349,491
28,500 T. Rowe Price Associates 1,011,750
33,000 Torchmark Corp. 1,029,188
171,565 U.S. Bancorp, Inc. 6,358,628
55,814 UNUMProvident Corp. 1,838,374
33,600 Union Planters Corp. 1,495,200
47,700 Wachovia Corp. 4,114,125
139,676 Washington Mutual, Inc. 5,019,606
388,860 Wells Fargo Co. 18,616,673
TOTAL 409,360,704
Health Care--10.0%
357,300 Abbott Laboratories 14,425,988
15,500 Allergan, Inc. 1,664,313
23,500 /2/Alza Corp. 1,006,094
307,200 American Home Products Corp. 16,051,200
119,800 /2/Amgen, Inc. 9,554,050
12,600 Bard (C.R.), Inc. 679,613
13,200 Bausch & Lomb, Inc. 712,800
68,600 Baxter International, Inc. 4,450,425
58,600 Becton, Dickinson & Co. 1,486,975
26,400 Biomet, Inc. 795,300
97,200 /2/Boston Scientific Corp. 1,956,150
467,900 Bristol-Myers Squibb Co. 35,940,569
133,707 Columbia/HCA Healthcare Corp. 3,225,681
70,900 Guidant Corp. 3,500,688
99,600 /2/HEALTHSOUTH, Corp. 572,700
39,400 /2/Humana, Inc. 270,875
316,600 Johnson & Johnson 33,163,850
256,900 Lilly (Eli) & Co. 17,693,988
16,800 Mallinckrodt, Inc. 570,150
26,050 /2/Manor Care, Inc. 410,288
275,000 Medtronic, Inc. 9,521,875
551,400 Merck & Co., Inc. 43,870,763
911,000 Pfizer, Inc. 35,984,500
119,655 Pharmacia & Upjohn, Inc. 6,453,892
346,000 Schering Plough Corp. 17,127,000
19,841 /2/St. Jude Medical, Inc. 543,147
73,000 /2/Tenet Healthcare Corp. 1,418,938
40,700 United Healthcare Corp. 2,103,681
200,200 Warner-Lambert Co. 15,978,463
22,400 /2/Watson Pharmaceuticals, Inc. 711,200
15,900 /2/Wellpoint Health Networks, Inc. 922,200
TOTAL 282,767,356
Technology--22.0%
84,500 /2/3Com Corp. 2,450,500
31,600 /2/ADC Telecommunications, Inc. 1,506,925
24,300 /2/Adaptec, Inc. 1,093,500
29,600 Adobe System, Inc. 2,070,150
34,100 /2/Advanced Micro Devices, Inc. 675,606
260,500 /2/America Online, Inc. 33,783,594
40,900 /2/Analog Devices, Inc. 2,172,813
19,462 /2/Andrew Corp. 250,573
37,400 /2/Apple Computer, Inc. 2,996,675
87,800 /2/Applied Materials, Inc. 7,885,538
14,000 Autodesk, Inc. 262,500
145,000 Automatic Data Processing, Inc. 6,987,188
55,500 /2/BMC Software, Inc. 3,562,406
40,500 /2/Cabletron Systems, Inc. 670,781
33,700 /2/Ceridian Corp. 739,294
764,300 /2/Cisco Systems, Inc. 56,558,200
399,961 Compaq Computer Corp. 7,599,259
126,862 Computer Associates International, Inc. 7,167,703
37,400 /2/Computer Sciences Corp. 2,568,913
86,500 /2/Compuware Corp. 2,405,781
16,400 /2/Comverse Technology, Inc. 1,861,400
599,100 /2/Dell Computer Corp. 24,038,888
241,887 /2/EMC Corp. Mass 17,657,751
74,400 Eastman Kodak Co. 5,128,950
116,000 Electronic Data Systems Corp. 6,786,000
34,700 Equifax, Inc. 936,900
100,900 First Data Corp. 4,609,869
73,600 /2/Gateway 2000, Inc. 4,862,200
40,600 /2/General Instrument Corp. 2,184,788
22,400 Grainger (W.W.), Inc. 949,200
18,600 Harris Corp. 417,338
239,000 Hewlett-Packard Co. 17,700,938
34,800 Ikon Office Solutions, Inc. 239,250
777,700 Intel Corp. 60,223,144
425,300 International Business Machines Corp. 41,838,888
20,700 /2/KLA-Tencor Corp. 1,639,181
33,300 /2/LSI Logic Corp. 1,771,144
30,200 /2/Lexmark Intl. Group, Class A 2,357,488
720,328 Lucent Technologies, Inc. 46,281,074
58,300 Micron Technology, Inc. 4,157,519
1,200,900 /2/Microsoft Corp. 111,158,306
141,900 Motorola, Inc. 13,826,381
39,300 /2/National Semiconductor Corp. 1,176,544
17,000 /2/Network Appliance, Inc. 1,258,000
312,520 Nortel Networks Corp. 19,356,708
79,500 /2/Novell, Inc. 1,594,969
338,962 /2/Oracle Corp. 16,121,880
23,400 PE Corp.-PE Biosystems Group 1,518,075
63,000 /2/Parametric Technology Corp. 1,200,938
57,750 Paychex, Inc. 2,273,906
54,900 /2/Peoplesoft, Inc. 823,500
10,500 Perkin-Elmer, Inc. 428,531
10,300 Polaroid Corp. 229,819
37,700 /2/Qualcomm, Inc. 8,397,675
79,300 Raytheon Co., Class B 2,309,613
17,800 Scientific-Atlanta, Inc. 1,019,050
52,400 /2/Seagate Technology, Inc. 1,542,525
6,300 Shared Medical Systems Corp. 237,825
44,200 /2/Silicon Graphics, Inc. 342,550
181,400 /2/Sun Microsystems, Inc. 19,194,388
11,000 Tektronix, Inc. 371,250
91,400 /2/Tellabs, Inc. 5,781,050
184,400 Texas Instruments, Inc. 16,549,900
71,900 /2/Unisys Corp. 1,743,575
155,600 Xerox Corp. 4,356,800
TOTAL 621,863,567
Transportation--1.0%
36,100 /2/AMR Corp. 2,292,350
110,433 Burlington Northern Santa Fe 3,520,052
51,100 CSX Corp. 2,095,100
144,330 Carnival Corp., Class A 6,422,685
33,400 Delta Air Lines, Inc. 1,818,213
69,680 /2/FDX Corp. 3,000,595
25,800 Kansas City Southern Industries, Inc. 1,223,888
89,300 Norfolk Southern Corp. 2,182,269
16,900 Ryder Systems, Inc. 361,238
118,725 Southwest Airlines Co. 1,996,064
17,400 /2/US Airways Group, Inc. 487,200
58,200 Union Pacific Corp. 3,244,650
TOTAL 28,644,304
Utilities--3.0%
32,300 Ameren Corp. 1,221,344
45,100 American Electric Power Co., Inc. 1,555,950
167,500 CBS Corp. 8,176,094
35,600 Carolina Power & Light Co. 1,228,200
50,100 Central & SouthWest Corp. 1,111,594
37,340 Cinergy Corp. 1,054,855
50,100 Coastal Corp. 2,110,463
19,650 Columbia Energy Group 1,277,250
174,100 Comcast Corp., Class A 7,333,962
54,900 Consolidated Edison Co. 2,096,494
22,600 Consolidated Natural Gas Co. 1,446,400
35,150 Constellation Energy Group 1,078,666
34,200 DTE Energy Co. 1,135,013
45,950 Dominion Resources, Inc. 2,211,344
85,272 Duke Energy Corp. 4,817,868
5,300 Eastern Enterprises 270,963
83,000 Edison International 2,458,875
53,100 El Paso Energy Corp. 2,177,100
165,400 Enron Corp. 6,605,663
58,100 Entergy Corp. 1,739,369
42,600 FPL Group, Inc. 2,143,313
55,800 FirstEnergy Corp. 1,454,288
24,000 Florida Progress Corp. 1,099,500
30,100 GPU, Inc. 1,021,519
11,200 NICOR, Inc. 434,000
26,900 New Century Energies, Inc. 875,931
44,100 Niagara Mohawk Holdings, Inc. 700,088
35,900 Northern States Power Co. 771,850
7,400 ONEOK, Inc. 215,988
90,100 P G & E Corp. 2,066,669
35,591 P P & L Resources, Inc. 963,181
70,000 Pacificorp 1,443,750
45,100 Peco Energy Co. 1,722,256
8,400 Peoples Energy Corp. 319,200
19,900 Pinnacle West Capital Corp. 733,813
52,500 Public Service Enterprises Group, Inc. 2,077,031
69,751 Reliant Energy, Inc. 1,900,713
56,518 Sempra Energy 1,155,087
164,200 Southern Co. 4,361,563
66,425 Texas Utilities Co. 2,573,969
51,100 Unicom Corp. 1,957,769
100,700 Williams Cos., Inc. (The) 3,776,250
TOTAL 84,875,195
TOTAL COMMON STOCKS (IDENTIFIED COST $1,487,992,058) 2,649,465,109
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. GOVERNMENT OBLIGATION--0.3%/3/
$ 10,000,000 United States Treasury Bill, 1/6/2000 (IDENTIFIED COST $9,915,667) $ 9,916,000
REPURCHASE AGREEMENT--5.5%/4/
154,380,000 ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT AMORTIZED COST) 154,380,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,652,287,725)/5/ $2,813,761,109
</TABLE>
1 The Fund purchases Index futures contracts to efficiently manage cash flows
resulting from shareholder purchases and redemptions, dividend and capital
gain payments to shareholders and corporate actions while maintaining
exposure to the Index and minimizing trading costs. The total market value of
open Index futures contracts is $166,864,250 at October 31, 1999, which
represents 5.9% of net assets. Taking into consideration these open Index
futures contracts, the Fund's effective total exposure to the Index is 99.6%.
2 Non-income producing security.
3 Represents a security held as collateral which is used to ensure the Fund is
able to satisfy the obligations of its outstanding long future contracts.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $1,652,287,725.
The net unrealized appreciation of investments on a federal tax basis amounts
to $1,161,473,384 which is comprised of $1,229,296,328 appreciation and
$67,822,944 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,826,817,480) at October 31, 1999.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $1,652,287,725) $2,813,761,109
Cash 528,630
Income receivable 2,658,943
Receivable for shares sold 11,019,548
Receivable for daily variation margin 3,032,262
TOTAL ASSETS 2,831,000,492
Liabilities:
Payable for shares redeemed $ 3,502,903
Payable for taxes withheld 53,383
Accrued expenses 626,726
TOTAL LIABILITIES 4,183,012
Net assets for 100,687,896 shares outstanding $2,826,817,480
Net Assets Consist of:
Paid in capital $1,638,802,010
Net unrealized appreciation of investments and futures contracts 1,164,012,124
Accumulated net realized gain on investments and futures contracts 20,647,333
Accumulated undistributed net investment income 3,356,013
TOTAL NET ASSETS $2,826,817,480
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
Net Asset Value and Offering Price Per Share ($2,003,589,699 / 71,314,846 shares outstanding) $28.09
Redemption Proceeds Per Share $28.09
Institutional Service Shares:
Net Asset Value and Offering Price Per Share ($726,976,397 / 25,931,064 shares outstanding) $28.03
Redemption Proceeds Per Share $28.03
Class C Shares:
Net Asset Value and Offering Price Per Share ($96,251,384 / 3,441,986 shares outstanding) $27.96
Redemption Proceeds Per Share (99/100 of $27.96)/1/ $27.68
</TABLE>
1 See "What Do Shares Cost?"
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Dividends (net of foreign taxes withheld of $213,782) $ 31,831,796
Interest 5,844,814
TOTAL INCOME 37,676,610
Expenses:
Investment advisory fee $ 7,509,707
Custodian fees 133,244
Transfer and dividend disbursing agent fees and expenses 506,382
Directors'/Trustees' fees 14,836
Auditing fees 15,356
Legal fees 10,302
Portfolio accounting fees 176,572
Distribution services fee--Institutional Service Shares 1,946,654
Distribution services fee--Class C Shares 388,614
Shareholder services fee--Institutional Shares 4,504,786
Shareholder services fee--Institutional Service Shares 1,622,211
Shareholder services fee--Class C Shares 129,538
Share registration costs 370,457
Printing and postage 66,166
Insurance premiums 6,068
Miscellaneous 19,345
TOTAL EXPENSES 17,420,238
Waivers:
Waiver of investment advisory fee $ (759,554)
Waiver of distribution services fee--Institutional Service Shares (1,427,546)
Waiver of shareholder services fee--Institutional Shares (4,504,786)
Waiver of shareholder services fee--Institutional Service Shares (194,666)
TOTAL WAIVERS (6,886,552)
Net expenses 10,533,686
Net investment income 27,142,924
Realized and Unrealized Gain on Investments and Futures Contracts:
Net realized gain on investments and futures contracts 27,327,240
Net change in unrealized appreciation of investments and
futures contracts 454,485,986
Net realized and unrealized gain on investments and futures contracts 481,813,226
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $508,956,150
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 27,142,924 $ 23,545,370
Net realized gain on investments and futures contracts ($26,799,393 and
$18,621,157, respectively, as computed for federal tax purposes) 27,327,240 15,258,606
Net change in unrealized appreciation of investments and futures contracts 454,485,986 284,412,168
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 508,956,150 323,216,144
Distributions to Shareholders:
Distributions from net investment income
Institutional Shares (19,497,540) (19,446,188)
Institutional Service Shares (5,207,706) (4,226,227)
Class C Shares (111,070) (43,855)
Distributions from net realized gain on investments and futures contracts
Institutional Shares (13,803,989) (36,852,857)
Institutional Service Shares (4,665,973) (8,247,035)
Class C Shares (161,153) (554)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (43,447,431) (68,816,716)
Share Transactions:
Proceeds from sale of shares 1,456,300,443 1,232,374,399
Net asset value of shares issued to shareholders in payment of distributions 28,068,153 40,899,081
declared
Cost of shares redeemed (1,061,778,792) (977,021,217)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 422,589,804 296,252,263
Change in net assets 888,098,523 550,651,691
Net Assets:
Beginning of period 1,938,718,957 1,388,067,266
End of period (including accumulated undistributed net investment income of
$3,356,013 and $1,029,405, respectively) $ 2,826,817,480 $1,938,718,957
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
ORGANIZATION
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Max-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund 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 Index.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's manager to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed
Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cash flows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $9,743,049.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. At October 31, 1999, the Fund had outstanding futures
contracts as set forth below:
<TABLE>
<CAPTION>
Contracts
Expiration to Deliver/ Unrealized
Date Receive Position Appreciation
- --------------------------------------------------------------------
<S> <C> <C> <C>
December 1999 485 S&P 500
Index Futures Long $2,538,740
- --------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Institutional Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 34,438,353 $ 914,112,968 37,421,180 $ 818,155,777
Shares issued to shareholders in payment of
distributions declared 755,144 18,919,768 1,421,571 29,500,992
Shares redeemed (26,964,995) (715,289,313) (33,733,666) (751,275,289)
NET CHANGE RESULTING FROM INSTITUTIONAL
SHARE TRANSACTIONS 8,228,502 $ 217,743,423 5,109,085 $ 96,381,480
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Institutional Service Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,555,183 $ 439,185,232 18,076,229 $ 397,272,246
Shares issued to shareholders in payment of
distributions declared 356,733 8,891,933 546,583 11,354,168
Shares redeemed (11,882,321) (316,985,650) (10,230,460) (223,926,039)
NET CHANGE RESULTING FROM INSTITUTIONAL
SERVICE SHARE TRANSACTIONS 5,029,595 $ 131,091,515 8,392,352 $ 184,700,375
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Class C Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,834,755 $103,002,243 771,237 $ 16,946,376
Shares issued to shareholders in payment of
distributions declared 10,371 256,452 1,948 43,921
Shares redeemed (1,094,794) (29,503,829) (81,531) (1,819,889)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS 2,750,332 $ 73,754,866 691,654 $ 15,170,408
NET CHANGE RESULTING FROM SHARE
TRANSACTIONS 16,008,429 $422,589,804 14,193,091 $296,252,263
</TABLE>
1 Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
MANAGEMENT FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
Management Fee
Federated Investment Management Company, the Fund's manager (the "Manager"),
receives for its services an annual investment advisory fee equal to 0.30% of
the Fund's average daily net assets. Under the terms of a sub-advisory agreement
between the Manager and Northern Trust Quantitative Advisors, Inc. (the "Sub-
Manager"), the Sub-Manager receives an annual fee from the manager based on the
average daily net assets of the Fund as follows: 0.05% on the first $100
million, 0.02% on the next $100 million, and 0.01% thereafter. The Manager may
voluntarily choose to waive any portion of its fee. The Manager can modify or
terminate this voluntary waiver at any time at its sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholders
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Class C Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
<TABLE>
<CAPTION>
Percentage of Average
Share Class Name Daily Net Assets of Class
- -------------------------------------------------------------
<S> <C>
Institutional Service Shares 0.30%
- -------------------------------------------------------------
Class C Shares 0.75%
- -------------------------------------------------------------
</TABLE>
Transfer and Dividend Disbursing Agent Fees
and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------
<S> <C>
Purchases $342,091,548
- --------------------------------------------------------------
Sales $ 64,263,083
- --------------------------------------------------------------
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST AND SHAREHOLDERS OF FEDERATED
MAX-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Max-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Max-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 16, 1999
NOTES
NOTES
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion & Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[LOGO OF FEDERATED INVESTORS]
Federated Max-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E106
0032104A-IS (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLED PAPER LOGO]
[LOGO OF FEDERATED INVESTORS]
WORLD-CLASS INVESTMENT MANAGER/SM/
FEDERATED
MAX-CAP FUND
A Portfolio of Federated Index Trust
INSTITUTIONAL SHARES
P R O S P E C T U S
DECEMBER 31, 1999
PROSPECTUS
Federated Max-Cap Fund
A Portfolio of Federated Index Trust
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 nor affiliated with Standard & Poor's.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem and Exchange Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Ernst & Young LLP, Independent Auditors 37
</TABLE>
- ------------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
- ------------------
DECEMBER 31, 1999
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 Composite
Stock Price Index (Index). While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the large capitalization 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. The primary factors that may reduce the Fund's returns
include:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly
or over a sustained period of time.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
<PAGE>
Risk/Return Bar Chart and Table
[Graph Appears Here]
The bar chart shows the Fund's Class C Shares total return on a calendar
year-end basis.
The total return displayed for the Fund's Class C Shares does not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the return shown would have been lower.
The Fund's Class C Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was 4.24%.
Within the period shown in the Chart, the Fund's Class C Shares highest
quarterly return was 20.87% (quarter ended December 31, 1998). Its lowest
quarterly return was (10.20)% (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Class C Shares Average Annual Total
Returns, reduced to reflect applicable sales charges, for the calendar periods
ended December 31, 1998. The table shows the Fund's Class C Shares total returns
averaged over a period of years relative to the Standard & Poor's 500 Index, a
broad-based market index. Total returns for the index shown do not reflect sales
charges, expenses or other fees that the SEC requires to be reflected in the
Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index.
<TABLE>
<CAPTION>
Calendar Period Class C Shares S&P 500
- ---------------------------------------------------------------------
<S> <C> <C>
1 Year 25.98% 28.58%
- ---------------------------------------------------------------------
Start of Performance/1/ 29.05% 30.80%
- ---------------------------------------------------------------------
</TABLE>
/1/ The Fund's Class C Shares start of performance date was November 10, 1997.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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
the Fund's Class C Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Before Waiver)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee/2/......................................................................................................... 0.30%
Distribution (12b-1) Fee.................................................................................................. 0.75%
Shareholder Services Fee.................................................................................................. 0.25%
Other Expenses............................................................................................................ 0.05%
Total Annual Fund Operating Expenses...................................................................................... 1.35%
1 Although not contractually obligated to do so, the manager waived certain
amounts. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended October 31, 1999.
Total Waiver of Fund Expenses........................................................................................... 0.03%
Total Actual Annual Fund Operating Expenses (after waiver).............................................................. 1.32%
2 The manager voluntarily waived a portion of the management fee. The manager
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.27% for the fiscal year ended
October 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class C Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
C Shares operating expenses are before waiver as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses assuming
redemption $237 $428 $739 $1,624
- ------------------------------------------------------------------------------------
Expenses assuming
no redemption $137 $428 $739 $1,624
- ------------------------------------------------------------------------------------
</TABLE>
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,
1999, the capitalization range of the Index was $222 million to $462.2 billion.
As of the same date, the weighted median market capitalization of the Fund was
$65.4 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?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
STOCK INDEX FUTURES
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 rise and fall. 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. Consequently, the Fund's share price may
decline.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open.
The Fund generally values 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).
Futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option.
The 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.
<TABLE>
<CAPTION>
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Shares Investment Sales Sales
Offered Amounts/1/ Charge Charge2
<S> <C> <C> <C>
Class C $1,500/$100 None 1.00%
</TABLE>
/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."
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:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);
. purchased through investment professionals who did not receive advanced sales
payments;
. if, after you purchase Shares, you become disabled as defined by the IRS;
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution; or
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares 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).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
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 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, 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 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 shares with different 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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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
. Establish your account with the Fund by submitting a completed New Account
Form; and
. 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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 (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (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 subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
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 at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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 PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. 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 that
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 in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non-financial institution clients invest. In total, the Sub-Manager
manages 67 commingled/common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
MANAGEMENT FEES
The Manager receives an annual management fee equal to 0.30% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses.
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 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. 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 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 any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 37.
<TABLE>
<S> <C> <C>
Year Ended October 31 1999 1998/1/
Net Asset Value, Beginning of Period $ 22.82 $ 19.81
Income From Investment Operations:
Net investment income 0.07 0.12
Net realized and unrealized gain on investments and futures contracts 5.35 3.66
TOTAL FROM INVESTMENT OPERATIONS 5.42 3.78
Less Distributions:
Distributions from net investment income (0.06) (0.15)
Distributions from net realized gain on investments and futures contracts (0.22) (0.62)
TOTAL DISTRIBUTIONS (0.28) (0.77)
Net Asset Value, End of Period $ 27.96 $ 22.82
Total Return/2/ 23.94% 19.57%
Ratios to Average Net Assets:
Expenses3 1.35% 1.34 %4
Net investment income/3/ 0.15% 0.33 %4
Expenses (after waivers) 1.32% 1.32 %4
Net investment income (after waivers) 0.18% 0.35 %4
Supplemental Data:
Net assets, end of period (000 omitted) $96,251 $15,784
Portfolio turnover 3% 3%
</TABLE>
/1/ Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
/2/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/3/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
/4/ Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Shares Value
COMMON STOCKS_93.7%/1/
Basic Materials_2.8%
<C> <S> <C>
54,000 Air Products & Chemicals, Inc. $ 1,485,000
53,600 Alcan Aluminum, Ltd. 1,765,450
86,400 Alcoa, Inc. 5,248,800
46,192 Allegheny Teledyne, Inc. 701,541
146,351 Archer-Daniels-Midland Co. 1,801,947
91,800 Barrick Gold Corp. 1,681,088
12,300 Bemis Co., Inc. 429,731
30,600 /2/Bethlehem Steel Corp. 212,288
13,300 Boise Cascade Corp. 473,812
22,500 Champion International Corp. 1,300,780
52,100 Dow Chemical Co. 6,160,825
245,381 Du Pont (E.I.) de Nemours & Co. 15,811,764
18,625 Eastman Chemical Co. 718,226
30,480 Ecolab, Inc. 1,030,605
33,762 Engelhard Corp. 595,055
7,800 /2/FMC Corp. 317,362
39,000 Freeport-McMoRan Copper & Gold, Inc., Class B 650,812
41,400 Georgia-Pacific Corp. 1,643,062
25,800 Goodrich (B.F.) Co. 611,137
17,300 /2/Grace (W.R.) & Co. 258,419
13,900 Great Lakes Chemical Corp. 493,450
23,700 Hercules, Inc. 570,281
61,200 Homestake Mining Co. 512,550
25,000 International Flavors & Fragrances, Inc. 956,250
96,545 International Paper Co. 5,080,681
25,600 Louisiana-Pacific Corp. 324,800
24,000 Mead Corp. 864,000
147,500 Monsanto Co. 5,678,750
39,357 Newmont Mining Corp. 863,394
20,600 Nucor Corp. 1,068,625
41,400 PPG Industries, Inc. 2,509,875
21,108 Phelps Dodge Corp. 1,189,935
76,600 Placer Dome, Inc. 928,775
6,800 Potlatch Corp. 286,875
37,100 Praxair, Inc. 1,734,425
15,500 Reynolds Metals Co. 936,781
49,973 Rohm & Haas Co. 1,911,467
23,700 Sigma-Aldrich Corp. 675,450
13,100 Temple-Inland, Inc. 761,437
20,820 USX-U.S. Steel Group, Inc. 532,211
31,300 Union Carbide Corp. 1,909,300
23,800 Vulcan Materials Co. 983,237
23,650 Westvaco Corp. 702,109
46,900 Weyerhaeuser Co. 2,799,344
26,100 Willamette Industries, Inc. 1,084,781
21,750 Worthington Industries, Inc. 361,594
TOTAL 78,618,081
Capital Goods_7.9%
44,000 /2/Allied Waste Industries, Inc. 462,000
131,200 Allied-Signal, Inc. 7,470,200
27,400 Avery Dennison Corp. 1,712,500
7,300 Ball Corp. 294,281
225,808 Boeing Co. 10,401,281
5,500 Briggs & Stratton Corp. 321,406
17,400 Case Corp. 922,200
84,500 Caterpillar, Inc. 4,668,625
22,200 Cooper Industries, Inc. 955,987
57,400 Corning, Inc. 4,513,075
16,175 Crane Co. 330,576
28,800 Crown Cork & Seal Co., Inc. 689,400
9,900 Cummins Engine Co., Inc. 501,806
56,200 Deere & Co. 2,037,250
49,000 Dover Corp. 2,085,562
16,800 Eaton Corp. 1,264,200
103,000 Emerson Electric Co. 6,186,437
17,800 Fluor Corp. 709,775
9,600 Foster Wheeler Corp. 108,000
46,840 General Dynamics Corp. 2,596,692
771,200 General Electric Co. 104,545,800
29,700 Honeywell, Inc. 3,131,494
58,900 Illinois Tool Works, Inc. 4,314,425
42,600 Inco Ltd. 862,650
38,700 Ingersoll-Rand Co. 2,022,075
20,000 Johnson Controls, Inc. 1,215,000
92,376 Lockheed Martin Corp. 1,847,520
13,900 McDermott International, Inc. 251,937
9,100 Milacron, Inc. 149,581
10,400 Millipore Corp. 331,500
94,600 Minnesota Mining & Manufacturing Co. 8,992,912
1,948 NACCO Industries, Inc., Class A 90,338
9,700 National Service Industries, Inc. 312,825
15,570 /2/Navistar International Corp. 649,074
16,200 Northrop Grumman, Corp. 888,975
36,600 /2/Owens-Illinois, Inc. 876,112
18,380 PACCAR, Inc. 866,157
29,333 Pall Corp. 643,493
25,500 Parker-Hannifin Corp. 1,168,219
64,200 Pitney Bowes, Inc. 2,925,112
44,700 Rockwell International Corp. 2,165,156
19,600 /2/Sealed Air Corp. 1,085,350
63,200 /2/Solectron Corp. 4,755,800
40,100 Tenneco, Inc. 641,600
35,500 Textron, Inc. 2,740,156
37,400 /2/Thermo Electron Corp. 504,900
13,400 Thomas & Betts Corp. 601,325
14,600 Timken Co. 261,887
393,468 Tyco International Ltd. 15,714,128
113,500 United Technologies Corp. 6,866,750
143,328 Waste Management, Inc. 2,633,652
TOTAL 222,287,156
Communication Services_8.3%
748,772 AT&T Corp. 35,005,091
71,800 Alltel Corp. 5,977,350
365,484 Bell Atlantic Corp. $ 23,733,617
445,700 BellSouth Corp. 20,056,500
32,500 CenturyTel, Inc. 1,314,219
230,600 GTE Corp. 17,295,000
180,820 /2/Global Crossing Ltd. 6,260,892
440,397 /2/MCI Worldcom, Inc. 37,791,567
142,900 /2/MediaOne Group, Inc. 10,154,831
78,000 /2/NEXTEL Communications, Inc., Class A 6,722,625
802,626 SBC Communications, Inc. 40,883,762
203,600 Sprint Corp. 15,130,025
103,550 /2/Sprint PCS Group 8,588,178
118,455 U.S. West, Inc. 7,233,158
TOTAL 236,146,815
Consumer Cyclicals_8.3%
16,500 American Greetings Corp., Class A 426,937
9,400 Armstrong World Industries, Inc. 351,325
35,300 /2/AutoZone, Inc. 937,656
32,800 /2/Bed Bath & Beyond, Inc. 1,092,650
48,400 /2/Best Buy Co., Inc. 2,689,225
20,700 Black & Decker Corp. 890,100
23,000 Block (H&R), Inc. 978,937
21,600 Brunswick Corp. 488,700
170,107 /2/Cendant Corp. 2,806,765
14,000 Centex Corp. 375,375
47,400 Circuit City Stores, Inc. 2,023,387
25,800 /2/Consolidated Stores Corp. 472,462
17,800 Cooper Tire & Rubber Co. 299,262
51,350 /2/Costco Wholesale Corp. 4,124,047
39,045 Dana Corp. 1,154,268
31,500 Danaher Corp. 1,521,844
103,800 Dayton-Hudson Corp. 6,708,075
132,705 Delphi Auto Systems Corp. 2,181,338
25,200 Dillards, Inc., Class A 475,650
52,062 Dollar General Corp. 1,373,135
22,100 Dow Jones & Co. 1,359,150
38,900 Dun & Bradstreet Corp. 1,142,687
49,400 /2/Federated Department Stores, Inc. 2,108,762
8,200 Fleetwood Enterprises, Inc. 178,862
284,900 Ford Motor Co. 15,633,887
66,300 Gannett Co., Inc. 5,113,387
201,375 Gap (The), Inc. 7,476,047
151,400 General Motors Corp. 10,635,850
42,350 Genuine Parts Co. 1,103,747
36,700 Goodyear Tire & Rubber Co. 1,516,169
16,700 Harcourt General, Inc. 642,950
29,750 /2/Harrah's Entertainment, Inc. 860,891
46,200 Hasbro, Inc. 952,875
61,400 Hilton Hotels Corp. 567,950
348,600 Home Depot, Inc. 26,319,300
75,000 IMS Health, Inc. 2,175,000
20,700 ITT Industries, Inc. 707,681
65,500 Interpublic Group Cos., Inc. 2,660,937
8,352 Jostens, Inc. 176,436
116,100 /2/K Mart Corp. 1,168,256
11,300 Kaufman & Broad Homes Corp. 226,706
18,500 Knight-Ridder, Inc. 1,174,750
38,300 /2/Kohl's Corp. 2,865,319
77,700 Laidlaw, Inc. 475,912
46,300 Leggett and Platt, Inc. 1,027,281
51,790 Limited, Inc. 2,129,864
15,200 Liz Claiborne, Inc. 608,000
87,400 Lowe's Cos., Inc. 4,807,000
58,700 Marriott International, Inc., Class A 1,977,456
104,100 Masco Corp. 3,175,050
98,125 Mattel, Inc. 1,312,422
78,600 May Department Stores Co. 2,726,437
21,200 Maytag Corp. 849,325
46,300 McGraw-Hill Cos., Inc. 2,760,636
12,300 Meredith Corp. 438,956
46,300 /2/Mirage Resorts, Inc. 674,244
5,032 /2/Neiman-Marcus Group, Inc., Class B 107,867
42,900 New York Times Co., Class A 1,726,725
66,500 Nike, Inc., Class B 3,753,094
33,500 Nordstrom, Inc. 835,406
88,200 /2/Office Depot, Inc. 1,096,987
42,100 Omnicom Group, Inc. 3,704,800
12,800 Owens Corning 262,400
62,000 Penney (J.C.) Co., Inc. 1,573,250
12,356 Pep Boys-Manny Moe & Jack 154,450
10,200 Pulte Corp. 205,275
13,300 /2/Reebok International Ltd. 130,506
8,500 Russell Corp. 129,094
90,200 Sears, Roebuck & Co. 2,542,512
64,400 Service Corp. International 615,825
40,500 Sherwin-Williams Co. 906,187
15,400 Snap-On Tools Corp. 467,775
4,300 Springs Industries, Inc., Class A 171,194
20,900 Stanley Works 579,975
108,500 /2/Staples, Inc. 2,407,344
76,100 TJX Cos., Inc. 2,064,212
28,200 TRW, Inc. 1,209,075
46,660 Tandy Corp. 2,936,664
16,900 Times Mirror Co., Class A 1,218,912
59,300 /2/Toys `R' Us, Inc. 837,612
56,000 Tribune Co. 3,360,000
28,200 V.F. Corp. 847,761
1,047,000 Wal-Mart Stores, Inc. 59,351,812
17,900 Whirlpool Corp. 1,247,406
TOTAL 235,545,440
Consumer Staples_10.3%
13,400 Alberto-Culver Co., Class B 315,737
98,561 Albertsons, Inc. 3,578,996
109,900 Anheuser-Busch Cos., Inc. 7,892,194
61,800 Avon Products, Inc. 1,993,050
67,300 BestFoods 3,953,875
16,100 Brown-Forman Corp., Class B 1,086,750
91,800 CVS Corp. 3,987,562
104,700 Campbell Soup Co. 4,711,500
64,050 Cardinal Health, Inc. 2,762,156
78,100 /2/Clear Channel Communications, Inc. 6,277,287
55,200 Clorox Co. 2,259,750
99,900 Coca Cola Enterprises, Inc. 2,553,694
580,400 Coca-Cola Co. 34,243,600
137,800 Colgate-Palmolive Co. 8,336,900
115,200 ConAgra, Inc. 3,002,400
8,600 Coors Adolph Co., Class B 477,300
32,400 Darden Restaurants, Inc. 617,625
18,900 Deluxe Corp. 533,925
484,000 Disney (Walt) Co. 12,765,500
31,600 Donnelley (R.R.) & Sons Co. 766,300
51,900 Fort James Corp. 1,365,619
40,300 Fortune Brands, Inc. 1,428,131
36,100 General Mills, Inc. 3,147,469
255,100 Gillette Co. 9,231,431
9,000 Great Atlantic & Pacific Tea Co., Inc. 257,062
85,200 Heinz (H.J.) Co. 4,068,300
33,700 Hershey Foods Corp. 1,701,850
95,400 Kellogg Co. 3,798,112
125,248 Kimberly-Clark Corp. 7,906,280
16,800 /2/King World Productions, Inc. 651,000
193,600 /2/Kroger Co., Inc. 4,029,300
9,200 Longs Drug Stores Corp. 250,700
318,600 McDonald's Corp. 13,142,250
65,226 McKesson HBOC, Inc. 1,308,597
76,500 Nabisco Group Holdings Corp. 980,156
66,144 Newell Rubbermaid, Inc. 2,290,236
347,500 PepsiCo, Inc. 12,053,906
561,900 Philip Morris Cos., Inc. 14,152,856
312,600 Procter & Gamble Co. 32,783,925
32,100 Quaker Oats Co. 2,247,000
77,300 Ralston Purina Co. 2,430,119
60,900 Rite Aid Corp. 532,875
120,000 /2/Safeway, Inc. 4,237,500
214,700 Sara Lee Corp. 5,810,319
100,700 Seagram Co. Ltd. 4,972,062
28,300 Supervalu, Inc. 594,300
78,400 Sysco Corp. 3,013,500
304,080 Time Warner, Inc. 21,190,575
35,930 /2/Tricon Global Restaurants, Inc. 1,443,937
13,600 Tupperware Corp. 269,450
43,800 UST, Inc. 1,212,712
134,572 Unilever N.V., ADR 8,974,295
163,836 /2/Viacom, Inc., Class B 7,331,661
235,100 Walgreen Co. 5,921,581
29,300 Wendy's International, Inc. 699,538
35,000 Winn-Dixie Stores, Inc. 947,188
27,300 Wrigley (Wm.), Jr. Co. 2,182,294
TOTAL 290,674,187
Energy_5.6%
44,800 /2/AES Corp. 2,528,400
21,300 Amerada-Hess Corp. 1,222,088
28,300 Anadarko Petroleum Corp. 871,994
26,100 Apache Corp. 1,017,900
17,500 Ashland, Inc. 577,500
76,800 Atlantic Richfield Co. 7,156,800
76,990 Baker Hughes, Inc. 2,150,908
41,765 Burlington Resources, Inc. 1,456,554
27,600 CMS Energy Corp. 1,017,750
154,200 Chevron Corp. 14,080,388
147,779 Conoco, Inc., Class B 4,008,505
570,800 Exxon Corp. 42,274,875
103,500 Halliburton Co. 3,900,656
11,600 Helmerich & Payne, Inc. 276,225
20,376 Kerr-McGee Corp. 1,095,210
183,600 Mobil Corp. 17,717,400
81,400 Occidental Petroleum Corp. 1,856,938
59,900 Phillips Petroleum Co. 2,785,350
19,700 /2/Rowan Companies, Inc. 306,581
504,900 Royal Dutch Petroleum Co., ADR 30,262,444
128,500 Schlumberger Ltd. 7,782,281
22,037 Sunoco, Inc. 531,643
129,900 Texaco, Inc. 7,972,613
35,800 Tosco Corp. 906,188
72,400 USX Marathon Group 2,108,650
59,094 Union Pacific Resources Group, Inc. 856,863
56,800 Unocal Corp. 1,959,600
TOTAL 158,682,304
Financials14.5%
60,075 AON Corp. 2,132,663
33,655 Aetna, Inc. 1,691,164
62,900 Aflac, Inc. 3,215,763
187,710 Allstate Corp. 5,396,663
105,600 American Express Co. 16,262,400
59,330 American General Corp. 4,401,544
364,416 American International Group, Inc. 37,512,072
92,600 Amsouth Bancorporation 2,384,450
171,432 Associates First Capital Corp., Class A 6,257,268
73,200 BB&T Corp. 2,662,650
277,886 Bank One Corporation 10,438,082
406,092 Bank of America Corp. 26,142,173
172,900 Bank of New York Co., Inc. 7,240,188
26,625 Bear Stearns Cos., Inc. 1,134,891
46,800 CIGNA Corp. 3,498,300
46,200 Capital One Financial Corp. 2,448,600
195,740 Chase Manhattan Corp. 17,102,783
41,700 Chubb Corp. 2,288,288
39,300 Cincinnati Financial Corp. 1,407,431
793,975 Citigroup, Inc. 42,973,897
36,650 Comerica, Inc. 2,178,384
75,461 Conseco, Inc. 1,834,646
26,500 Countrywide Credit Industries, Inc. 899,344
163,600 Federal Home Loan Mortgage Corp. 8,844,625
241,200 Federal National Mortgage Association 17,064,900
62,600 Fifth Third Bancorp 4,620,663
227,698 First Union Corp. 9,719,858
232,967 Firstar Corp. 6,843,406
216,491 Fleet Boston Corp. 9,444,425
59,500 Franklin Resources, Inc. 2,082,500
13,400 Golden West Financial Corp. 1,497,450
55,000 Hartford Financial Services Group, Inc. 2,849,688
113,659 Household International, Inc. 5,072,033
54,560 Huntington Bancshares, Inc. 1,616,340
41,700 J.P. Morgan & Co., Inc. 5,457,488
24,937 Jefferson-Pilot Corp. 1,871,834
107,200 KeyCorp 2,994,900
27,900 Lehman Brothers Holdings, Inc. 2,055,881
47,600 Lincoln National Corp. 2,195,550
26,800 Loews Corp. 1,899,450
23,400 MBIA Insurance Corp. 1,335,263
188,727 MBNA Corp. 5,213,583
25,800 MGIC Investment Corp. 1,541,550
61,900 Marsh & McLennan Cos., Inc. 4,893,969
123,000 Mellon Financial Corp. 4,543,313
86,600 Merrill Lynch & Co., Inc. 6,798,100
134,257 Morgan Stanley, Dean Witter & Co. 14,810,225
148,000 National City Corp. 4,366,000
70,800 PNC Bank Corp. 4,221,450
33,600 PaineWebber Group, Inc. 1,369,200
17,100 Progressive Corp., Ohio 1,582,819
33,300 Providian Financial Corp. 3,629,700
52,100 Regions Financial Corp. 1,566,256
25,300 Republic New York Corp. 1,598,644
32,100 SAFECO Corp. 882,750
39,000 SLM Holding Corp. 1,908,563
192,150 Schwab (Charles) Corp. 7,481,841
38,900 SouthTrust Corp. 1,556,000
55,452 St. Paul Cos., Inc. 1,774,464
37,800 State Street Corp. 2,877,525
40,900 Summit Bancorp 1,416,163
75,500 SunTrust Banks, Inc. 5,525,656
62,950 Synovus Financial Corp. 1,349,491
28,500 T. Rowe Price Associates 1,011,750
33,000 Torchmark Corp. 1,029,188
171,565 U.S. Bancorp, Inc. 6,358,628
55,814 UNUMProvident Corp. 1,838,374
33,600 Union Planters Corp. 1,495,200
47,700 Wachovia Corp. 4,114,125
139,676 Washington Mutual, Inc. 5,019,606
388,860 Wells Fargo Co. 18,616,673
TOTAL 409,360,704
Health Care10.0%
357,300 Abbott Laboratories 14,425,988
15,500 Allergan, Inc. 1,664,313
23,500 /2/Alza Corp. 1,006,094
307,200 American Home Products Corp. 16,051,200
119,800 /2/Amgen, Inc. 9,554,050
12,600 Bard (C.R.), Inc. 679,613
13,200 Bausch & Lomb, Inc. 712,800
68,600 Baxter International, Inc. 4,450,425
58,600 Becton, Dickinson & Co. 1,486,975
26,400 Biomet, Inc. 795,300
97,200 /2/Boston Scientific Corp. 1,956,150
467,900 Bristol-Myers Squibb Co. 35,940,569
133,707 Columbia/HCA Healthcare Corp. 3,225,681
70,900 Guidant Corp. 3,500,688
99,600 /2/HEALTHSOUTH, Corp. 572,700
39,400 /2/Humana, Inc. 270,875
316,600 Johnson & Johnson 33,163,850
256,900 Lilly (Eli) & Co. 17,693,988
16,800 Mallinckrodt, Inc. 570,150
26,050 /2/Manor Care, Inc. 410,288
275,000 Medtronic, Inc. 9,521,875
551,400 Merck & Co., Inc. 43,870,763
911,000 Pfizer, Inc. 35,984,500
119,655 Pharmacia & Upjohn, Inc. 6,453,892
346,000 Schering Plough Corp. 17,127,000
19,841 /2/St. Jude Medical, Inc. 543,147
73,000 /2/Tenet Healthcare Corp. 1,418,938
40,700 United Healthcare Corp. 2,103,681
200,200 Warner-Lambert Co. 15,978,463
22,400 /2/Watson Pharmaceuticals, Inc. 711,200
15,900 /2/Wellpoint Health Networks, Inc. 922,200
TOTAL 282,767,356
Technology22.0%
84,500 /2/3Com Corp. 2,450,500
31,600 /2/ADC Telecommunications, Inc. 1,506,925
24,300 /2/Adaptec, Inc. 1,093,500
29,600 Adobe System, Inc. 2,070,150
34,100 /2/Advanced Micro Devices, Inc. 675,606
260,500 /2/America Online, Inc. 33,783,594
40,900 /2/Analog Devices, Inc. 2,172,813
19,462 /2/Andrew Corp. 250,573
37,400 /2/Apple Computer, Inc. 2,996,675
87,800 /2/Applied Materials, Inc. 7,885,538
14,000 Autodesk, Inc. 262,500
145,000 Automatic Data Processing, Inc. 6,987,188
55,500 /2/BMC Software, Inc. 3,562,406
40,500 /2/Cabletron Systems, Inc. 670,781
33,700 /2/Ceridian Corp. 739,294
764,300 /2/Cisco Systems, Inc. 56,558,200
399,961 Compaq Computer Corp. 7,599,259
126,862 Computer Associates International, Inc. 7,167,703
37,400 /2/Computer Sciences Corp. 2,568,913
86,500 /2/Compuware Corp. 2,405,781
16,400 /2/Comverse Technology, Inc. 1,861,400
599,100 /2/Dell Computer Corp. 24,038,888
241,887 /2/EMC Corp. Mass 17,657,751
74,400 Eastman Kodak Co. 5,128,950
116,000 Electronic Data Systems Corp. 6,786,000
34,700 Equifax, Inc. 936,900
100,900 First Data Corp. 4,609,869
73,600 /2/Gateway 2000, Inc. 4,862,200
40,600 /2/General Instrument Corp. 2,184,788
22,400 Grainger (W.W.), Inc. 949,200
18,600 Harris Corp. 417,338
239,000 Hewlett-Packard Co. 17,700,938
34,800 Ikon Office Solutions, Inc. 239,250
777,700 Intel Corp. 60,223,144
425,300 International Business Machines Corp. 41,838,888
20,700 /2/KLA-Tencor Corp. 1,639,181
33,300 /2/LSI Logic Corp. 1,771,144
30,200 /2/Lexmark Intl. Group, Class A 2,357,488
720,328 Lucent Technologies, Inc. 46,281,074
58,300 Micron Technology, Inc. 4,157,519
1,200,900 /2/Microsoft Corp. 111,158,306
141,900 Motorola, Inc. 13,826,381
39,300 /2/National Semiconductor Corp. 1,176,544
17,000 /2/Network Appliance, Inc. 1,258,000
312,520 Nortel Networks Corp. 19,356,708
79,500 /2/Novell, Inc. 1,594,969
338,962 /2/Oracle Corp. 16,121,880
23,400 PE Corp.-PE Biosystems Group 1,518,075
63,000 /2/Parametric Technology Corp. 1,200,938
57,750 Paychex, Inc. 2,273,906
54,900 /2/Peoplesoft, Inc. 823,500
10,500 Perkin-Elmer, Inc. 428,531
10,300 Polaroid Corp. 229,819
37,700 /2/Qualcomm, Inc. 8,397,675
79,300 Raytheon Co., Class B 2,309,613
17,800 Scientific-Atlanta, Inc. 1,019,050
52,400 /2/Seagate Technology, Inc. 1,542,525
6,300 Shared Medical Systems Corp. 237,825
44,200 /2/Silicon Graphics, Inc. 342,550
181,400 /2/Sun Microsystems, Inc. 19,194,388
11,000 Tektronix, Inc. 371,250
91,400 /2/Tellabs, Inc. 5,781,050
184,400 Texas Instruments, Inc. 16,549,900
71,900 /2 Unisys Corp. 1,743,575
155,600 Xerox Corp. 4,356,800
TOTAL 621,863,567
Transportation1.0%
36,100 /2/AMR Corp. 2,292,350
110,433 Burlington Northern Santa Fe 3,520,052
51,100 CSX Corp. 2,095,100
144,330 Carnival Corp., Class A 6,422,685
33,400 Delta Air Lines, Inc. 1,818,213
69,680 /2/FDX Corp. 3,000,595
25,800 Kansas City Southern Industries, Inc. 1,223,888
89,300 Norfolk Southern Corp. 2,182,269
16,900 Ryder Systems, Inc. 361,238
118,725 Southwest Airlines Co. 1,996,064
17,400 /2/US Airways Group, Inc. 487,200
58,200 Union Pacific Corp. 3,244,650
TOTAL 28,644,304
Utilities3.0%
32,300 Ameren Corp. 1,221,344
45,100 American Electric Power Co., Inc. 1,555,950
167,500 CBS Corp. 8,176,094
35,600 Carolina Power & Light Co. 1,228,200
50,100 Central & SouthWest Corp. 1,111,594
37,340 Cinergy Corp. 1,054,855
50,100 Coastal Corp. 2,110,463
19,650 Columbia Energy Group 1,277,250
174,100 Comcast Corp., Class A 7,333,962
54,900 Consolidated Edison Co. 2,096,494
22,600 Consolidated Natural Gas Co. 1,446,400
35,150 Constellation Energy Group 1,078,666
34,200 DTE Energy Co. 1,135,013
45,950 Dominion Resources, Inc. 2,211,344
85,272 Duke Energy Corp. 4,817,868
5,300 Eastern Enterprises 270,963
83,000 Edison International 2,458,875
53,100 El Paso Energy Corp. 2,177,100
165,400 Enron Corp. 6,605,663
58,100 Entergy Corp. 1,739,369
42,600 FPL Group, Inc. 2,143,313
55,800 FirstEnergy Corp. 1,454,288
24,000 Florida Progress Corp. 1,099,500
30,100 GPU, Inc. 1,021,519
11,200 NICOR, Inc. 434,000
26,900 New Century Energies, Inc. 875,931
44,100 Niagara Mohawk Holdings, Inc. 700,088
35,900 Northern States Power Co. 771,850
7,400 ONEOK, Inc. 215,988
90,100 P G & E Corp. 2,066,669
35,591 P P & L Resources, Inc. 963,181
70,000 Pacificorp 1,443,750
45,100 Peco Energy Co. 1,722,256
8,400 Peoples Energy Corp. 319,200
19,900 Pinnacle West Capital Corp. 733,813
52,500 Public Service Enterprises Group, Inc. 2,077,031
69,751 Reliant Energy, Inc. 1,900,713
56,518 Sempra Energy 1,155,087
164,200 Southern Co. 4,361,563
66,425 Texas Utilities Co. 2,573,969
51,100 Unicom Corp. 1,957,769
100,700 Williams Cos., Inc. (The) 3,776,250
TOTAL 84,875,195
TOTAL COMMON STOCKS (IDENTIFIED COST $1,487,992,058) 2,649,465,109
</TABLE>
<TABLE>
<CAPTION>
Principal Value
Amount
SHORT-TERM U.S. GOVERNMENT OBLIGATION--3%/3/
<S> <C> <C>
$ 10,000,000 United States Treasury Bill, 1/6/2000 (IDENTIFIED COST $9,915,667) $ 9,916,000
REPURCHASE AGREEMENT--5.5%/4/
154,380,000 ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT AMORTIZED COST) 154,380,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,652,287,725)/5/ $2,813,761,109
</TABLE>
1 The Fund purchases Index futures contracts to efficiently manage cash flows
resulting from shareholder purchases and redemptions, dividend and capital
gain payments to shareholders and corporate actions while maintaining
exposure to the Index and minimizing trading costs. The total market value of
open Index futures contracts is $166,864,250 at October 31, 1999, which
represents 5.9% of net assets. Taking into consideration these open Index
futures contracts, the Fund's effective total exposure to the Index is 99.6%.
2 Non-income producing security.
3 Represents a security held as collateral which is used to ensure the Fund is
able to satisfy the obligations of its outstanding long future contracts.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $1,652,287,725.
The net unrealized appreciation of investments on a federal tax basis amounts
to $1,161,473,384 which is comprised of $1,229,296,328 appreciation and
$67,822,944 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,826,817,480) at October 31, 1999.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $1,652,287,725) $2,813,761,109
Cash 528,630
Income receivable 2,658,943
Receivable for shares sold 11,019,548
Receivable for daily variation margin 3,032,262
TOTAL ASSETS 2,831,000,492
Liabilities:
Payable for shares redeemed $3,502,903
Payable for taxes withheld 53,383
Accrued expenses 626,726
TOTAL LIABILITIES 4,183,012
Net assets for 100,687,896 shares outstanding $2,826,817,480
Net Assets Consist of:
Paid in capital $1,638,802,010
Net unrealized appreciation of investments and futures contracts 1,164,012,124
Accumulated net realized gain on investments and futures contracts 20,647,333
Accumulated undistributed net investment income 3,356,013
TOTAL NET ASSETS $2,826,817,480
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
Net Asset Value and Offering Price Per Share
($2,003,589,699 / 71,314,846 shares outstanding) $28.09
Redemption Proceeds Per Share $28.09
Institutional Service Shares:
Net Asset Value and Offering Price Per Share
($726,976,397 / 25,931,064 shares outstanding) $28.03
Redemption Proceeds Per Share $28.03
Class C Shares:
Net Asset Value and Offering Price Per Share
($96,251,384 / 3,441,986 shares outstanding) $27.96
Redemption Proceeds Per Share (99/100 of $27.96)/1/ $27.68
</TABLE>
1 See "What Do Shares Cost?"
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Dividends (net of foreign taxes withheld of $213,782) $ 31,831,796
Interest 5,844,814
TOTAL INCOME 37,676,610
Expenses:
Investment advisory fee $ 7,509,707
Custodian fees 133,244
Transfer and dividend disbursing agent fees and expenses 506,382
Directors'/Trustees' fees 14,836
Auditing fees 15,356
Legal fees 10,302
Portfolio accounting fees 176,572
Distribution services fee--Institutional Service Shares 1,946,654
Distribution services fee--Class C Shares 388,614
Shareholder services fee--Institutional Shares 4,504,786
Shareholder services fee--Institutional Service Shares 1,622,211
Shareholder services fee--Class C Shares 129,538
Share registration costs 370,457
Printing and postage 66,166
Insurance premiums 6,068
Miscellaneous 19,345
TOTAL EXPENSES 17,420,238
Waivers:
Waiver of investment advisory fee $ (759,554)
Waiver of distribution services fee--Institutional Service Shares (1,427,546)
Waiver of shareholder services fee--Institutional Shares (4,504,786)
Waiver of shareholder services fee--Institutional Service Shares (194,666)
TOTAL WAIVERS (6,886,552)
Net expenses 10,533,686
Net investment income 27,142,924
Realized and Unrealized Gain on Investments and Futures Contracts:
Net realized gain on investments and futures contracts 27,327,240
Net change in unrealized appreciation of investments and 454,485,986
futures contracts
Net realized and unrealized gain on investments and futures contracts 481,813,226
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $508,956,150
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Increase (Decrease) in Net Assets
Operations:
<S> <C> <C>
Net investment income $ 27,142,924 $ 23,545,370
Net realized gain on investments and futures contracts ($26,799,393 and
$18,621,157, respectively, as computed for federal tax purposes) 27,327,240 15,258,606
Net change in unrealized appreciation of investments and futures contracts 454,485,986 284,412,168
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 508,956,150 323,216,144
Distributions to Shareholders:
Distributions from net investment income
Institutional Shares (19,497,540) (19,446,188)
Institutional Service Shares (5,207,706) (4,226,227)
Class C Shares (111,070) (43,855)
Distributions from net realized gain on investments and futures contracts
Institutional Shares (13,803,989) (36,852,857)
Institutional Service Shares (4,665,973) (8,247,035)
Class C Shares (161,153) (554)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (43,447,431) (68,816,716)
Share Transactions:
Proceeds from sale of shares 1,456,300,443 1,232,374,399
Net asset value of shares issued to shareholders in payment of
distributions declared 28,068,153 40,899,081
Cost of shares redeemed (1,061,778,792) (977,021,217)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 422,589,804 296,252,263
Change in net assets 888,098,523 550,651,691
Net Assets:
Beginning of period 1,938,718,957 1,388,067,266
End of period (including accumulated undistributed net investment income of
$3,356,013 and $1,029,405, respectively) $ 2,826,817,480 $1,938,718,957
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
ORGANIZATION
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Max-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund 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 Index.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's manager to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed
Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cash flows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $9,743,049.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. At October 31, 1999, the Fund had outstanding futures
contracts as set forth below:
<TABLE>
<CAPTION>
Contracts to
Expiration Deliver/ Unrealized
Date Receive Position Appreciation
- -------------------------------------------------------------------
<S> <C> <C> <C>
December 1999 485 S&P 500
Index Futures Long $2,538,740
- -------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998/1/
Class C Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 3,834,755 $103,002,243 771,237 $16,946,376
Shares issued to shareholders in payment of
distributionsdeclared 10,371 256,452 1,948 43,921
Shares redeemed (1,094,794) (29,503,829) (81,531) (1,819,889)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 2,750,332 $ 73,754,866 691,654 $15,170,408
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Institutional Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 34,438,353 $ 914,112,968 37,421,180 $ 818,155,777
Shares issued to shareholders in payment of distributions 755,144 18,919,768 1,421,571 29,500,992
declared
Shares redeemed (26,964,995) (715,289,313) (33,733,666) (751,275,289)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARETRANSACTIONS 8,228,502 $ 217,743,423 5,109,085 $ 96,381,480
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Institutional Service Shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 16,555,183 $ 439,185,232 18,076,229 $ 397,272,246
Shares issued to shareholders in payment of distributions 356,733 8,891,933 546,583 11,354,168
declared
Shares redeemed (11,882,321) (316,985,650) (10,230,460) (223,926,039)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE 5,029,595 $ 131,091,515 8,392,352 $ 184,700,375
TRANSACTIONS
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 16,008,429 $ 422,589,804 14,193,091 $ 296,252,263
</TABLE>
1 Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee
Federated Investment Management Company, the Fund's manager (the "Manager"),
receives for its services an annual investment advisory fee equal to 0.30% of
the Fund's average daily net assets. Under the terms of a sub-advisory agreement
between the Manager and Northern Trust Quantitative Advisors, Inc. (the "Sub-
Manager"), the Sub-Manager receives an annual fee from the manager based on the
average daily net assets of the Fund as follows: 0.05% on the first $100
million, 0.02% on the next $100 million, and 0.01% thereafter. The Manager may
voluntarily choose to waive any portion of its fee. The Manager can modify or
terminate this voluntary waiver at any time at its sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholders
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Class C Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of Class
- --------------------------------------------------------------
<S> <C>
Institutional Service Shares 0.30%
- --------------------------------------------------------------
Class C Shares 0.75%
- --------------------------------------------------------------
</TABLE>
Transfer and Dividend Disbursing Agent Fees
and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------
<S> <C>
Purchases $342,091,548
- --------------------------------------------------------------
Sales $ 64,263,083
- --------------------------------------------------------------
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST AND SHAREHOLDERS OF FEDERATED
MAX-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Max-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Max-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 16, 1999
NOTES
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion & Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at 1-
800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[LOGO OF FEDERATED INVESTORS]
Federated Max-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No.811-6061
Cusip 31420E502
G00717-01 (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLED PAPER LOGO]
[LOGO OF FEDERATED INVESTORS]
WORLD-CLASS INVESTMENT MANAGER/SM/
FEDERATED
MAX-CAP FUND
A Portfolio of Federated Index Trust
CLASS C SHARES
P R O S P E C T U S
DECEMBER 31, 1999
STATEMENT OF ADDITIONAL INFORMATION
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, 1999. Obtain the prospectuses and the Annual Report's Management
Discussion & Analysis without charge by calling 1-800-341-7400.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
How is the Fund Organized? 2
Securities in Which the Fund Invests 2
What do Shares Cost? 10
How is the Fund Sold? 11
Exchanging Securities For Shares 13
Subaccounting Services 12
Redemption in Kind 12
Massachusetts Partnership Law 12
Account and Share Information 12
Tax Information 13
Who Manages and Provides Services to the Fund? 13
How Does the Fund Measure Performance? 18
Who is Federated Investors, Inc.? 20
Standard & Poor's 25
Addresses Back Cover
</TABLE>
Cusip 31420E106
Cusip 31420E403
Cusip 31420E502
0032104B(12/99)
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. On December 5, 1994, the Trustees changed the name of the Fund from
Max-Cap Fund to the Federated Max-Cap Fund.
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 classes of Shares.
Effective March 31, 1999, Federated Management, former Manager to the Fund,
became Federated Investment Management Company (formerly, Federated
Advisers).
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
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may
invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
The Fund may treat such redeemable preferred stock as a fixed income security.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the interest rate and prepayment risks of these mortgage backed
securities.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. 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). 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.
The Fund may also trade derivative contracts 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 the Fund uses derivative contracts 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 interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks 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 its total net assets.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy and sell stock index futures as a substitute for direct
investments in the Index in order to help fully replicate the performance of
the Index.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
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).
Buy or write options to close out existing option positions.
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) on 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.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the 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
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Manager.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Manager or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
interest rate risks for the Fund. Delayed delivery transactions also involve
credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Manager deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
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 on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with
a value that equals or exceeds the Fund's obligations. Unless the Fund has
other readily marketable assets to set aside, it cannot trade assets used to
secure such obligations without entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to miss
favorable trading opportunities or to realize losses on derivative contracts
or special transactions.
Inter-fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
FEDERATED COMPLEX FUNDS
<TABLE>
<S> <C>
Cash Trust Series II Federated Municipal Securities Income Trust
Cash Trust Series, Inc. Federated Municipal Trust
Edward D. Jones & Co. Daily Passport Cash Trust Federated Short-Term Municipal Trust
Federated Adjustable Rate U.S. Government Fund, Inc. Federated Stock and Bond Fund, Inc.
Federated American Leaders Fund, Inc. Federated Stock Trust
Federated ARMs Fund Federated U.S. Government Bond Fund
Federated Equity Funds Federated U.S. Government Securities Fund: 1-3 Years
Federated Equity Income Fund, Inc. Federated U.S. Government Securities Fund: 2-5 Years
Federated Fund for U.S. Government Securities, Inc. Federated U.S. Government Securities Fund: 5-10 Years
Federated GNMA Trust Federated Utility Fund, Inc.
Federated Government Income Securities, Inc. Fixed Income Securities, Inc.
Federated High Income Bond Fund, Inc. Intermediate Municipal Trust
Federated High Yield Trust International Series, Inc.
Federated Income Securities Trust Investment Series Funds, Inc.
Federated Income Trust Managed Series Trust
Federated Index Trust Money Market Management, Inc.
Federated Institutional Trust Money Market Obligations Trust
Federated Insurance Series Money Market Trust
Federated Municipal Opportunities Fund, Inc. Tax-Free Instruments Trust
Federated Municipal Securities Fund, Inc. World Investment Series, Inc.
</TABLE>
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below:
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
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. Consequently, the Fund's share
price may decline.
. The Manager attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Manager allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
Interest Rate Risks
. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Manager's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call Risks
. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
. If a fixed income security is called, the 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
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held. Consequently, the fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Manager from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Manager attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
INVESTMENT LIMITATIONS
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
Issuing Senior Securities and Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments are not deemed
to constitute an industry.
Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
Pledging Assets
The Fund will not mortgage, pledge or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investing in Restricted Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities to 15% of its net assets.
Investing in Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Buying on Margin
The Fund will not purchase securities on margin provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Investing in Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
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 deposit, to be "cash items."
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a mater of non-
fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading
on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last
asked price for the option as provided by an investment dealer or other
financial institution that deals in the option. The Board may determine in
good faith that another method of valuing such investments is necessary to
appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its 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 investment professional selling Shares; 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:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70-1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. 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 according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. 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 these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) 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 banks, and registered investment managers) 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.
For some classes of shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the 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
relating to attendance at 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.
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in 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
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although 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.
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 Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that class are entitled to
vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of Shareholders who own at least 10% of the Trust's outstanding Shares
of all series entitled to vote.
As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: Mitra &
Co., Milwaukee, WI, owned approximately 9,377,625 (13.12%) shares and Lauer &
Co., Glenmede Trust Company, Philadelphia, PA owned approximately 3,807,948
(5.33%) shares.
As of December 3, 1999, the following shareholders owned of record,
beneficially, or both 5% or more of outstanding Institutional Service Shares:
Resources Trust Company for the Exclusive Benefit of Various IMS Customers,
Englewood, CO, owned approximately 2,455,813 (9.20%) shares.
As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: MLPF&S for the
Sole Benefit of its Customers, Jacksonville, FL, owned approximately 508,086
(14.44%) shares and Edward Jones & Co., Maryland Heights, MO, owned
approximately 413,749 (11.76%) shares.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
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 each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Manager.
As of December 3, 1999, 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. <TABLE> <CAPTION>
Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John F. Donahue*+# Chief Executive Officer and Director or Trustee of the $0 $0 for the
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated Trust and
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company; Chairman and Director, companies
Pittsburgh, PA Federated Investment Counseling and Federated Global in the Fund Complex
CHAIRMAN and TRUSTEE Investment Management Corp.; Chairman, Passport
Research, Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $2,455.86 $113,860.22 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, 54 other investment
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); companies
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of
Pittsburgh.
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $2,701.88 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/Commercial Dept. Vice President, John R. Wood and Associates, Inc., 54 other investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies
Realtors ventures in Southwest Florida; formerly: President, in the Fund Complex
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Village
Naples, FL Development Corporation.
TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $2,455.86 $47,958.02 for the
Birth Date: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Trust and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue+*# President or Executive Vice President of the Federated $0 $0 for the
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds Trust and
Federated Investors Tower in the Federated Fund Complex; President, Chief 16 other investment
1001 Liberty Avenue Executive Officer and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President and Trustee, Federated Investment in the Fund Complex
EXECUTVE VICE PRESIDENT and Management Company; President and Trustee, Federated
TRUSTEE Investment Counseling; President and Director, Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
- -----------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $2,455.86 $113,860.22 for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical Trust and
3471 Fifth Avenue Director, University of Pittsburgh Medical Center - 54 other investment
Suite 1111 Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, in the Fund Complex
TRUSTEE National Board of Trustees, Leukemia Society of America.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director or Trustee of the Federated Fund Complex; $2.243.09 $113,860.22 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts Trust and
One Royal Palm Way General Court; President, State Street Bank and Trust 54 other investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL Previous Positions: Director, VISA USA and VISA in the Fund Complex
TRUSTEE International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation; Director, The Boston Stock Exchange.
- ------------------------------------------------------------------------------------------------------------------------------------
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund $1,930.14 $0 for the
Birth Date: April 10, 1945 Complex; Management Consultant. Trust and
80 South Road 50 other investment
Westhampton Beach, NY Previous Positions: Chief Executive Officer, PBTC companies
TRUSTEE International Bank; Partner, Arthur Young & Company (now in the Fund Complex
Ernst & Young LLP); Chief Financial Officer of
Retail Banking Sector, Chase Manhattan Bank;
Senior Vice President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
- ------------------------------------------------------------------------------------------------------------------------------------
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $2,642.26 $113,860.22 for the
S.J.D. President, Law Professor, Duquesne University; Trust
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, Michael and
President, Duquesne University Baker Corp. (engineering, construction, operations and 54 other investment
Pittsburgh, PA technical services). companies
TRUSTEE in the Fund Complex
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.
- ------------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $2,455.86 $113,860.22 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; television producer; business owner. in the Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated Fund $1,860.62 $0 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. Trust and
2007 Sherwood Drive (manufacturer of construction temporary heaters); 48 other investment
Valparaiso, IN President and Director, Manufacturers Products, Inc. companies
TRUSTEE (distributor of portable construction heaters); in the Fund Complex
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson. Staff member, Federated Securities Corp. $0 $0 for the
Birth Date: May 2, 1929 Trust and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund Complex
PRESIDENT
- ------------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzalez Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice Trust and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated company
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company and Federated Investment Counseling,
Federated Global Investment Management Corp. and
Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ------------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Executive Vice President and Secretary of the Federated $0 $0 for the
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and Trust and
Federated Investors Tower Director, Federated Investors, Inc.; Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company and Federated Investment companies
Pittsburgh, PA Counseling; Director, Federated Global Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT and Management Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President $0 $0 for the
Birth Date: June 17, 1954 - Funds Financial Services Division, Federated Trust and
Federated Investors Tower Investors, Inc.; formerly: various management positions 54 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER
- ------------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the Funds in the $0 $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of Trust and
Federated Investors Tower the Funds in the Federated Fund Complex; Executive Vice 6 other investment
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and companies
Pittsburgh, PA Director, Federated Securities Corp. in the Fund Complex
VICE PRESIDENT
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 12 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice in the Fund Complex
CHIEF INVESTMENT OFFICER President, Federated Investors, Inc.; formerly:
Executive Vice President and Senior Vice President,
Federated Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas M. Franks Vice President of the Trust. Mr. Franks joined Federated $0 $0 for the
Birth Date: December 15, 1954 in 1985 and has been a Senior Portfolio Manager and Vice Trust and
Federated Investors Tower President of the Fund's Manager since 1990. Mr. Franks no other investment
1001 Liberty Avenue is a Chartered Financial Analyst and received his M.S. companies
Pittsburgh, PA in Industrial Administration from Carnegie Mellon in the Fund Complex
PORTFOLIO DIRECTOR AND University.
VICE PRESIDENT
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
and Trustee of the Trust.
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, which conducts investment
research and makes investment decisions for the Fund. The directors of the Sub-
Manager are James M. Snyder, Perry R. Pero, Sheila A. Penrose, John R. Goodwin,
Stephen N. Potter, and Jeffrey H. Wessel. The executive officers of the Sub-
Manager are James M. Snyder, Chief Executive Officer, Jeffrey H. Wessel,
President and John R. Goodwin, Chief Investment Officer.
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 large 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. 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 Manager looks for prompt execution of the order at a
favorable price. The Manager 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 Manager 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 Manager 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 Manager
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 Manager or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Manager or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Manager 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 Manager. 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 Manager 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: <TABLE> <CAPTION> Maximum
Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds <S>
<C> 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million </TABLE> The administrative fee received during any fiscal year
shall be at least $125,000 per portfolio and $30,000 per each additional class
of Shares. Federated Services Company may voluntarily waive a portion of its fee
and may reimburse the 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 Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT Auditors
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended October 31, 1999 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $7,509,707 $5,328,240 $3,606,538
Advisory Fee Reduction $ 759,554 $ 414,314 $ 573,407
Brokerage Commissions $ 90,570 $ 102,687 $ 37,996
12b-1 Fee
Institutional Service Shares $ 519,108 -- --
Class C Shares $ 388,614 -- --
Shareholder Services Fee
Institutional Shares $ 0 -- --
Institutional Service Shares $1,427,545 -- --
Class C Shares $ 129,538 -- --
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
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 SEC' standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year and Start of Performance
periods ended October 31, 1999.
Yield is given for the 30-day period ended October 31, 1999.
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years Start of Performance on July 11, 1990
Institutional Shares
<S> <C> <C> <C> <C>
Total Return N/A 25.11% 25.53% 18.01%
Yield 1.02% N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years Start of Performance on September 7, 1993
Institutional Service Shares
<S> <C> <C> <C> <C>
Total Return N/A 24.76% 25.15% 20.97%
Yield 0.74% N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years Start of Performance on November 10, 1997
<S> <C> <C> <C> <C>
Class C Shares
Total Return N/A 22.94% N/A 22.04%
Yield 0.08% N/A N/A N/A
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professionals
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
. 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. Standard & Poor's Composite Stock Price
Index (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 is dedicated to meeting
investor needs by making structured, straightforward and consistent investment
decisions. Federated investment products have a history of competitive
performance and have gained the confidence of thousands of financial
institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
Federated Funds overview
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 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 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion. Government Funds In the government
sector, as of December 31, 1998, Federated managed 9 mortgage backed, 5
government/agency and 19 government money market mutual funds, with assets
approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 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, 1998, Federated
managed more than $76.7 billion in assets across 52 money market funds,
including 19 government, 9 prime and 23 municipal with assets approximating
$41.6 billion, $22.8 billion and $12.5 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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 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
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.
Addresses
FEDERATED MAX-CAP FUND
Institutional Shares
Institutional Service Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Manager
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Sub-Manager
Northern Trust Quantitative Advisors, Inc.
50 South LaSalle Street
Chicago, IL 60675
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
MANAGEMENT DISCUSSION AND ANALYSIS
Federated Max-Cap Fund
Annual Report For 12 Months Ended October 31, 1999
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
CLASS C SHARES
The fund's total returns for Institutional, Institutional Service, and Class C
Shares for the 12 months ended October 31, 1999 were 25.11%, 24.76%, and 23.94%
respectively/1/. The Standard & Poor's Composite Index of 500 Stock, (Index)/2/,
the target index, had a total return of 25.68% during the period. Share class
performance varied from the Index due to transaction costs, administrative
expenses, and holdings of stock index futures contracts, which are held to
enhance fund liquidity.
During the last 12 months, the U.S. stock market continued its overall strong
climb, interspersed with some periods of weakness. In late 1998 and early 1999,
the market moved upward, but later in the summer and early fall moved lower
temporarily based on fears of inflation, higher interest rates, and lower
economic growth. However, more recent favorable economic data allayed these
concerns and the market rallied as the Federal Reserve Board moved to a neutral
stance on further increases in short-term interest rates.
Technology and communications stocks have led the market, buoyed by rapid
growth in the Internet and electronic commerce. Large company stocks continue to
outperform stocks of medium and smaller-size companies.
During the last 12 months, the strongest performing industry groups were
communications equipment, broadcast/media, and electronic instruments; while
pollution control, tobacco, and toys were among the worst performing industry
groups in the Index.
/1/ Performance quoted represents past performance and is no guarantee of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for Class C Shares, based on offering price is
22.94%.
/2/ This index is unmanaged.
INSTITUTIONAL SHARES
Growth of $25,000 Invested in Federated Max-Cap Fund
[Please see Appendix A2]
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended
October 31, 1999
<S> <C>
- ----------------------------------------------------------------------
1 Year 25.11%
- ----------------------------------------------------------------------
5 Year 25.53%
- ----------------------------------------------------------------------
Start of Performance (7/11/90) 18.01%
- ----------------------------------------------------------------------
</TABLE>
The graph above illustrates the hypothetical investment of $25,000/1/ in the
Federated Max-Cap Fund (Institutional Shares) (the "Fund") from July 11, 1990
(start of performance) to October 31, 1999, compared to the Standard and Poor's
500 Index (S&P 500)./2/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and together with financial statements contained therein,
constitute the Fund's annual report.
/1/ The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
/2/ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
INSTITUTIONAL SERVICE SHARES
Growth of $25,000 Invested in Federated Max-Cap Fund
[Please see Appendix A3]
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended
October 31, 1999
<S> <C>
- ----------------------------------------------------------------------
1 Year 24.76%
- ----------------------------------------------------------------------
5 Year 25.15%
- ----------------------------------------------------------------------
Start of Performance (9/7/93) 20.97%
- ----------------------------------------------------------------------
</TABLE>
The graph above illustrates the hypothetical investment of $25,000/1/ in the
Federated Max-Cap Fund (Institutional Service Shares) (the "Fund") from
September 7, 1993 (start of performance) to October 31, 1999, compared to the
Standard and Poor's 500 Index (S&P 500)./2/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and together with financial statements contained therein,
constitute the Fund's annual report.
/1/ The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 has been adjusted to reflect reinvestment of
dividends on securities in the index.
/2/ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
CLASS C SHARES[Please see Appendix A4]
Growth of $10,000 Invested in Federated Max-Cap Fund
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended
October 31, 1999/1/
<S> <C>
- ---------------------------------------------------------------------
1 Year 22.94%
- ---------------------------------------------------------------------
Start of Performance (11/10/97) 22.04%
- ---------------------------------------------------------------------
</TABLE>
The graph above illustrates the hypothetical investment of $10,000/2/ in the
Federated Max-Cap Fund (Class C Shares) (the "Fund") from November 10, 1997
(start of performance) to October 31, 1999, compared to the Standard and Poor's
500 Index (S&P 500)./3/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and together with financial statements contained therein,
constitute the Fund's annual report.
/1/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
/2/ Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less
than 1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The S&P 500 has been
adjusted to reflect reinvestment of dividends on securities in the index.
/3/ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
[Federated Logo]
WORLD-CLASS INVESTMENT MANAGER/SM/
Federated Max-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E106
Cusip 31420E403
Cusip 31420E502
006685A (12/99)
Federated in a registered mark of Federated Investors, Inc. 1999 (c)Federated
Investors, Inc.
[LOGO]
RECYCLED
PAPER
PROSPECTUS
Federated Mid-Cap Fund
A Portfolio of Federated Index Trust
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 nor affiliated with Standard & Poor's.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 32
DECEMBER 31, 1999
</TABLE>
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
DECEMBER 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide investment results generally
corresponding to the aggregate price and dividend performance of publicly-traded
common stocks that comprise the mid-level stock capitalization sector of the
United States equity market. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the medium capitalization common
stocks comprising the Standard & Poor's MidCap 400 Index (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. The primary factors that may reduce the Fund's returns
are:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly
or over a sustained period of time.
. Risks Related to Company Size. Because the smaller companies in which the
Fund may invest may have unproven track records, a limited product or service
base and limited access to capital, they may be more likely to fail than
larger companies.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.
. 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.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[Graph Appears Here]
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was (2.45)%.
Within the period shown in the Chart, the Fund's shares highest quarterly return
was 27.73% (quarter ended December 31, 1998).
Its lowest quarterly return was (14.63)% (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998. The table shows the Fund's total
returns averaged over a period of years relative to the Standard & Poor's 400
Index, a broad based market index. Total returns for the index shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.
<TABLE>
<CAPTION>
Calendar Period Fund S&P 400
- ---------------------------------------------------------------------------
<S> <C> <C>
1 Year 18.10% 19.09%
- ---------------------------------------------------------------------------
5 Years 17.72% 18.84%
- ---------------------------------------------------------------------------
Start of Performance/1/ 17.70% 18.95%
- ---------------------------------------------------------------------------
</TABLE>
/1/ The Fund's start of performance date was November 5, 1992.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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 Fund.
<TABLE>
<CAPTION>
<S> <C>
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
Annual Fund Operating Expenses (Before Waiver)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee.............................................................................................................. 0.40%
Distribution (12b-1) Fee.................................................................................................... None
Shareholder Services Fee/2/................................................................................................. 0.25%
Other Expenses.............................................................................................................. 0.17%
Total Annual Fund Operating Expenses........................................................................................ 0.82%
</TABLE>
/1/ Although not contractually obligated to do so, the shareholder services
provider waived certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended October 31, 1999.
Total Waiver of Fund Expenses...................................... 0.22%
Total Actual Annual Fund Operating Expenses (after waiver)......... 0.60%
/2/ The shareholder services provider voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any
time. The total shareholder services fee paid by the Fund (after the
voluntary waiver) was 0.03% for the fiscal year ended October 31, 1999.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's 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 Fund's Shares operating expenses are before waiver as shown in the
table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<S> <C>
- -----------------------------------------------------------------
1 Year $ 84
- -----------------------------------------------------------------
3 Years $ 262
- -----------------------------------------------------------------
5 Years $ 455
- -----------------------------------------------------------------
10 Years $1,014
- -----------------------------------------------------------------
</TABLE>
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,
1999, the capitalization range of the Index was $223 million to $22 billion. As
of the same date, the weighted median market capitalization of the Fund was $2.7
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?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
STOCK INDEX FUTURES
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 rise and fall. 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. Consequently, the Fund's share price may
decline.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Over-the-counter (OTC) derivative contracts generally carry greater liquidity
risk than exchange- traded contracts.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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 (as
described in the prospectus), it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values equity securities according to
the last sale price in the market in which they are primarily traded (either a
national securities exchange or the OTC market).
Futures contracts are generally valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are generally valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option.
The 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 a smaller minimum
investment amount. 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.
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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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
. Establish your account with the Fund by submitting a completed New Account
Form; and
. 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non- financial institution clients invest. In total, the Sub- Manager
manages 67 commingled/common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
MANAGEMENT FEES
The Manager receives an annual management fee equal to 0.40% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses.
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 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. 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 Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. 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 any
dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
<PAGE>
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 32.
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.53 $ 17.17 $ 13.75 $ 12.78 $ 11.02
- -------------------------------------------
Income From Investment Operations:
- -------------------------------------------
Net investment income 0.16 0.20 0.18 0.18 0.22
- -------------------------------------------
Net realized and unrealized gain on 2.92 0.74 4.00 1.73 1.93
investments and futures contracts
- -------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.08 0.94 4.18 1.91 2.15
- -------------------------------------------
Less Distributions:
- -------------------------------------------
Distributions from net investment income (0.15) (0.20) (0.17) (0.20) (0.20)
- -------------------------------------------
Distributions from net realized gain on (1.83) (1.38) (0.59) (0.74) (0.19)
investments and futures contracts
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.98) (1.58) (0.76) (0.94) (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 17.63 $ 16.53 $ 17.17 $ 13.75 $ 12.78
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return/1/ 20.23% 5.73% 31.83% 15.80% 20.12%
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses/2/ 0.82% 0.89% 0.91% 0.94% 1.01%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income/2/ 0.76% 0.84% 0.88% 0.97% 1.48%
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses (after waiver) 0.60% 0.61% 0.60% 0.60% 0.60%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (after waiver) 0.98% 1.12% 1.19% 1.31% 1.89%
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $110,100 $83,630 $73,874 $59,948 $62,580
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40% 25% 19% 17% 26%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS_88.5%1
Basic Materials_4.2%
11,500 AK Steel Holding Corp. $ 199,094
-----------------------------------------------------------------------
8,100 /2/Airgas, Inc. 76,950
-----------------------------------------------------------------------
4,975 Albemarle Corp. 88,306
-----------------------------------------------------------------------
5,900 Bowater, Inc. 309,750
-----------------------------------------------------------------------
13,599 CK Witco Corp. 127,491
-----------------------------------------------------------------------
7,600 Cabot Corp. 141,550
-----------------------------------------------------------------------
2,500 Carpenter Technology Corp. 60,937
-----------------------------------------------------------------------
2,500 Chesapeake Corp. 75,000
-----------------------------------------------------------------------
1,300 Cleveland Cliffs, Inc. 38,837
-----------------------------------------------------------------------
10,300 Consolidated Papers, Inc. 322,519
-----------------------------------------------------------------------
4,900 /2/Cytec Industries, Inc. 126,481
-----------------------------------------------------------------------
2,600 Dexter Corp. 91,162
-----------------------------------------------------------------------
9,500 Ethyl Corp. 39,187
-----------------------------------------------------------------------
3,950 Ferro Corp. 80,481
-----------------------------------------------------------------------
1,600 Fuller (H.B.) Co. 87,600
-----------------------------------------------------------------------
3,500 Georgia Gulf Corp. 75,469
-----------------------------------------------------------------------
9,700 Georgia-Pacific Corp. 231,587
-----------------------------------------------------------------------
4,800 Glatfelter (P.H.) Co. 70,200
-----------------------------------------------------------------------
5,700 Hanna (M.A.) Co. 60,919
-----------------------------------------------------------------------
13,000 IMC Global, Inc. 165,750
-----------------------------------------------------------------------
5,900 Longview Fibre Co. 67,112
-----------------------------------------------------------------------
6,200 Lubrizol Corp. 158,875
-----------------------------------------------------------------------
12,800 Lyondell Chemical Co. 155,200
-----------------------------------------------------------------------
5,300 Martin Marietta Materials 206,369
-----------------------------------------------------------------------
800 /2/Maxxam, Inc. 36,300
-----------------------------------------------------------------------
2,500 Minerals Technologies, Inc. 107,812
-----------------------------------------------------------------------
5,200 Olin Corp. 71,825
-----------------------------------------------------------------------
4,800 /2/Omnova Solutions, Inc. 33,600
-----------------------------------------------------------------------
2,900 Oregon Steel Mills 24,469
-----------------------------------------------------------------------
12,450 RPM, Inc. 148,622
-----------------------------------------------------------------------
3,200 Rayonier, Inc. 131,200
-----------------------------------------------------------------------
3,525 Schulman (A.), Inc. 54,858
-----------------------------------------------------------------------
12,700 Solutia, Inc. 218,281
-----------------------------------------------------------------------
11,573 Sonoco Products Co. $ 277,752
-----------------------------------------------------------------------
4,400 Southdown, Inc. 212,575
-----------------------------------------------------------------------
5,100 /2/UCAR International, Inc. 99,769
-----------------------------------------------------------------------
3,700 Universal Corp. 86,950
-----------------------------------------------------------------------
5,967 Wausau-Mosinee Paper Corp. 75,333
---------------------------------------------------------------------------------------------
TOTAL 4,636,172
---------------------------------------------------------------------------------------------
Capital Goods_7.6%
6,800 AGCO Corp. 73,100
-----------------------------------------------------------------------
3,700 AMETEK, Inc. 73,075
-----------------------------------------------------------------------
3,376 Albany International Corp., Class A 51,273
-----------------------------------------------------------------------
21,900 /2/American Power Conversion Corp. 491,381
-----------------------------------------------------------------------
8,000 /2/American Standard Cos. 305,500
-----------------------------------------------------------------------
3,400 Carlisle Cos., Inc. 113,050
-----------------------------------------------------------------------
4,200 Cordant Technologies, Inc. 130,987
-----------------------------------------------------------------------
7,893 Diebold, Inc. 207,191
-----------------------------------------------------------------------
5,300 Donaldson Company, Inc. 123,225
-----------------------------------------------------------------------
5,200 Federal Signal Corp. 97,825
-----------------------------------------------------------------------
4,300 Flowserve Corp. 72,562
-----------------------------------------------------------------------
3,050 Granite Construction, Inc. 63,097
-----------------------------------------------------------------------
7,000 HON Industries, Inc. 137,375
-----------------------------------------------------------------------
4,700 Harsco Corp. 138,356
-----------------------------------------------------------------------
7,600 Hillenbrand Industries, Inc. 251,750
-----------------------------------------------------------------------
7,380 Hubbell, Inc., Class B 204,334
-----------------------------------------------------------------------
9,900 /2/Jabil Circuit, Inc. 517,275
-----------------------------------------------------------------------
3,000 /2/Jacobs Engineering Group, Inc. 106,500
-----------------------------------------------------------------------
3,600 Kaydon Corp. 89,325
-----------------------------------------------------------------------
3,400 Kennametal, Inc. 97,750
-----------------------------------------------------------------------
3,600 /2/Magnetek, Inc. 24,750
-----------------------------------------------------------------------
9,100 Miller Herman, Inc. 197,356
-----------------------------------------------------------------------
17,668 Molex, Inc. 644,882
-----------------------------------------------------------------------
4,000 Newport News Shipbuilding, Inc. 121,500
-----------------------------------------------------------------------
1,900 Nordson Corp. 84,194
-----------------------------------------------------------------------
5,500 Pentair, Inc. 206,937
-----------------------------------------------------------------------
2,750 Precision Castparts Corp. 81,125
-----------------------------------------------------------------------
7,000 Premark International, Inc. 383,250
-----------------------------------------------------------------------
8,800 Reynolds & Reynolds Co., Class A $ 160,050
-----------------------------------------------------------------------
2,640 Ryerson Tull, Inc. 54,120
-----------------------------------------------------------------------
8,200 /2/SCI Systems, Inc. 404,875
-----------------------------------------------------------------------
3,500 SPX Corp. 296,625
-----------------------------------------------------------------------
6,500 /2/Sanmina Corp. 585,406
-----------------------------------------------------------------------
8,600 Sensormatic Electronics Corp. 130,075
-----------------------------------------------------------------------
1,200 /2/Sequa Corp., Class A 59,100
-----------------------------------------------------------------------
16,100 Shaw Industries, Inc. 248,544
-----------------------------------------------------------------------
3,200 Standard Register 70,000
-----------------------------------------------------------------------
3,200 Stewart & Stevenson Services, Inc. 42,400
-----------------------------------------------------------------------
10,062 Symbol Technologies, Inc. 399,964
-----------------------------------------------------------------------
2,300 Tecumseh Products Co., Class A 110,256
-----------------------------------------------------------------------
4,300 Teleflex, Inc. 146,469
-----------------------------------------------------------------------
4,950 Trinity Industries, Inc. 147,572
-----------------------------------------------------------------------
9,668 /2/Vishay Intertechnology, Inc. 236,262
-----------------------------------------------------------------------
4,800 Wallace Computer Services, Inc. 106,200
-----------------------------------------------------------------------
4,500 York International Corp. 106,031
--------------------------------------------------------------------------------------------
TOTAL 8,392,874
--------------------------------------------------------------------------------------------
Communication Services_1.1%
15,700 Cincinnati Bell, Inc. 326,756
-----------------------------------------------------------------------
6,000 Comsat Corp. 112,125
-----------------------------------------------------------------------
6,900 Telephone and Data System, Inc. 795,225
--------------------------------------------------------------------------------------------
TOTAL 1,234,106
--------------------------------------------------------------------------------------------
Consumer Cyclicals_13.0%
6,600 /2/ACNielsen Corp. 145,200
-----------------------------------------------------------------------
11,800 /2/Abercrombie & Fitch Co., Class A 321,550
-----------------------------------------------------------------------
9,700 /2/Acxiom Corp. 160,050
-----------------------------------------------------------------------
8,900 /2/ Apollo Group, Inc., Class A 234,181
-----------------------------------------------------------------------
2,900 Arvin Industries, Inc. 82,650
-----------------------------------------------------------------------
8,400 /2/BJ's Wholesale Club, Inc. 258,825
-----------------------------------------------------------------------
2,500 Bandag, Inc. 62,500
-----------------------------------------------------------------------
7,800 /2/Barnes & Noble, Inc. 162,337
-----------------------------------------------------------------------
13,400 Belo (A.H.) Corp., Series A 273,025
-----------------------------------------------------------------------
5,600 /2/Blyth Industries, Inc. 140,350
-----------------------------------------------------------------------
8,800 /2/Borders Group, Inc. 114,400
-----------------------------------------------------------------------
3,000 Borg-Warner Automotive, Inc. 118,500
-----------------------------------------------------------------------
6,100 /2/Burlington Industries, Inc. $ 22,494
-----------------------------------------------------------------------
8,600 Callaway Golf Co. 115,562
-----------------------------------------------------------------------
12,600 Cintas Corp. 759,150
-----------------------------------------------------------------------
5,750 Claire's Stores, Inc. 101,344
-----------------------------------------------------------------------
16,495 Clayton Homes, Inc. 167,012
-----------------------------------------------------------------------
10,500 /2/CompUSA, Inc. 59,719
-----------------------------------------------------------------------
17,300 /2/Convergys Corp. 338,431
-----------------------------------------------------------------------
8,000 /2/DeVRY, Inc. 168,500
-----------------------------------------------------------------------
7,000 /2/Dollar Tree Stores, Inc. 304,937
-----------------------------------------------------------------------
19,700 Family Dollar Stores, Inc. 406,312
-----------------------------------------------------------------------
4,300 Fastenal Co. 155,875
-----------------------------------------------------------------------
8,000 Federal-Mogul Corp. 201,000
-----------------------------------------------------------------------
5,900 /2/Furniture Brands International, Inc. 114,312
-----------------------------------------------------------------------
10,000 /2/Gartner Group, Inc. 93,750
-----------------------------------------------------------------------
4,300 /2/Gtech Holdings Corp. 86,537
-----------------------------------------------------------------------
17,500 Harley Davidson, Inc. 1,037,969
-----------------------------------------------------------------------
8,200 Harte-Hanks, Inc. 162,462
-----------------------------------------------------------------------
6,850 Heilig-Meyers Co. 29,969
-----------------------------------------------------------------------
3,500 Houghton Mifflin Co. 148,312
-----------------------------------------------------------------------
10,200 International Game Technology 189,975
-----------------------------------------------------------------------
14,003 /2/Jones Apparel Group, Inc. 442,845
-----------------------------------------------------------------------
4,649 Lancaster Colony Corp. 162,424
-----------------------------------------------------------------------
3,400 /2/Lands' End, Inc. 261,587
-----------------------------------------------------------------------
7,600 /2/Lear Corp. 256,500
-----------------------------------------------------------------------
5,000 Lee Enterprises, Inc. 147,500
-----------------------------------------------------------------------
10,300 /2/Mandalay Resort Group 191,837
-----------------------------------------------------------------------
5,650 Mark IV Industries, Inc. 108,762
-----------------------------------------------------------------------
3,100 Media General, Inc., Class A 169,337
-----------------------------------------------------------------------
7,900 Meritor Automotive, Inc. 133,806
-----------------------------------------------------------------------
4,100 /2/Micro Warehouse, Inc. 49,712
-----------------------------------------------------------------------
3,400 Modine Manufacturing Co. 84,575
-----------------------------------------------------------------------
6,900 /2/Mohawk Industries, Inc. 158,269
-----------------------------------------------------------------------
600 NCH Corp. 28,687
-----------------------------------------------------------------------
2,800 /2/NCO Group, Inc. 118,650
-----------------------------------------------------------------------
4,900 /2/Navigant Consulting, Inc. 139,956
-----------------------------------------------------------------------
12,950 /2/OfficeMax, Inc. $ 65,559
5,600 Ogden Corp. 50,750
-----------------------------------------------------------------------
34,400 /2/Park Place Entertainment Corp. 451,500
-----------------------------------------------------------------------
3,700 /2/Payless ShoeSource, Inc. 169,506
-----------------------------------------------------------------------
4,700 Pittston Brink's Group 90,181
-----------------------------------------------------------------------
9,415 /2/Promus Hotel Corp. 322,464
-----------------------------------------------------------------------
12,200 Readers Digest Association, Inc., Class A 393,450
-----------------------------------------------------------------------
3,500 Rollins, Inc. 54,906
-----------------------------------------------------------------------
10,600 Ross Stores, Inc. 218,625
-----------------------------------------------------------------------
16,436 /2/Saks, Inc. 282,494
-----------------------------------------------------------------------
1,900 /2/Scholastic Corp. 88,350
-----------------------------------------------------------------------
6,600 Sothebys Holdings, Inc., Class A 189,337
-----------------------------------------------------------------------
12,700 Stewart Enterprises, Inc., Class A 60,325
-----------------------------------------------------------------------
3,100 Superior Industries International, Inc. 82,731
-----------------------------------------------------------------------
5,900 /2/Sylvan Learning Systems, Inc. 76,331
-----------------------------------------------------------------------
5,800 /2/Tech Data Corp. 109,112
-----------------------------------------------------------------------
8,000 Tiffany & Co. 476,000
-----------------------------------------------------------------------
5,700 USG Corp. 282,506
-----------------------------------------------------------------------
6,800 Unifi, Inc. 81,600
-----------------------------------------------------------------------
11,300 Viad Corp. 277,556
-----------------------------------------------------------------------
6,500 Warnaco Group, Inc., Class A 92,625
-----------------------------------------------------------------------
1,200 Washington Post Co., Class B 638,475
-----------------------------------------------------------------------
3,600 Wellman, Inc. 54,225
-----------------------------------------------------------------------
6,300 WestPoint Stevens, Inc. 119,306
-----------------------------------------------------------------------
6,400 /2/Williams-Sonoma, Inc. 344,000
---------------------------------------------------------------------------------------------
TOTAL 14,263,551
----------------------------------------------------------------------------------------------
Consumer Staples_8.2%
3,150 Banta Corp. 71,269
-----------------------------------------------------------------------
15,312 Bergen Brunswig Corp., Class A 109,098
-----------------------------------------------------------------------
4,700 Bob Evans Farms, Inc. 64,625
-----------------------------------------------------------------------
7,575 /2/Brinker International, Inc. 176,592
-----------------------------------------------------------------------
4,900 /2/Buffets, Inc. 45,631
-----------------------------------------------------------------------
6,850 CBRL Group, Inc. 91,619
-----------------------------------------------------------------------
5,100 Carter Wallace, Inc. 92,119
-----------------------------------------------------------------------
3,831 /2/Chris Craft Industries, Inc. 267,212
-----------------------------------------------------------------------
4,400 Church and Dwight, Inc. 114,675
-----------------------------------------------------------------------
4,228 /2/Cox Communications, Inc., Class A $ 192,110
-----------------------------------------------------------------------
4,500 Dean Foods Co. 208,125
-----------------------------------------------------------------------
11,700 Dial Corp. 273,487
-----------------------------------------------------------------------
6,500 Dole Food, Inc. 116,594
-----------------------------------------------------------------------
3,100 Dreyers Grand Ice Cream, Inc. 52,894
-----------------------------------------------------------------------
11,425 Flowers Industries, Inc. 192,797
-----------------------------------------------------------------------
4,800 Hannaford Brothers Co. 336,300
-----------------------------------------------------------------------
5,600 /2/Hispanic Broadcasting Corp. 453,600
-----------------------------------------------------------------------
8,400 Hormel Foods Corp. 362,250
-----------------------------------------------------------------------
10,500 IBP, Inc. 251,344
-----------------------------------------------------------------------
2,100 International Multifoods Corp. 44,362
-----------------------------------------------------------------------
8,000 Interstate Bakeries Corp. 162,000
-----------------------------------------------------------------------
4,075 Kelly Services, Inc., Class A 119,448
-----------------------------------------------------------------------
3,400 Lance, Inc. 41,012
-----------------------------------------------------------------------
4,100 /2/Lone Star Steakhouse & Saloon 32,800
-----------------------------------------------------------------------
9,000 Manpower, Inc. 316,125
-----------------------------------------------------------------------
8,100 McCormick & Co., Inc. 254,137
-----------------------------------------------------------------------
10,900 /2/Modis Professional Services, Inc. 121,944
-----------------------------------------------------------------------
9,300 Olsten Corp. 93,581
-----------------------------------------------------------------------
8,500 /2/Outback Steakhouse, Inc. 195,500
-----------------------------------------------------------------------
8,100 /2/PSS World Medical, Inc. 62,775
-----------------------------------------------------------------------
3,400 /2/Papa Johns International, Inc. 127,075
-----------------------------------------------------------------------
8,300 /2/Perrigo Co. 62,769
-----------------------------------------------------------------------
8,800 /2/Premier Parks, Inc. 254,650
-----------------------------------------------------------------------
12,300 /2/R.J. Reynolds Tobacco Holdings, Inc. 266,756
-----------------------------------------------------------------------
10,450 /2/Robert Half International, Inc. 282,803
-----------------------------------------------------------------------
5,300 Ruddick Corp. 90,431
-----------------------------------------------------------------------
3,300 Smucker (J.M.) Co., Class A 65,587
-----------------------------------------------------------------------
20,700 /2/Starbucks Corp. 562,781
-----------------------------------------------------------------------
3,800 /2/Suiza Foods Corp. 137,037
-----------------------------------------------------------------------
26,200 Tyson Foods, Inc., Class A 399,550
-----------------------------------------------------------------------
11,200 /2/U.S. Foodservice, Inc. 214,900
-----------------------------------------------------------------------
5,700 Universal Foods Corp. 109,012
-----------------------------------------------------------------------
11,500 /2/Univision Communications, Inc., Class A 978,219
-----------------------------------------------------------------------
5,200 /2/Vlasic Foods International, Inc. 39,975
-----------------------------------------------------------------------
6,100 /2/Westwood One, Inc. $ 281,362
-----------------------------------------------------------------------
16,100 Whitman Corp. 209,300
---------------------------------------------------------------------------------------------
TOTAL 8,998,232
---------------------------------------------------------------------------------------------
Energy_4.7%
8,100 /2/BJ Services Co. 277,931
-----------------------------------------------------------------------
6,200 /2/Calpine Corp. 357,275
-----------------------------------------------------------------------
9,100 Devon Energy Corp. 353,762
-----------------------------------------------------------------------
15,600 ENSCO International, Inc. 302,250
-----------------------------------------------------------------------
19,800 /2/Global Marine, Inc. 300,712
-----------------------------------------------------------------------
3,200 /2/Hanover Compressor Co. 118,400
-----------------------------------------------------------------------
6,700 /2/MidAmerican Energy Holdings Co. 225,287
-----------------------------------------------------------------------
5,100 Murphy Oil Corp. 285,919
-----------------------------------------------------------------------
13,200 /2/Nabors Industries, Inc. 299,475
-----------------------------------------------------------------------
6,500 Noble Affiliates, Inc. 164,531
-----------------------------------------------------------------------
15,000 /2/Noble Drilling Corp. 332,812
-----------------------------------------------------------------------
18,918 /2/Ocean Energy, Inc. 173,809
-----------------------------------------------------------------------
8,825 Pennzoil-Quaker State Co. 104,245
-----------------------------------------------------------------------
11,400 Pioneer Natural Resources Company 106,875
-----------------------------------------------------------------------
20,700 /2/Santa Fe Snyder Corp. 178,537
-----------------------------------------------------------------------
5,600 /2/Smith International, Inc. 193,550
-----------------------------------------------------------------------
6,300 Tidewater, Inc. 189,000
-----------------------------------------------------------------------
11,500 Transocean Offshore, Inc. 312,656
-----------------------------------------------------------------------
9,850 Ultramar Diamond Shamrock Corp. 241,325
-----------------------------------------------------------------------
6,400 Valero Energy Corp. 117,600
-----------------------------------------------------------------------
7,400 /2/Varco International, Inc. 78,162
-----------------------------------------------------------------------
11,966 Weatherford International, Inc. 405,348
--------------------------------------------------------------------------------------------
TOTAL 5,119,461
--------------------------------------------------------------------------------------------
Financials_12.0%
6,500 Allmerica Financial Corp. 371,719
-----------------------------------------------------------------------
8,000 Ambac Financial Group, Inc. 478,000
-----------------------------------------------------------------------
6,800 American Financial Group, Inc. 201,450
-----------------------------------------------------------------------
7,250 Associated Banc Corp. 278,898
-----------------------------------------------------------------------
6,300 Astoria Financial Corp. 226,800
-----------------------------------------------------------------------
4,600 CCB Financial Corp. 211,600
-----------------------------------------------------------------------
24,415 Charter One Financial, Inc. 599,693
-----------------------------------------------------------------------
5,200 City National Corp. 201,500
-----------------------------------------------------------------------
13,300 Compass Bancshares, Inc. $ 354,944
-----------------------------------------------------------------------
12,700 Dime Bancorp, Inc. 227,013
-----------------------------------------------------------------------
26,600 /2/E*Trade Group, Inc. 633,413
-----------------------------------------------------------------------
10,787 Edwards (A.G.), Inc. 324,284
-----------------------------------------------------------------------
5,500 Everest Reinsurance Holdings, Inc. 141,625
-----------------------------------------------------------------------
7,000 Finova Group, Inc. 308,438
-----------------------------------------------------------------------
22,025 First Security Corp. 564,391
-----------------------------------------------------------------------
14,800 First Tennessee National Corp. 503,200
-----------------------------------------------------------------------
5,700 First Virginia Banks, Inc. 272,888
-----------------------------------------------------------------------
10,300 Firstmerit Corp. 272,306
-----------------------------------------------------------------------
12,400 Greenpoint Financial Corp. 353,400
-----------------------------------------------------------------------
3,300 HSB Group, Inc. 126,225
-----------------------------------------------------------------------
18,200 Hibernia Corp., Class A 258,213
-----------------------------------------------------------------------
4,700 Horace Mann Educators Corp. 132,481
-----------------------------------------------------------------------
3,500 Investment Technology Group, Inc. 92,313
-----------------------------------------------------------------------
5,600 Keystone Financial, Inc. 140,350
-----------------------------------------------------------------------
6,500 Legg Mason, Inc. 236,438
-----------------------------------------------------------------------
11,900 Marshall & Ilsley Corp. 798,788
-----------------------------------------------------------------------
7,950 Mercantile Bankshares Corp. 286,200
-----------------------------------------------------------------------
12,000 National Commerce Bancorporation 300,000
-----------------------------------------------------------------------
15,950 North Fork Bancorporation, Inc. 329,966
-----------------------------------------------------------------------
7,000 Ohio Casualty Corp. 116,813
-----------------------------------------------------------------------
13,169 Old Kent Financial Corp. 536,637
-----------------------------------------------------------------------
15,000 Old Republic International Corp. 205,313
-----------------------------------------------------------------------
5,100 PMI Group, Inc. 264,563
-----------------------------------------------------------------------
9,200 Pacific Century Financial Corp. 209,875
-----------------------------------------------------------------------
7,300 Protective Life Corp. 264,169
-----------------------------------------------------------------------
4,900 Provident Financial Group, Inc. 210,394
-----------------------------------------------------------------------
10,100 Reliastar Financial Corp. 433,669
-----------------------------------------------------------------------
20,600 Sovereign Bancorp, Inc. 181,538
-----------------------------------------------------------------------
9,600 TCF Financial Corp. 283,200
-----------------------------------------------------------------------
8,300 Unitrin, Inc. 310,731
-----------------------------------------------------------------------
4,400 Webster Financial Corp. 125,950
-----------------------------------------------------------------------
4,500 WestAmerica Bancorporation 154,969
-----------------------------------------------------------------------
3,800 Wilmington Trust Corp. 206,150
-----------------------------------------------------------------------
9,000 Zions Bancorporation $ 530,438
--------------------------------------------------------------------------------------------
TOTAL 13,260,945
--------------------------------------------------------------------------------------------
Health Care_8.0%
3,100 /2/Acuson Corp. 32,163
-----------------------------------------------------------------------
5,900 /2/Apria Healthcare Group, Inc. 93,294
-----------------------------------------------------------------------
3,300 Beckman Coulter, Inc. 151,800
-----------------------------------------------------------------------
11,700 /2/Beverly Enterprises, Inc. 46,069
-----------------------------------------------------------------------
17,000 /2/Biogen, Inc. 1,260,125
-----------------------------------------------------------------------
20,724 /2/Chiron Corp. 591,929
-----------------------------------------------------------------------
6,700 /2/Covance, Inc. 64,906
-----------------------------------------------------------------------
6,000 Dentsply International, Inc. 139,125
-----------------------------------------------------------------------
5,800 /2/First Health Group Corp. 134,850
-----------------------------------------------------------------------
9,400 /2/Forest Labratories, Inc. 431,225
-----------------------------------------------------------------------
13,940 /2/Foundation Health Systems, Inc., Class A 92,353
-----------------------------------------------------------------------
9,400 /2/Genzyme Corp. 359,550
-----------------------------------------------------------------------
4,800 /2/Gilead Sciences, Inc. 303,300
-----------------------------------------------------------------------
28,725 /2/Health Management Association, Class A 254,934
-----------------------------------------------------------------------
8,900 ICN Pharmaceuticals, Inc. 204,700
-----------------------------------------------------------------------
12,400 Ivax Corp. 217,775
-----------------------------------------------------------------------
6,600 /2/Lincare Holdings, Inc. 185,625
-----------------------------------------------------------------------
6,300 /2/Medimmune, Inc. 705,600
-----------------------------------------------------------------------
4,100 /2/Millennium Pharmaceuticals, Inc. 287,513
-----------------------------------------------------------------------
3,500 /2/MiniMed, Inc. 265,344
-----------------------------------------------------------------------
14,700 Mylan Laboratories, Inc. 263,681
-----------------------------------------------------------------------
10,300 Omnicare, Inc. 95,275
-----------------------------------------------------------------------
9,200 /2/Oxford Health Plans, Inc. 108,675
-----------------------------------------------------------------------
5,198 /2/PacifiCare Health Systems, Inc. 204,996
-----------------------------------------------------------------------
12,800 /2/Quintiles Transnational Corp. 237,600
-----------------------------------------------------------------------
8,300 /2/Quorum Health Group, Inc. 66,400
-----------------------------------------------------------------------
3,700 /2/Sepracor, Inc. 307,794
-----------------------------------------------------------------------
7,800 /2/Steris Corp. 103,838
-----------------------------------------------------------------------
11,000 Stryker Corp. 679,250
-----------------------------------------------------------------------
11,800 /2/Sybron International Corp. 280,988
-----------------------------------------------------------------------
9,200 /2/Total Renal Care Holdings, Inc. 67,275
-----------------------------------------------------------------------
4,800 /2/Trigon Healthcare, Inc. 136,200
-----------------------------------------------------------------------
7,200 /2/VISX, Inc. $ 450,450
--------------------------------------------------------------------------------------------
TOTAL 8,824,602
--------------------------------------------------------------------------------------------
Technology_20.3%
4,500 /2/Adtran, Inc. 167,063
-----------------------------------------------------------------------
5,600 /2/Affiliated Computer Services, Inc., Class A 212,800
-----------------------------------------------------------------------
22,600 /2/Altera Corp. 1,098,925
-----------------------------------------------------------------------
10,850 /2/Arrow Electronics, Inc. 236,666
-----------------------------------------------------------------------
11,400 /2/Atmel Corp. 440,325
-----------------------------------------------------------------------
4,000 Avnet, Inc. 217,250
-----------------------------------------------------------------------
27,600 /2/Cadence Design Systems, Inc. 419,175
-----------------------------------------------------------------------
6,800 /2/Cambridge Technology Partners, Inc. 75,225
-----------------------------------------------------------------------
6,900 /2/Cirrus Logic, Inc. 68,569
-----------------------------------------------------------------------
9,900 /2/Citrix Systems, Inc. 634,838
-----------------------------------------------------------------------
17,250 Comdisco, Inc. 348,234
-----------------------------------------------------------------------
23,200 /2/Concord EFS, Inc. 627,850
-----------------------------------------------------------------------
11,800 /2/Cypress Semiconductor Corp. 301,638
-----------------------------------------------------------------------
7,200 /2/DST Systems, Inc. 458,550
-----------------------------------------------------------------------
7,000 /2/Electronic Arts, Inc. 565,688
-----------------------------------------------------------------------
14,075 /2/FIserv, Inc. 450,400
-----------------------------------------------------------------------
4,400 /2/Imation Corp. 135,025
-----------------------------------------------------------------------
21,600 /2/Informix Corp. 164,700
-----------------------------------------------------------------------
10,000 /2/Integrated Device Technology, Inc. 205,625
-----------------------------------------------------------------------
21,000 /2/Intuit, Inc. 611,625
-----------------------------------------------------------------------
8,200 /2/Keane, Inc. 192,700
-----------------------------------------------------------------------
9,200 /2/Legato Systems, Inc. 494,500
-----------------------------------------------------------------------
17,400 Linear Technology Corp. 1,216,913
-----------------------------------------------------------------------
5,200 /2/Litton Industries, Inc. 244,075
-----------------------------------------------------------------------
15,400 /2/Maxim Integrated Products, Inc. 1,215,638
-----------------------------------------------------------------------
7,600 /2/Mentor Graphics Corp. 61,275
-----------------------------------------------------------------------
5,800 /2/Microchip Technology, Inc. 386,425
-----------------------------------------------------------------------
11,400 /2/NCR Corp. 377,625
-----------------------------------------------------------------------
8,300 /2/NOVA Corp. 215,800
-----------------------------------------------------------------------
15,750 /2/Network Associates, Inc. 288,422
-----------------------------------------------------------------------
4,400 /2/Novellus Systems, Inc. 341,000
-----------------------------------------------------------------------
4,000 /2/Policy Management System Corp. 76,750
-----------------------------------------------------------------------
4,200 /2/Qlogic Corp. 437,325
-----------------------------------------------------------------------
19,200 /2/Quantum Corp. - DLT & Storage Systems $ 296,400
-----------------------------------------------------------------------
9,700 /2/Rational Software Corp. 414,675
-----------------------------------------------------------------------
10,400 /2/Siebel Systems, Inc. 1,142,050
-----------------------------------------------------------------------
10,137 /2/Sterling Commerce, Inc. 237,586
-----------------------------------------------------------------------
9,500 /2/Sterling Software, Inc. 208,406
-----------------------------------------------------------------------
11,360 /2/Storage Technology Corp. 178,920
-----------------------------------------------------------------------
4,100 /2/Structural Dynamics Research Corp. 40,488
-----------------------------------------------------------------------
13,100 /2/SunGuard Data Systems, Inc. 320,131
-----------------------------------------------------------------------
4,900 /2/Sykes Enterprises, Inc. 151,288
-----------------------------------------------------------------------
6,300 /2/Symantec Corp. 300,825
-----------------------------------------------------------------------
8,100 /2/Synopsys, Inc. 504,731
-----------------------------------------------------------------------
19,400 /2/Teradyne, Inc. 746,900
-----------------------------------------------------------------------
3,700 /2/Transaction Systems Architects, Inc., Class A 113,775
-----------------------------------------------------------------------
19,300 /2/Veritas Software Corp. 2,081,988
-----------------------------------------------------------------------
17,400 /2/Vitesse Semiconductor Corp. 798,225
-----------------------------------------------------------------------
7,000 /2/Waters Corp. 371,875
-----------------------------------------------------------------------
17,900 /2/Xilinx, Inc. 1,407,388
--------------------------------------------------------------------------------------------
TOTAL 22,304,270
--------------------------------------------------------------------------------------------
Transportation_1.2%
5,500 Airborne Freight Corp. 118,250
-----------------------------------------------------------------------
3,000 /2/Alaska Air Group, Inc. 119,250
-----------------------------------------------------------------------
4,900 Alexander & Baldwin, Inc. 117,600
-----------------------------------------------------------------------
2,800 Arnold Industries, Inc. 28,088
-----------------------------------------------------------------------
5,500 CNF Transportation, Inc. 181,844
-----------------------------------------------------------------------
11,050 Comair Holdings, Inc. 255,013
-----------------------------------------------------------------------
5,600 GATX Corp. 185,850
-----------------------------------------------------------------------
4,100 Hunt (J.B.) Transportation Services, Inc. 52,788
-----------------------------------------------------------------------
4,100 Overseas Shipholding Group, Inc. 52,788
-----------------------------------------------------------------------
7,400 /2/Swift Transportation Co., Inc. 129,038
-----------------------------------------------------------------------
5,800 /2/Wisconsin Central Transportation Corp. 80,475
--------------------------------------------------------------------------------------------
TOTAL 1,320,984
--------------------------------------------------------------------------------------------
Utilities_8.2%
6,600 AGL Resources, Inc. 115,088
-----------------------------------------------------------------------
13,300 Allegheny Energy, Inc. 423,106
-----------------------------------------------------------------------
8,900 Alliant Energy Corp. 241,969
-----------------------------------------------------------------------
11,000 American Water Works Co., Inc. 321,063
-----------------------------------------------------------------------
2,400 Black Hills Corp. $ 54,000
-----------------------------------------------------------------------
3,700 CMP Group, Inc. 98,513
-----------------------------------------------------------------------
2,600 Cleco Corp. 86,125
-----------------------------------------------------------------------
10,600 Conectiv, Inc. 206,700
-----------------------------------------------------------------------
18,100 DPL, Inc. 366,525
-----------------------------------------------------------------------
8,600 DQE, Inc. 343,463
-----------------------------------------------------------------------
13,300 Energy East Corp. 334,163
-----------------------------------------------------------------------
3,700 Hawaiian Electric Industries, Inc. 124,875
-----------------------------------------------------------------------
4,300 Idacorp, Inc. 129,806
-----------------------------------------------------------------------
8,000 Illinova Corp. 254,500
-----------------------------------------------------------------------
3,366 Indiana Energy, Inc. 67,951
-----------------------------------------------------------------------
9,800 Ipalco Enterprises, Inc. 200,288
-----------------------------------------------------------------------
7,100 Kansas City Power & Light Co. 173,950
-----------------------------------------------------------------------
16,300 KeySpan Corp. 458,438
-----------------------------------------------------------------------
12,750 Kinder Morgan, Inc. 256,594
-----------------------------------------------------------------------
14,800 LG&E Energy Corp. 325,600
-----------------------------------------------------------------------
9,800 MCN Energy Group, Inc. 239,488
-----------------------------------------------------------------------
8,300 Minnesota Power, Inc. 153,550
-----------------------------------------------------------------------
12,600 Montana Power Co. 358,313
-----------------------------------------------------------------------
4,400 National Fuel Gas Co. 215,050
-----------------------------------------------------------------------
6,700 New England Electric System 348,819
-----------------------------------------------------------------------
14,200 NiSource, Inc. 291,100
-----------------------------------------------------------------------
14,900 Northeast Utilities Co. 310,106
-----------------------------------------------------------------------
8,900 OGE Energy Corp. 201,919
-----------------------------------------------------------------------
13,500 Potomac Electric Power Co. 370,406
-----------------------------------------------------------------------
4,600 Public Service Co. of New Mexico 82,225
-----------------------------------------------------------------------
9,600 Puget Sound Energy, Inc. 212,400
-----------------------------------------------------------------------
9,400 Questar Corp. 169,200
-----------------------------------------------------------------------
11,800 SCANA Corp. 293,525
-----------------------------------------------------------------------
8,912 Sierra Pacific Resources 200,520
-----------------------------------------------------------------------
15,000 TECO Energy, Inc. 330,938
-----------------------------------------------------------------------
10,600 Utilicorp United, Inc. 229,225
-----------------------------------------------------------------------
5,300 Washington Gas Light Co. 144,094
Shares or
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS_continued/1/
Utilities_continued
13,300 Wisconsin Energy Corp. $ 297,588
--------------------------------------------------------------------------------------------
TOTAL 9,031,183
--------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST $86,879,289) 97,386,380
--------------------------------------------------------------------------------------------
U.S. TREASURY_0.7%
$ 800,000 /3/United States Treasury Bill, 1/6/2000 (IDENTIFIED COST $793,253) 793,280
--------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT_9.9%
10,925,000 /4/ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT AMORTIZEDCOST) 10,925,000
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST $98,597,542)/5/ $ 109,104,660
</TABLE>
/1/ The Fund purchases Index futures contracts to efficiently manage cash flows
resulting from shareholder purchases and redemptions, dividend and capital
gain payments to shareholders and corporate actions while maintaining
exposure to the Index and minimizing trading costs. The underlying face
amount, at value, of open Index futures contracts is $12,037,500 at October
31, 1999, which represents 10.9% of net assets. Taking into consideration
these open Index futures contracts, the Fund's effective total exposure to
the Index is 99.4%.
/2/ Non-income producing security.
/3/ Represents a security held as collateral which is used to ensure the Fund
is able to satisfy the obligations of its outstanding long futures
contracts.
/4/ The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated Funds.
/5/ The cost of investments for federal tax purposes amounts to $98,638,419.
The net unrealized appreciation of investments on a federal tax basis
amounts to $10,466,241 which is comprised of $22,377,298 appreciation and
$11,911,057 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($110,099,653) at October 31, 1999.
See Notes which are an integral part of the Financial Statements
<PAGE>
Statement of Assets and Liabilities
OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
- -------------------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $98,597,542 and tax cost $ 109,104,660
$98,638,419)
- -------------------------------------------------------------------------------------------------------------
Cash 2,913
- -------------------------------------------------------------------------------------------------------------
Income receivable 78,819
- -------------------------------------------------------------------------------------------------------------
Receivable for investments sold 967,917
- -------------------------------------------------------------------------------------------------------------
Receivable for shares sold 182,374
- -------------------------------------------------------------------------------------------------------------
Receivable for daily variation margin 259,785
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 110,596,468
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities:
- -------------------------------------------------------------------------------------------
Payable for investments purchased $ 432,227
- -------------------------------------------------------------------------------------------
Payable for shares redeemed 34,425
- -------------------------------------------------------------------------------------------
Accrued expenses 30,163
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 496,815
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 110,099,653
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets Consist of:
- --------------------------------------------------------------------------------------------------------------
Paid in capital $ 83,877,415
- --------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts 10,519,589
- --------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and futures contracts 15,562,717
- --------------------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 139,932
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 110,099,653
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------------------------------------
$110,099,653 / 6,245,461 shares outstanding $17.63
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
- -------------------------------------------------------------------------------------------------------------------
Dividends $ 1,066,615
- -------------------------------------------------------------------------------------------------------------------
Interest 535,795
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 1,602,410
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee $ 404,006
- ---------------------------------------------------------------------------------------------------
Custodian fees 15,432
- ---------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 28,769
- ---------------------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,877
- ---------------------------------------------------------------------------------------------------
Auditing fees 14,745
- ---------------------------------------------------------------------------------------------------
Legal fees 2,716
- ---------------------------------------------------------------------------------------------------
Portfolio accounting fees 48,819
- ---------------------------------------------------------------------------------------------------
Shareholder services fee 252,804
- ---------------------------------------------------------------------------------------------------
Share registration costs 25,477
- ---------------------------------------------------------------------------------------------------
Printing and postage 21,024
- ---------------------------------------------------------------------------------------------------
Insurance premiums 1,557
- ---------------------------------------------------------------------------------------------------
Miscellaneous 13,302
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 833,528
- -----------------------------------------------------------------------------------------------------------------------------------
Waiver:
- ---------------------------------------------------------------------------------------------------
Waiver of shareholder services fee (222,468)
- -------------------------------------------------------------------------------------------------------------------
Net expenses 611,060
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 991,350
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and futures contracts 21,373,554
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and futures contracts (5,139,008)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and futures contracts 16,234,546
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,225,896
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
- ---------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------
Net investment income $ 991,350 $ 920,297
- ---------------------------------------------------------------------------------------
Net realized gain on investments and futures contracts ($20,587,552 and $9,366,731, 21,373,554 8,082,541
respectively, as computed for federal tax purposes)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and futures contracts (5,139,008) (4,576,948)
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 17,225,896 4,425,890
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ---------------------------------------------------------------------------------------
Distributions from net investment income (903,582) (969,014)
- ---------------------------------------------------------------------------------------
Distributions from net realized gain on investments and futures contracts (9,367,351) (6,088,545)
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (10,270,933) (7,057,559)
- -----------------------------------------------------------------------------------------------------------------------------------
Share Transactions:
- ---------------------------------------------------------------------------------------
Proceeds from sale of shares 65,142,694 81,315,222
- ---------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment ofdistributionsdeclared 6,592,684 4,352,710
- ---------------------------------------------------------------------------------------
Cost of shares redeemed (52,220,271) (73,280,883)
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 19,515,107 12,387,049
- -----------------------------------------------------------------------------------------------------------------------------------
Change in net assets 26,470,070 9,755,380
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
- ---------------------------------------------------------------------------------------
Beginning of period 83,629,583 73,874,203
- -----------------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated undistributed net investment income of
$139,932 and $52,164, respectively) $ 110,099,653 $ 83,629,583
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE>
Notes to Financial Statements
OCTOBER 31, 1999
ORGANIZATION
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Mid-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund is to provide investment results 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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's manager to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for equalization used for tax distributions. The following
reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
- ---------------------------------------------------------------
Accumulated Net
Realized Gain
on Investments
and Futures
Paid In Capital Contracts
- ---------------------------------------------------------------
<S> <C>
$4,900,000 $(4,900,000)
- ---------------------------------------------------------------
</TABLE>
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cashflows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $1,863,636.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities.
At October 31, 1999, the Fund had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
Contracts to
Expiration Deliver/ Unrealized
Date Receive Position Appreciation
- ----------------------------------------------------------------------
<S> <C> <C> <C>
December 1999 60 S&P 400 Index Long $12,471
Futures
- ----------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 3,819,553 4,760,000
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 419,466 268,514
- -----------------------------------------------------------------------------------------------
Shares redeemed (3,052,195) (4,273,514)
- ----------------------------------------------------------------------------------------------------------------------------------
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 1,186,824 755,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
management FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee
Federated Investment Management Company, the Fund's manager (the "Manager"),
receives for its services an annual management fee equal to 0.40% of the Fund's
average daily net assets. Under the terms of a sub- advisory agreement between
the Manager and Northern Trust Quantitative Advisors, Inc. (the "Sub-Manager"),
the Sub-Manager receives an annual fee from the Manager equal to 0.035% of the
Fund's average daily net assets.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------
Purchases $ 44,993,429
- -------------------------------------------------------------
Sales $ 36,241,075
- -------------------------------------------------------------
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST AND SHAREHOLDERS OF FEDERATED
MID-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Mid-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Mid-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Boston, Massachusetts
December 16, 1999
NOTES
NOTES
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion and Analysis discusses market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
To obtain the SAI,
Annual Report, Semi-Annual Report and other information without charge, and make
inquiries, call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[Federated Logo]
WORLD-CLASS INVESTMENT MANAGER(SM)
Federated
Mid-Cap Fund
A Portfolio of Federated Index Trust
Federated Mid-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E205
206304A (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C)Federated Investors, Inc.
[LOGO]
RECYCLED
PAPER
DECEMBER 31, 1999
Statement of Additional Information
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 for Federated Mid-Cap Fund (Fund), dated
December 31, 1999. Obtain the prospectus and the Annual Report's Management
Discussion & Analysis without charge by calling 1-800-341-7400.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Contents
<S> <C>
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What do Shares Cost? 9
How is the Fund Sold? 12
Exchanging Securities For Shares 12
Subaccounting Services 12
Redemption in Kind 12
Massachusetts Partnership Law 13
Account and Share Information 13
Tax Information 13
Who Manages and Provides Services to the Fund? 14
How Does the Fund Measure Performance? 20
Who is Federated Investors, Inc.? 21
Standard & Poor's 23
Addresses Back Cover
</TABLE>
2062304B(12/99)
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. On December 5, 1994, the Trustees changed the name of the Fund from
Mid-Cap Fund to the Federated Mid-Cap Fund.
The Board of Trustees has established one class of shares of the Fund (Shares).
Effective March 31, 1999, Federated Management, former Manager to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).
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
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
The Fund may treat such redeemable preferred stock as a fixed income security.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the interest rate and prepayment risks of these mortgage backed
securities.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. 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). 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.
The Fund may also trade derivative contracts 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 the Fund uses derivative contracts 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 interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks 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 its total net assets.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts. The Fund may buy
and sell stock index futures as a substitute for direct investments in the
Index in order to help fully replicate the performance of the Index.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
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 or write options to close out existing option positions.
Buy 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) on 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.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the 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
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Manager.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Manager or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
interest rate risks for the Fund. Delayed delivery transactions also involve
credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Manager deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
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 on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with
a value that equals or exceeds the Fund's obligations. Unless the Fund has
other readily marketable assets to set aside, it cannot trade assets used to
secure such obligations without entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to miss
favorable trading opportunities or to realize losses on derivative contracts
or special transactions.
Inter-fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
Federated Complex Funds
<TABLE>
<CAPTION>
<S> <C>
Cash Trust Series II Federated Municipal Securities Income Trust
Cash Trust Series, Inc. Federated Municipal Trust
Edward D. Jones & Co. Daily Passport Cash Trust Federated Short-Term Municipal Trust
Federated Adjustable Rate U.S. Government Fund, Inc. Federated Stock and Bond Fund, Inc.
Federated American Leaders Fund, Inc. Federated Stock Trust
Federated ARMs Fund Federated U.S. Government Bond Fund
Federated Equity Funds Federated U.S. Government Securities Fund: 1-3 Years
Federated Equity Income Fund, Inc. Federated U.S. Government Securities Fund: 2-5 Years
Federated Fund for U.S. Government Securities, Inc. Federated U.S. Government Securities Fund: 5-10 Years
Federated GNMA Trust Federated Utility Fund, Inc.
Federated Government Income Securities, Inc. Fixed Income Securities, Inc.
Federated High Income Bond Fund, Inc. Intermediate Municipal Trust
Federated High Yield Trust International Series, Inc.
Federated Income Securities Trust Investment Series Funds, Inc.
Federated Income Trust Managed Series Trust
Federated Index Trust Money Market Management, Inc.
Federated Institutional Trust Money Market Obligations Trust
Federated Insurance Series Money Market Trust
Federated Municipal Opportunities Fund, Inc. Tax-Free Instruments Trust
Federated Municipal Securities Fund, Inc. World Investment Series, Inc.
</TABLE>
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below: Stock Market Risks . The value of equity securities in
the Fund's portfolio will rise and fall.
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. Consequently, the Fund's share
price may decline.
. The Manager attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Manager allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
Interest Rate Risks
. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Manager's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call Risks
. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
. If a fixed income security is called, the 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
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Manager from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Manager attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
INVESTMENT LIMITATIONS
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
Issuing Senior Securities and Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments are not deemed
to constitute an industry.
Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective. Pledging Assets The Fund
will not mortgage, pledge or hypothecate any of its assets, provided that this
shall not apply to the transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with permissible
activities.
Investing in Restricted Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities to 15% of its net assets.
***
Investing in Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Buying on Margin
The Fund will not purchase securities on margin provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Investing in Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
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 deposit, to be "cash items."
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a mater of non-
fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading
on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last
asked price for the option as provided by an investment dealer or other
financial institution that deals in the option. The Board may determine in
good faith that another method of valuing such investments is necessary to
appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its 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.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the 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
relating to attendance at 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.
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in 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
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although 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.
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 Fund have equal voting rights.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding Shares
of all series entitled to vote.
As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Charles Schwab & Co.,
Inc., San Francisco, CA owned approximately 1,132,931 (15.64%) shares, and Covie
& Co., Covenant Trust Company, Chicago, IL owned approximately 916,423 (12.65%)
shares.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
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 each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Manager.
As of December 3, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
Name
Birth Date
Address Principal Occupations
Position With Trust for Past Five Years
<S> <C>
John F. Donahue*+# Chief Executive Officer and Director or Trustee of the
Federated Fund Birth Date: July 28, 1924 Complex; Chairman and Director,
Federated Investors, Inc.; Chairman Federated Investors Tower and Trustee,
Federated Investment Management Company; Chairman and 1001 Liberty Avenue
Director, Federated Investment Counseling and Federated Global Pittsburgh, PA
Investment Management Corp.; Chairman, Passport Research, Ltd.
CHAIRMAN and TRUSTEE
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; Director, Member
Birth Date: February 3, 1934 of Executive Committee, Children's Hospital of Pittsburgh; Director,
15 Old Timber Trail Robroy Industries, Inc. (coated steel conduits/computer storage
Pittsburgh, PA equipment); formerly: Senior Partner, Ernst & Young LLP; Director,
TRUSTEE MED 3000 Group, Inc. (physician practice management); Director,
Member of Executive Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; President,
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice President, John R.
Grubb & Ellis/Investment Properties Wood and Associates, Inc., Realtors; Partner or Trustee in private
Corporation real estate ventures in Southwest Florida; formerly: President,
3201 Tamiami Trail North Naples Property Management, Inc. and Northgate Village Development
Naples, FL Corporation.
TRUSTEE
Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex; Director, Michael
Birth Date: September 3, 1939 Baker Corporation (engineering, construction, operations and
175 Woodshire Drive technical services); formerly: Partner, Andersen Worldwide SC.
Pittsburgh, PA
TRUSTEE
J. Christopher Donahue+*# President or Executive Vice President of the Federated
Fund Complex; Birth Date: April 11, 1949 Director or Trustee of some of the
Funds in the Federated Fund Federated Investors Tower Complex; President, Chief
Executive Officer and Director, Federated 1001 Liberty Avenue Investors, Inc.;
President and Trustee, Federated Investment Pittsburgh, PA Management Company;
President and Trustee, Federated Investment EXECUTVE VICE PRESIDENT and TRUSTEE
Counseling; President and Director, Federated Global Investment
Management Corp.; President, Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company; Director, Federated Services
Company.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex;
Professor of Birth Date: October 11, 1932 Medicine, University of Pittsburgh;
Medical Director, University of 3471 Fifth Avenue Pittsburgh Medical Center -
Downtown; Hematologist, Oncologist, and Suite 1111 Internist, University of
Pittsburgh Medical Center; Member, National Pittsburgh, PA Board of Trustees,
Leukemia Society of America.
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; formerly:
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court;
One Royal Palm Way President, State Street Bank and Trust Company and State Street
100 Royal Palm Way Corporation.
Palm Beach, FL
TRUSTEE Previous Positions: Director, VISA USA and VISA International;
Chairman and Director, Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The Boston Stock Exchange.
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund Complex; Executive
Birth Date: April 10, 1945 Vice President, Legal and External Affairs, Dugan Valva Contess, Inc.
80 South Road (marketing, communications, technology and consulting).; formerly
Westhampton Beach, NY Management Consultant.
TRUSTEE
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking
and Finance, Frank G. Zarb School of
Business, Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; President, Law
Birth Date: December 20, 1932 Professor, Duquesne University; Consulting Partner, Mollica & Murray;
President, Duquesne University Director, Michael Baker Corp. (engineering, construction, operations
Pittsburgh, PA and technical services).
TRUSTEE
Previous Positions: Dean and Professor of Law, University of
Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; Public
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum Company of
TRUSTEE America; television producer; business owner.
John S. Walsh Director or Trustee of some of the Federated Fund Complex; President
Birth Date: November 28, 1957 and Director, Heat Wagon, Inc. (manufacturer of construction
2007 Sherwood Drive temporary heaters); President and Director, Manufacturers Products,
Valparaiso, IN Inc. (distributor of portable construction heaters); President,
TRUSTEE Portable Heater Parts, a division of Manufacturers Products, Inc.;
Director, Walsh & Kelly, Inc. (heavy highway contractor); formerly:
Vice President, Walsh & Kelly, Inc.
Glen R. Johnson. Staff member, Federated Securities Corp.
Birth Date: May 2, 1929
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
PRESIDENT
Edward C. Gonzalez Trustee or Director of some of the Funds in the Federated Fund
Birth Date: October 22, 1930 Complex; President, Executive Vice President and Treasurer of some of
Federated Investors Tower the Funds in the Federated Fund Complex; Vice Chairman, Federated
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Investment Management
Pittsburgh, PA Company and Federated Investment Counseling, Federated Global
EXECUTIVE VICE PRESIDENT Investment Management Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated Fund Complex;
Birth Date: October 26, 1938 Executive Vice President, Secretary and Director, Federated
Federated Investors Tower Investors, Inc.; Trustee, Federated Investment Management Company and
1001 Liberty Avenue Federated Investment Counseling; Director, Federated Global
Pittsburgh, PA Investment Management Corp, Federated Services Company and Federated
EXECUTIVE VICE PRESIDENT and Securities Corp.
SECRETARY
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President - Funds
Birth Date: June 17, 1954 Financial Services Division, Federated Investors, Inc.; formerly:
Federated Investors Tower various management positions within Funds Financial Services Division
1001 Liberty Avenue of Federated Investors, Inc.
Pittsburgh, PA
TREASURER
Richard B. Fisher President or Vice President of some of the Funds in the
Federated Birth Date: May 17, 1923 Fund Complex; Director or Trustee of some of
the Funds in the Federated Investors Tower Federated Fund Complex; Executive
Vice President, Federated 1001 Liberty Avenue Investors, Inc.; Chairman and
Director, Federated Securities Corp.
Pittsburgh, PA
VICE PRESIDENT
J. Thomas Madden Chief Investment Officer of this Fund and various other Funds in the
Birth Date: October 22, 1945 Federated Fund Complex; Executive Vice President, Federated
Federated Investors Tower Investment Counseling, Federated Global Investment Management Corp.,
1001 Liberty Avenue Federated Investment Management Company and Passport Research, Ltd.;
Pittsburgh, PA Vice President, Federated Investors, Inc.; formerly: Executive Vice
CHIEF INVESTMENT OFFICER President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Investment Management Company and Passport
Research, Ltd.
Thomas M. Franks Vice President of the Trust. Mr. Franks joined Federated in 1985 and
Birth Date: December 15, 1954 has been a Senior Portfolio Manager and Vice President of the Fund's
Federated Investors Tower Manager since 1990. Mr. Franks is a Chartered Financial Analyst and
1001 Liberty Avenue received his M.S. in Industrial Administration from Carnegie Mellon
Pittsburgh, PA University.
PORTFOLIO DIRECTOR AND VICE
PRESIDENT
</TABLE>
<TABLE>
<CAPTION>
Name Total
Birth Date Aggregate Compensation
Address Compensation From Trust
Position With Trust From Trust and Fund Complex
<S> <C> <C>
John F. Donahue*+# $ 0 $0 for the Trust and
Birth Date: July 28, 1924 54 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
CHAIRMAN and TRUSTEE
Thomas G. Bigley $2,243.09 $113,860.22 for the
Birth Date: February 3, 1934 Trust and
15 Old Timber Trail 54 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
John T. Conroy, Jr. $2,701.88 $125,264.48 for the
Birth Date: June 23, 1937 Trust and
Grubb & Ellis/Investment Properties 29 other investment
Corporation companies
3201 Tamiami Trail North in the Fund Complex
Naples, FL
TRUSTEE
Nicholas P. Constantakis $2,455.86 $47,958.02 for the
Birth Date: September 3, 1939 Trust and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
J. Christopher Donahue+*# $ 0 $0 for the Trust and
Birth Date: April 11, 1949 16 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
EXECUTVE VICE PRESIDENT and TRUSTEE
Lawrence D. Ellis, M.D.* $2,455.86 $113,860.22 for the
Birth Date: October 11, 1932 Trust and
3471 Fifth Avenue 54 other investment
Suite 1111 companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
Peter E. Madden $2,243.09 $113,860.22 for the
Birth Date: March 16, 1942 Trust and
One Royal Palm Way 54 other investment
100 Royal Palm Way companies
Palm Beach, FL in the Fund Complex
TRUSTEE
Charles F. Mansfield, Jr. $1,930.14 $0 for the Trust and
Birth Date: April 10, 1945 50 other investment
80 South Road companies
Westhampton Beach, NY in the Fund Complex
TRUSTEE
John E. Murray, Jr., J.D., S.J.D. $2,642.26 $113,860.22 for the
Birth Date: December 20, 1932 Trust and
President, Duquesne University 54 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
Marjorie P. Smuts $2,455.86 $113,860.22 for the
Birth Date: June 21, 1935 Trust and
4905 Bayard Street 54 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
John S. Walsh $1,860.62 $0 for the Trust and
Birth Date: November 28, 1957 50 other investment
2007 Sherwood Drive companies
Valparaiso, IN in the Fund Complex
TRUSTEE
Glen R. Johnson. $ 0 $0 for the Trust and
Birth Date: May 2, 1929 8 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
PRESIDENT
Edward C. Gonzalez $ 0 $0 for the Trust and
Birth Date: October 22, 1930 1 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT
John W. McGonigle $ 0 $0 for the Trust and
Birth Date: October 26, 1938 54 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT and
SECRETARY
Richard J. Thomas $ 0 $0 for the Trust and
Birth Date: June 17, 1954 54 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
TREASURER
Richard B. Fisher $ 0 $0 for the Trust and
Birth Date: May 17, 1923 6 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
VICE PRESIDENT
J. Thomas Madden $ 0 $0 for the Trust and
Birth Date: October 22, 1945 12 other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
CHIEF INVESTMENT OFFICER
Thomas M. Franks $ 0 $0 for the Trust and
Birth Date: December 15, 1954 no other investment
Federated Investors Tower companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
PORTFOLIO DIRECTOR AND VICE
PRESIDENT
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
and Trustee of the Trust.
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, which conducts investment
research and makes investment decisions for the Fund. The directors of the Sub-
Manager are James M. Snyder, Perry R. Pero, Sheila A. Penrose, John R. Goodwin,
Stephen N. Potter, and Jeffrey H. Wessel. The executive officers of the Sub-
Manager are James M. Snyder, Chief Executive Officer, Jeffrey H. Wessel,
President and John R. Goodwin, Chief Investment Officer.
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 mid-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. 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 Manager looks for prompt execution of the order at a favorable
price. The Manager 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 Manager 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 Manager 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 Manager
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 Manager or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Manager or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Manager 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 Manager. 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 Manager 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:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated
Funds <S> <C> 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250
million 0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of
$750 million </TABLE> The administrative fee received during any fiscal
year shall be at least $125,000 per portfolio and $30,000 per each additional
class of Shares. Federated Services Company may voluntarily waive a portion of
its fee and may reimburse the 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 Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT Auditors
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended October 31, 1999 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $404,006 $328,552 $252,801
Advisory Fee Reduction $ 0 $ 48,963 $ 55,019
Brokerage Commissions $ 43,288 $ 19,694 $ 19,222
Shareholder Services Fee $ 30,336 -- --
</TABLE>
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 SEC' standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's expenses; and various other
factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return. Average Annual Total Returns and
Yield Total returns are given for the one-year, five-year and Start of
Performance periods ended October 31, 1999.
Yield is given for the 30-day period ended October 31, 1999.
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years Start of Performance on November 15, 1992
<S> <C> <C> <C> <C>
Total Return N/A 20.23% 18.44% 15.84%
Yield 0.88% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions. YIELD The yield of Shares is calculated by
dividing: (i) the net investment income per Share earned by the Shares over a
30-day period; by (ii) the maximum offering price per Share on the last day of
the period. This number is then annualized using semi-annual compounding. This
means that the amount of income generated during the 30-day period is assumed to
be generated each month over a 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by Shares
because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders. To
the extent investment professionals and broker/dealers charge fees in connection
with services provided in conjunction with an investment in Shares, the Share
performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
. 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 Composite Stock Index
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
indexes assume 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
A broadly based 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 is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume. Federated Funds overview Municipal
Funds In the municipal sector, as of December 31, 1998, Federated managed 10
bond funds with approximately $2.2 billion in assets and 23 money market funds
with approximately $12.5 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 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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,
1998, Federated managed 9 money market funds and 15 bond funds with assets
approximating $22.8 billion and $7.1 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 26 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the asset
backed securities market, a market totaling more than $209 billion.
Government Funds In the government sector, as of December 31, 1998,
Federated managed 9 mortgage backed, 5 government/agency and 19 government money
market mutual funds, with assets approximating $5.3 billion, $1.8 billion and
$41.6 billion, respectively. Federated trades approximately $425 million in U.S.
government and mortgage backed securities daily and places approximately $25
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $43.2 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, 1998, Federated
managed more than $76.7 billion in assets across 52 money market funds,
including 19 government, 9 prime and 23 municipal with assets approximating
$41.6 billion, $22.8 billion and $12.5 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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 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 & Poor's," "S&P," "S&P MidCap 400 Index," and Standard and 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, 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 400
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 400 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 400 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 400 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 400 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 400 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.
Addresses
federated mid-cap fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Manager
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Sub-Manager
Northern Trust Quantitative Advisors, Inc.
50 South LaSalle Street
Chicago, IL 60675
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
MANAGEMENT DISCUSSION AND ANALYSIS
Federated Mid-Cap Fund
Annual Report For 12 Months Ended October 31, 1999
The fund's total return for the 12 months ended October 31, 1999 was 20.23%/1/.
The Standard & Poor's 400 Industrial Index (Index)/2/, the target Index, had a
total return of 21.07% during the period. Fund performance varied from the Index
due to transaction costs, administrative expenses, and holdings of stock index
futures contracts, which are held to enhance fund liquidity.
During the last 12 months, the U.S. stock market continued its overall strong
climb, interspersed with some periods of weakness. In late 1998 and early 1999,
the market moved upward, but later in the summer and early fall it moved lower
temporarily based on fears of inflation, higher interest rates and lower
economic growth. However, more recent favorable economic data allayed these
concerns and the market rallied as the Federal Reserve Board moved to a neutral
stance on further increases in short-term interest rates.
Technology and communications stocks have led the market, buoyed by rapid
growth in the Internet and electronic commerce. Large company stocks continue to
outperform stocks of medium and smaller-size companies.
During the last 12 months, the strongest performing industry groups were
communications equipment, broadcast/media, and computer software; while consumer
services, healthcare, and auto parts were among the worst performing industry
groups in the Index.
/1/ Performance quoted represents past performance and is no guarantee of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
/2/ This index is unmanaged.
Federated Mid-Cap Fund
Growth of $25,000 Invested in Federated Mid-Cap Fund
[Please see Appendix A1]
Average Annual Total Return for the Period Ended
October 31, 1999
1 Year 20.23%
5 Year 18.44%
Start of Performance (11/5/92) 15.84%
The graph above illustrates the hypothetical investment of $25,000/1/ in the
Federated Mid-Cap Fund (the "Fund") from November 5, 1992 (start of performance)
to October 31, 1999 compared to the Standard and Poor's MidCap 400 Index (S&P
400)./2/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and together with financial statements contained therein,
constitutes the Fund's annual report.
/1/ The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 400 has been adjusted to reflect reinvestment of
dividends on securities in the index.
/2/ The S&P 400 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.
NOTES
Federated
World-Class Investment Manager/sm/
Federated Mid-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E205
006686A (12/99)
Federated is a registered mark of Federated Investors, Inc. 1999 (c) Federated
Investors, Inc.
PROSPECTUS
FEDERATED MAX-CAP FUND
A Portfolio of Federated Index Trust
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 nor affiliated with Standard & Poor's.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 36
</TABLE>
- -------------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
- -------------------
DECEMBER 31, 1999
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 Composite
Stock Price Index (Index). While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN
INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the large capitalization 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. The primary factors that may reduce the Fund's returns
include:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly
or over a sustained period of time.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible
to any developments which affect those sectors emphasized by the Fund.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[BAR CHART APPEARS HERE]
The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.
The Fund's Institutional Shares total return for the nine-month period from
January 1, 1999 to September 30, 1999 was 4.99%.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 21.22% (quarter ended December 31, 1998). Its lowest
quarterly return was (9.97%) (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Institutional Shares Average Annual
Total Returns for the calendar period ended December 31, 1998. The table shows
the Fund's Institutional Shares total returns averaged over a period of years
relative to the Standard & Poor's 500 Index, a broad based market index. Total
returns for the index shown do not reflect sales charges, expenses or other fees
that the SEC requires to be reflected in the Fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.
<TABLE>
<CAPTION>
Institutional
Calendar Period Shares S&P 500
- ------------------------------------------------------------------
<S> <C> <C>
1 Year 28.27% 28.58%
- ------------------------------------------------------------------
5 Years 23.64% 24.06%
- ------------------------------------------------------------------
Start of Performance/1/ 18.40% 18.55%
- ------------------------------------------------------------------
</TABLE>
1 The Fund's Institutional Shares start of performance date was July 11, 1990.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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
the Fund's Institutional Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
<S> <C>
Management Fee/2/........................................................................................................... 0.30%
Distribution (12b-1) Fee.................................................................................................... None
Shareholder Services Fee/3/................................................................................................. 0.25%
Other Expenses.............................................................................................................. 0.05%
Total Annual Fund Operating Expenses........................................................................................ 0.60%
- -----------------------------------------------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the manager and shareholder services provider waived certain amounts.
These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999.
Total Waivers of Fund Expenses........................................................................................... 0.28%
Total Actual Annual Fund Operating Expenses (after waivers).............................................................. 0.32%
2 The manager voluntarily waived a portion of the management fee. The manager
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.27% for the fiscal year ended
October 31, 1999.
3 The shareholder services provider voluntarily waived a portion of the
shareholder services fee. This voluntary waiver can be terminated at any
time. The shareholder services fee paid by the Fund's Institutional Shares
(after the voluntary waiver) was 0.00% for the fiscal year ended October 31,
1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the 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 Fund's Institutional Shares operating expenses are before
waivers as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $61 $192 $335 $750
</TABLE>
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,
1999, the capitalization range of the Index was $222 million to $462.2 billion.
As of the same date, the weighted median market capitalization of the Fund was
$65.4 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?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
STOCK INDEX FUTURES
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 rise and fall. 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. Consequently, the Fund's share price may
decline.
SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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 (as
described in the prospectus), it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values 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).
Futures contracts are generally valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are generally valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option.
The 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 a smaller minimum
investment amount. 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 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, 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.
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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated 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
. Establish your account with the Fund by submitting a completed New Account
Form; and
. 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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.
HOW TO REDEEM SHARES
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Manager, Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non- financial institution clients invest. In total, the Sub- Manager
manages 67 commingled/common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
MANAGEMENT FEES
The Manager receives an annual management fee equal to 0.30% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses.
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 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
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 Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. 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 any
dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 36.
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.91 $19.70 $15.49 $14.74 $12.02
- -------------------------------------------
Income From Investment Operations:
- -------------------------------------------
Net investment income 0.31 0.31 0.31 0.34 0.38
- -------------------------------------------
Net realized and unrealized gain on
investments and futures contracts 5.38 3.83 4.47 2.80 2.70
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.69 4.14 4.78 3.14 3.08
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
- -------------------------------------------
Distributions from net
investment income (0.29) (0.31) (0.33) (0.36) (0.34)
- -------------------------------------------
Distributions from net realized
gain on investments and
futures contracts (0.22) (0.62) (0.24) (2.03) (0.02)
- -------------------------------------------
TOTAL DISTRIBUTIONS (0.51) (0.93) (0.57) (2.39) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $28.09 $22.91 $19.70 $15.49 $14.74
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return/1/ 25.11% 21.56% 31.51% 23.71% 26.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses/2/ 0.60% 0.58% 0.61% 0.62% 0.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/2/ 0.90% 1.13% 1.40% 1.98% 2.58%
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses (after waivers) 0.32% 0.31% 0.31% 0.31% 0.31%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (after waivers) 1.18% 1.40% 1.70% 2.29% 2.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $2,003,590 $1,445,175 $1,142,081 $900,131 $679,237
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 3% 3% 16% 3% 57%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.7%/1/
Basic Materials--2.8%
<S> <C> <C>
54,000 Air Products & Chemicals, Inc. $ 1,485,000
53,600 Alcan Aluminum, Ltd. 1,765,450
86,400 Alcoa, Inc. 5,248,800
46,192 Allegheny Teledyne, Inc. 701,541
146,351 Archer-Daniels-Midland Co. 1,801,947
91,800 Barrick Gold Corp. 1,681,088
12,300 Bemis Co., Inc. 429,731
30,600 /2/Bethlehem Steel Corp. 212,288
13,300 Boise Cascade Corp. 473,812
22,500 Champion International Corp. 1,300,780
52,100 Dow Chemical Co. 6,160,825
245,381 Du Pont (E.I.) de Nemours & Co. 15,811,764
18,625 Eastman Chemical Co. 718,226
30,480 Ecolab, Inc. 1,030,605
33,762 Engelhard Corp. 595,055
7,800 /2/FMC Corp. 317,362
39,000 Freeport-McMoRan Copper & Gold, Inc., Class B 650,812
41,400 Georgia-Pacific Corp. 1,643,062
25,800 Goodrich (B.F.) Co. 611,137
17,300 /2/Grace (W.R.) & Co. 258,419
13,900 Great Lakes Chemical Corp. 493,450
23,700 Hercules, Inc. 570,281
61,200 Homestake Mining Co. 512,550
25,000 International Flavors & Fragrances, Inc. 956,250
96,545 International Paper Co. 5,080,681
25,600 Louisiana-Pacific Corp. 324,800
24,000 Mead Corp. 864,000
147,500 Monsanto Co. 5,678,750
39,357 Newmont Mining Corp. 863,394
20,600 Nucor Corp. 1,068,625
41,400 PPG Industries, Inc. 2,509,875
21,108 Phelps Dodge Corp. 1,189,935
76,600 Placer Dome, Inc. 928,775
6,800 Potlatch Corp. 286,875
37,100 Praxair, Inc. 1,734,425
15,500 Reynolds Metals Co. 936,781
49,973 Rohm & Haas Co. 1,911,467
23,700 Sigma-Aldrich Corp. 675,450
13,100 Temple-Inland, Inc. 761,437
20,820 USX-U.S. Steel Group, Inc. 532,211
31,300 Union Carbide Corp. 1,909,300
23,800 Vulcan Materials Co. 983,237
23,650 Westvaco Corp. 702,109
46,900 Weyerhaeuser Co. 2,799,344
26,100 Willamette Industries, Inc. 1,084,781
21,750 Worthington Industries, Inc. 361,594
TOTAL 78,618,081
Capital Goods--7.9%
44,000 /2/Allied Waste Industries, Inc. 462,000
131,200 Allied-Signal, Inc. 7,470,200
27,400 Avery Dennison Corp. 1,712,500
7,300 Ball Corp. 294,281
225,808 Boeing Co. 10,401,281
5,500 Briggs & Stratton Corp. 321,406
17,400 Case Corp. 922,200
84,500 Caterpillar, Inc. 4,668,625
22,200 Cooper Industries, Inc. 955,987
57,400 Corning, Inc. 4,513,075
16,175 Crane Co. 330,576
28,800 Crown Cork & Seal Co., Inc. 689,400
9,900 Cummins Engine Co., Inc. 501,806
56,200 Deere & Co. 2,037,250
49,000 Dover Corp. 2,085,562
16,800 Eaton Corp. 1,264,200
103,000 Emerson Electric Co. 6,186,437
17,800 Fluor Corp. 709,775
9,600 Foster Wheeler Corp. 108,000
46,840 General Dynamics Corp. 2,596,692
771,200 General Electric Co. 104,545,800
29,700 Honeywell, Inc. 3,131,494
58,900 Illinois Tool Works, Inc. 4,314,425
42,600 Inco Ltd. 862,650
38,700 Ingersoll-Rand Co. 2,022,075
20,000 Johnson Controls, Inc. 1,215,000
92,376 Lockheed Martin Corp. 1,847,520
13,900 McDermott International, Inc. 251,937
9,100 Milacron, Inc. 149,581
10,400 Millipore Corp. 331,500
94,600 Minnesota Mining & Manufacturing Co. 8,992,912
1,948 NACCO Industries, Inc., Class A 90,338
9,700 National Service Industries, Inc. 312,825
15,570 /2/Navistar International Corp. 649,074
16,200 Northrop Grumman, Corp. 888,975
36,600 /2/Owens-Illinois, Inc. 876,112
18,380 PACCAR, Inc. 866,157
29,333 Pall Corp. 643,493
25,500 Parker-Hannifin Corp. 1,168,219
64,200 Pitney Bowes, Inc. 2,925,112
44,700 Rockwell International Corp. 2,165,156
19,600 /2/Sealed Air Corp. 1,085,350
63,200 /2/Solectron Corp. 4,755,800
40,100 Tenneco, Inc. 641,600
35,500 Textron, Inc. 2,740,156
37,400 /2/Thermo Electron Corp. 504,900
13,400 Thomas & Betts Corp. 601,325
14,600 Timken Co. 261,887
393,468 Tyco International Ltd. 15,714,128
113,500 United Technologies Corp. 6,866,750
143,328 Waste Management, Inc. 2,633,652
TOTAL 222,287,156
Communication Services--8.3%
748,772 AT&T Corp. 35,005,091
71,800 Alltel Corp. 5,977,350
365,484 Bell Atlantic Corp. 23,733,617
445,700 BellSouth Corp. 20,056,500
32,500 CenturyTel, Inc. 1,314,219
230,600 GTE Corp. 17,295,000
180,820 /2/Global Crossing Ltd. 6,260,892
440,397 /2/MCI Worldcom, Inc. 37,791,567
142,900 /2/MediaOne Group, Inc. 10,154,831
78,000 /2/NEXTEL Communications, Inc., Class A 6,722,625
802,626 SBC Communications, Inc. 40,883,762
203,600 Sprint Corp. 15,130,025
103,550 /2/Sprint PCS Group 8,588,178
118,455 U.S. West, Inc. 7,233,158
TOTAL 236,146,815
Consumer Cyclicals--8.3%
16,500 American Greetings Corp., Class A 426,937
9,400 Armstrong World Industries, Inc. 351,325
35,300 /2/AutoZone, Inc. 937,656
32,800 /2/Bed Bath & Beyond, Inc. 1,092,650
48,400 /2/Best Buy Co., Inc. 2,689,225
20,700 Black & Decker Corp. 890,100
23,000 Block (H&R), Inc. 978,937
21,600 Brunswick Corp. 488,700
170,107 /2/Cendant Corp. 2,806,765
14,000 Centex Corp. 375,375
47,400 Circuit City Stores, Inc. 2,023,387
25,800 /2/Consolidated Stores Corp. 472,462
17,800 Cooper Tire & Rubber Co. 299,262
51,350 /2/Costco Wholesale Corp. 4,124,047
39,045 Dana Corp. 1,154,268
31,500 Danaher Corp. 1,521,844
103,800 Dayton-Hudson Corp. 6,708,075
132,705 Delphi Auto Systems Corp. 2,181,338
25,200 Dillards, Inc., Class A 475,650
52,062 Dollar General Corp. 1,373,135
22,100 Dow Jones & Co. 1,359,150
38,900 Dun & Bradstreet Corp. 1,142,687
49,400 /2/Federated Department Stores, Inc. 2,108,762
8,200 Fleetwood Enterprises, Inc. 178,862
284,900 Ford Motor Co. 15,633,887
66,300 Gannett Co., Inc. 5,113,387
201,375 Gap (The), Inc. 7,476,047
151,400 General Motors Corp. 10,635,850
42,350 Genuine Parts Co. 1,103,747
36,700 Goodyear Tire & Rubber Co. 1,516,169
16,700 Harcourt General, Inc. 642,950
29,750 /2/Harrah's Entertainment, Inc. 860,891
46,200 Hasbro, Inc. 952,875
61,400 Hilton Hotels Corp. 567,950
348,600 Home Depot, Inc. 26,319,300
75,000 IMS Health, Inc. 2,175,000
20,700 ITT Industries, Inc. 707,681
65,500 Interpublic Group Cos., Inc. 2,660,937
8,352 Jostens, Inc. 176,436
116,100 /2/K Mart Corp. 1,168,256
11,300 Kaufman & Broad Homes Corp. 226,706
18,500 Knight-Ridder, Inc. 1,174,750
38,300 /2/Kohl's Corp. 2,865,319
77,700 Laidlaw, Inc. 475,912
46,300 Leggett and Platt, Inc. 1,027,281
51,790 Limited, Inc. 2,129,864
15,200 Liz Claiborne, Inc. 608,000
87,400 Lowe's Cos., Inc. 4,807,000
58,700 Marriott International, Inc., Class A 1,977,456
104,100 Masco Corp. 3,175,050
98,125 Mattel, Inc. 1,312,422
78,600 May Department Stores Co. 2,726,437
21,200 Maytag Corp. 849,325
46,300 McGraw-Hill Cos., Inc. 2,760,636
12,300 Meredith Corp. 438,956
46,300 /2/Mirage Resorts, Inc. 674,244
5,032 /2/Neiman-Marcus Group, Inc., Class B 107,867
42,900 New York Times Co., Class A 1,726,725
66,500 Nike, Inc., Class B 3,753,094
33,500 Nordstrom, Inc. 835,406
88,200 /2/Office Depot, Inc. 1,096,987
42,100 Omnicom Group, Inc. 3,704,800
12,800 Owens Corning 262,400
62,000 Penney (J.C.) Co., Inc. 1,573,250
12,356 Pep Boys-Manny Moe & Jack 154,450
10,200 Pulte Corp. 205,275
13,300 /2/Reebok International Ltd. 130,506
8,500 Russell Corp. 129,094
90,200 Sears, Roebuck & Co. 2,542,512
64,400 Service Corp. International 615,825
40,500 Sherwin-Williams Co. 906,187
15,400 Snap-On Tools Corp. 467,775
4,300 Springs Industries, Inc., Class A 171,194
20,900 Stanley Works 579,975
108,500 /2/Staples, Inc. 2,407,344
76,100 TJX Cos., Inc. 2,064,212
28,200 TRW, Inc. 1,209,075
46,660 Tandy Corp. 2,936,664
16,900 Times Mirror Co., Class A 1,218,912
59,300 /2/Toys `R' Us, Inc. 837,612
56,000 Tribune Co. 3,360,000
28,200 V.F. Corp. 847,761
1,047,000 Wal-Mart Stores, Inc. 59,351,812
17,900 Whirlpool Corp. 1,247,406
TOTAL 235,545,440
Consumer Staples--10.3%
13,400 Alberto-Culver Co., Class B 315,737
98,561 Albertsons, Inc. 3,578,996
109,900 Anheuser-Busch Cos., Inc. 7,892,194
61,800 Avon Products, Inc. 1,993,050
67,300 BestFoods 3,953,875
16,100 Brown-Forman Corp., Class B 1,086,750
91,800 CVS Corp. 3,987,562
104,700 Campbell Soup Co. 4,711,500
64,050 Cardinal Health, Inc. 2,762,156
78,100 /2/Clear Channel Communications, Inc. 6,277,287
55,200 Clorox Co. 2,259,750
99,900 Coca Cola Enterprises, Inc. 2,553,694
580,400 Coca-Cola Co. 34,243,600
137,800 Colgate-Palmolive Co. 8,336,900
115,200 ConAgra, Inc. 3,002,400
8,600 Coors Adolph Co., Class B 477,300
32,400 Darden Restaurants, Inc. 617,625
18,900 Deluxe Corp. 533,925
484,000 Disney (Walt) Co. 12,765,500
31,600 Donnelley (R.R.) & Sons Co. 766,300
51,900 Fort James Corp. 1,365,619
40,300 Fortune Brands, Inc. 1,428,131
36,100 General Mills, Inc. 3,147,469
255,100 Gillette Co. 9,231,431
9,000 Great Atlantic & Pacific Tea Co., Inc. 257,062
85,200 Heinz (H.J.) Co. 4,068,300
33,700 Hershey Foods Corp. 1,701,850
95,400 Kellogg Co. 3,798,112
125,248 Kimberly-Clark Corp. 7,906,280
16,800 /2/King World Productions, Inc. 651,000
193,600 /2/Kroger Co., Inc. 4,029,300
9,200 Longs Drug Stores Corp. 250,700
318,600 McDonald's Corp. 13,142,250
65,226 McKesson HBOC, Inc. 1,308,597
76,500 Nabisco Group Holdings Corp. 980,156
66,144 Newell Rubbermaid, Inc. 2,290,236
347,500 PepsiCo, Inc. 12,053,906
561,900 Philip Morris Cos., Inc. 14,152,856
312,600 Procter & Gamble Co. 32,783,925
32,100 Quaker Oats Co. 2,247,000
77,300 Ralston Purina Co. 2,430,119
60,900 Rite Aid Corp. 532,875
120,000 /2/Safeway, Inc. 4,237,500
214,700 Sara Lee Corp. 5,810,319
100,700 Seagram Co. Ltd. 4,972,062
28,300 Supervalu, Inc. 594,300
78,400 Sysco Corp. 3,013,500
304,080 Time Warner, Inc. 21,190,575
35,930 /2/Tricon Global Restaurants, Inc. 1,443,937
13,600 Tupperware Corp. 269,450
43,800 UST, Inc. 1,212,712
134,572 Unilever N.V., ADR 8,974,295
163,836 /2/Viacom, Inc., Class B 7,331,661
235,100 Walgreen Co. 5,921,581
29,300 Wendy's International, Inc. 699,538
35,000 Winn-Dixie Stores, Inc. 947,188
27,300 Wrigley (Wm.), Jr. Co. 2,182,294
TOTAL 290,674,187
Energy--5.6%
44,800 /2/AES Corp. 2,528,400
21,300 Amerada-Hess Corp. 1,222,088
28,300 Anadarko Petroleum Corp. 871,994
26,100 Apache Corp. 1,017,900
17,500 Ashland, Inc. 577,500
76,800 Atlantic Richfield Co. 7,156,800
76,990 Baker Hughes, Inc. 2,150,908
41,765 Burlington Resources, Inc. 1,456,554
27,600 CMS Energy Corp. 1,017,750
154,200 Chevron Corp. 14,080,388
147,779 Conoco, Inc., Class B 4,008,505
570,800 Exxon Corp. 42,274,875
103,500 Halliburton Co. 3,900,656
11,600 Helmerich & Payne, Inc. 276,225
20,376 Kerr-McGee Corp. 1,095,210
183,600 Mobil Corp. 17,717,400
81,400 Occidental Petroleum Corp. 1,856,938
59,900 Phillips Petroleum Co. 2,785,350
19,700 /2/Rowan Companies, Inc. 306,581
504,900 Royal Dutch Petroleum Co., ADR 30,262,444
128,500 Schlumberger Ltd. 7,782,281
22,037 Sunoco, Inc. 531,643
129,900 Texaco, Inc. 7,972,613
35,800 Tosco Corp. 906,188
72,400 USX Marathon Group 2,108,650
59,094 Union Pacific Resources Group, Inc. 856,863
56,800 Unocal Corp. 1,959,600
TOTAL 158,682,304
Financials--14.5%
60,075 AON Corp. 2,132,663
33,655 Aetna, Inc. 1,691,164
62,900 Aflac, Inc. 3,215,763
187,710 Allstate Corp. 5,396,663
105,600 American Express Co. 16,262,400
59,330 American General Corp. 4,401,544
364,416 American International Group, Inc. 37,512,072
92,600 Amsouth Bancorporation 2,384,450
171,432 Associates First Capital Corp., Class A 6,257,268
73,200 BB&T Corp. 2,662,650
277,886 Bank One Corporation 10,438,082
406,092 Bank of America Corp. 26,142,173
172,900 Bank of New York Co., Inc. 7,240,188
26,625 Bear Stearns Cos., Inc. 1,134,891
46,800 CIGNA Corp. 3,498,300
46,200 Capital One Financial Corp. 2,448,600
195,740 Chase Manhattan Corp. 17,102,783
41,700 Chubb Corp. 2,288,288
39,300 Cincinnati Financial Corp. 1,407,431
793,975 Citigroup, Inc. 42,973,897
36,650 Comerica, Inc. 2,178,384
75,461 Conseco, Inc. 1,834,646
26,500 Countrywide Credit Industries, Inc. 899,344
163,600 Federal Home Loan Mortgage Corp. 8,844,625
241,200 Federal National Mortgage Association 17,064,900
62,600 Fifth Third Bancorp 4,620,663
227,698 First Union Corp. 9,719,858
232,967 Firstar Corp. 6,843,406
216,491 Fleet Boston Corp. 9,444,425
59,500 Franklin Resources, Inc. 2,082,500
13,400 Golden West Financial Corp. 1,497,450
55,000 Hartford Financial Services Group, Inc. 2,849,688
113,659 Household International, Inc. 5,072,033
54,560 Huntington Bancshares, Inc. 1,616,340
41,700 J.P. Morgan & Co., Inc. 5,457,488
24,937 Jefferson-Pilot Corp. 1,871,834
107,200 KeyCorp 2,994,900
27,900 Lehman Brothers Holdings, Inc. 2,055,881
47,600 Lincoln National Corp. 2,195,550
26,800 Loews Corp. 1,899,450
23,400 MBIA Insurance Corp. 1,335,263
188,727 MBNA Corp. 5,213,583
25,800 MGIC Investment Corp. 1,541,550
61,900 Marsh & McLennan Cos., Inc. 4,893,969
123,000 Mellon Financial Corp. 4,543,313
86,600 Merrill Lynch & Co., Inc. 6,798,100
134,257 Morgan Stanley, Dean Witter & Co. 14,810,225
148,000 National City Corp. 4,366,000
70,800 PNC Bank Corp. 4,221,450
33,600 PaineWebber Group, Inc. 1,369,200
17,100 Progressive Corp., Ohio 1,582,819
33,300 Providian Financial Corp. 3,629,700
52,100 Regions Financial Corp. 1,566,256
25,300 Republic New York Corp. 1,598,644
32,100 SAFECO Corp. 882,750
39,000 SLM Holding Corp. 1,908,563
192,150 Schwab (Charles) Corp. 7,481,841
38,900 SouthTrust Corp. 1,556,000
55,452 St. Paul Cos., Inc. 1,774,464
37,800 State Street Corp. 2,877,525
40,900 Summit Bancorp 1,416,163
75,500 SunTrust Banks, Inc. 5,525,656
62,950 Synovus Financial Corp. 1,349,491
28,500 T. Rowe Price Associates 1,011,750
33,000 Torchmark Corp. 1,029,188
171,565 U.S. Bancorp, Inc. 6,358,628
55,814 UNUMProvident Corp. 1,838,374
33,600 Union Planters Corp. 1,495,200
47,700 Wachovia Corp. 4,114,125
139,676 Washington Mutual, Inc. 5,019,606
388,860 Wells Fargo Co. 18,616,673
TOTAL 409,360,704
Health Care--10.0%
357,300 Abbott Laboratories 14,425,988
15,500 Allergan, Inc. 1,664,313
23,500 /2/Alza Corp. 1,006,094
307,200 American Home Products Corp. 16,051,200
119,800 /2/Amgen, Inc. 9,554,050
12,600 Bard (C.R.), Inc. 679,613
13,200 Bausch & Lomb, Inc. 712,800
68,600 Baxter International, Inc. 4,450,425
58,600 Becton, Dickinson & Co. 1,486,975
26,400 Biomet, Inc. 795,300
97,200 /2/Boston Scientific Corp. 1,956,150
467,900 Bristol-Myers Squibb Co. 35,940,569
133,707 Columbia/HCA Healthcare Corp. 3,225,681
70,900 Guidant Corp. 3,500,688
99,600 /2/HEALTHSOUTH, Corp. 572,700
39,400 /2/Humana, Inc. 270,875
316,600 Johnson & Johnson 33,163,850
256,900 Lilly (Eli) & Co. 17,693,988
16,800 Mallinckrodt, Inc. 570,150
26,050 /2/Manor Care, Inc. 410,288
275,000 Medtronic, Inc. 9,521,875
551,400 Merck & Co., Inc. 43,870,763
911,000 Pfizer, Inc. 35,984,500
119,655 Pharmacia & Upjohn, Inc. 6,453,892
346,000 Schering Plough Corp. 17,127,000
19,841 /2/St. Jude Medical, Inc. 543,147
73,000 /2/Tenet Healthcare Corp. 1,418,938
40,700 United Healthcare Corp. 2,103,681
200,200 Warner-Lambert Co. 15,978,463
22,400 /2/Watson Pharmaceuticals, Inc. 711,200
15,900 /2/Wellpoint Health Networks, Inc. 922,200
TOTAL 282,767,356
Technology--22.0%
84,500 /2/3Com Corp. 2,450,500
31,600 /2/ADC Telecommunications, Inc. 1,506,925
24,300 /2/Adaptec, Inc. 1,093,500
29,600 Adobe System, Inc. 2,070,150
34,100 /2/Advanced Micro Devices, Inc. 675,606
260,500 /2/America Online, Inc. 33,783,594
40,900 /2/Analog Devices, Inc. 2,172,813
19,462 /2/Andrew Corp. 250,573
37,400 /2/Apple Computer, Inc. 2,996,675
87,800 /2/Applied Materials, Inc. 7,885,538
14,000 Autodesk, Inc. 262,500
145,000 Automatic Data Processing, Inc. 6,987,188
55,500 /2/BMC Software, Inc. 3,562,406
40,500 /2/Cabletron Systems, Inc. 670,781
33,700 /2/Ceridian Corp. 739,294
764,300 /2/Cisco Systems, Inc. 56,558,200
399,961 Compaq Computer Corp. 7,599,259
126,862 Computer Associates International, Inc. 7,167,703
37,400 /2/Computer Sciences Corp. 2,568,913
86,500 /2/Compuware Corp. 2,405,781
16,400 /2/Comverse Technology, Inc. 1,861,400
599,100 /2/Dell Computer Corp. 24,038,888
241,887 /2/EMC Corp. Mass 17,657,751
74,400 Eastman Kodak Co. 5,128,950
116,000 Electronic Data Systems Corp. 6,786,000
34,700 Equifax, Inc. 936,900
100,900 First Data Corp. 4,609,869
73,600 /2/Gateway 2000, Inc. 4,862,200
40,600 /2/General Instrument Corp. 2,184,788
22,400 Grainger (W.W.), Inc. 949,200
18,600 Harris Corp. 417,338
239,000 Hewlett-Packard Co. 17,700,938
34,800 Ikon Office Solutions, Inc. 239,250
777,700 Intel Corp. 60,223,144
425,300 International Business Machines Corp. 41,838,888
20,700 /2/KLA-Tencor Corp. 1,639,181
33,300 /2/LSI Logic Corp. 1,771,144
30,200 /2/Lexmark Intl. Group, Class A 2,357,488
720,328 Lucent Technologies, Inc. 46,281,074
58,300 Micron Technology, Inc. 4,157,519
1,200,900 /2/Microsoft Corp. 111,158,306
141,900 Motorola, Inc. 13,826,381
39,300 /2/National Semiconductor Corp. 1,176,544
17,000 /2/Network Appliance, Inc. 1,258,000
312,520 Nortel Networks Corp. 19,356,708
79,500 /2/Novell, Inc. 1,594,969
338,962 /2/Oracle Corp. 16,121,880
23,400 PE Corp.-PE Biosystems Group 1,518,075
63,000 /2/Parametric Technology Corp. 1,200,938
57,750 Paychex, Inc. 2,273,906
54,900 /2/Peoplesoft, Inc. 823,500
10,500 Perkin-Elmer, Inc. 428,531
10,300 Polaroid Corp. 229,819
37,700 /2/Qualcomm, Inc. 8,397,675
79,300 Raytheon Co., Class B 2,309,613
17,800 Scientific-Atlanta, Inc. 1,019,050
52,400 /2/Seagate Technology, Inc. 1,542,525
6,300 Shared Medical Systems Corp. 237,825
44,200 /2/Silicon Graphics, Inc. 342,550
181,400 /2/Sun Microsystems, Inc. 19,194,388
11,000 Tektronix, Inc. 371,250
91,400 /2/Tellabs, Inc. 5,781,050
184,400 Texas Instruments, Inc. 16,549,900
71,900 /2/Unisys Corp. 1,743,575
155,600 Xerox Corp. 4,356,800
TOTAL 621,863,567
Transportation--1.0%
36,100 /2/AMR Corp. 2,292,350
110,433 Burlington Northern Santa Fe 3,520,052
51,100 CSX Corp. 2,095,100
144,330 Carnival Corp., Class A 6,422,685
33,400 Delta Air Lines, Inc. 1,818,213
69,680 /2/FDX Corp. 3,000,595
25,800 Kansas City Southern Industries, Inc. 1,223,888
89,300 Norfolk Southern Corp. 2,182,269
16,900 Ryder Systems, Inc. 361,238
118,725 Southwest Airlines Co. 1,996,064
17,400 /2/US Airways Group, Inc. 487,200
58,200 Union Pacific Corp. 3,244,650
TOTAL 28,644,304
Utilities--3.0%
32,300 Ameren Corp. 1,221,344
45,100 American Electric Power Co., Inc. 1,555,950
167,500 CBS Corp. 8,176,094
35,600 Carolina Power & Light Co. 1,228,200
50,100 Central & SouthWest Corp. 1,111,594
37,340 Cinergy Corp. 1,054,855
50,100 Coastal Corp. 2,110,463
19,650 Columbia Energy Group 1,277,250
174,100 Comcast Corp., Class A 7,333,962
54,900 Consolidated Edison Co. 2,096,494
22,600 Consolidated Natural Gas Co. 1,446,400
35,150 Constellation Energy Group 1,078,666
34,200 DTE Energy Co. 1,135,013
45,950 Dominion Resources, Inc. 2,211,344
85,272 Duke Energy Corp. 4,817,868
5,300 Eastern Enterprises 270,963
83,000 Edison International 2,458,875
53,100 El Paso Energy Corp. 2,177,100
165,400 Enron Corp. 6,605,663
58,100 Entergy Corp. 1,739,369
42,600 FPL Group, Inc. 2,143,313
55,800 FirstEnergy Corp. 1,454,288
24,000 Florida Progress Corp. 1,099,500
30,100 GPU, Inc. 1,021,519
11,200 NICOR, Inc. 434,000
26,900 New Century Energies, Inc. 875,931
44,100 Niagara Mohawk Holdings, Inc. 700,088
35,900 Northern States Power Co. 771,850
7,400 ONEOK, Inc. 215,988
90,100 P G & E Corp. 2,066,669
35,591 P P & L Resources, Inc. 963,181
70,000 Pacificorp 1,443,750
45,100 Peco Energy Co. 1,722,256
8,400 Peoples Energy Corp. 319,200
19,900 Pinnacle West Capital Corp. 733,813
52,500 Public Service Enterprises Group, Inc. 2,077,031
69,751 Reliant Energy, Inc. 1,900,713
56,518 Sempra Energy 1,155,087
164,200 Southern Co. 4,361,563
66,425 Texas Utilities Co. 2,573,969
51,100 Unicom Corp. 1,957,769
100,700 Williams Cos., Inc. (The) 3,776,250
TOTAL 84,875,195
TOTAL COMMON STOCKS (IDENTIFIED COST $1,487,992,058) 2,649,465,109
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. GOVERNMENT OBLIGATION--0.3%/3/
$ 10,000,000 United States Treasury Bill, 1/6/2000 (IDENTIFIED COST $9,915,667) $ 9,916,000
REPURCHASE AGREEMENT--5.5%/4/
154,380,000 ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT AMORTIZED COST) 154,380,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,652,287,725)/5/ $2,813,761,109
</TABLE>
1 The Fund purchases Index futures contracts to efficiently manage cash flows
resulting from shareholder purchases and redemptions, dividend and capital
gain payments to shareholders and corporate actions while maintaining
exposure to the Index and minimizing trading costs. The total market value of
open Index futures contracts is $166,864,250 at October 31, 1999, which
represents 5.9% of net assets. Taking into consideration these open Index
futures contracts, the Fund's effective total exposure to the Index is 99.6%.
2 Non-income producing security.
3 Represents a security held as collateral which is used to ensure the Fund is
able to satisfy the obligations of its outstanding long future contracts.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $1,652,287,725.
The net unrealized appreciation of investments on a federal tax basis amounts
to $1,161,473,384 which is comprised of $1,229,296,328 appreciation and
$67,822,944 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,826,817,480) at October 31, 1999.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Total investments in securities, at value (identified and tax cost $1,652,287,725) $2,813,761,109
Cash 528,630
Income receivable 2,658,943
Receivable for shares sold 11,019,548
Receivable for daily variation margin 3,032,262
TOTAL ASSETS 2,831,000,492
Liabilities:
Payable for shares redeemed $ 3,502,903
Payable for taxes withheld 53,383
Accrued expenses 626,726
TOTAL LIABILITIES 4,183,012
Net assets for 100,687,896 shares outstanding $2,826,817,480
Net Assets Consist of:
Paid in capital $1,638,802,010
Net unrealized appreciation of investments and futures contracts 1,164,012,124
Accumulated net realized gain on investments and futures contracts 20,647,333
Accumulated undistributed net investment income 3,356,013
TOTAL NET ASSETS $2,826,817,480
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
Net Asset Value and Offering Price Per Share ($2,003,589,699 / 71,314,846 shares outstanding) $28.09
Redemption Proceeds Per Share $28.09
Institutional Service Shares:
Net Asset Value and Offering Price Per Share ($726,976,397 / 25,931,064 shares outstanding) $28.03
Redemption Proceeds Per Share $28.03
Class C Shares:
Net Asset Value and Offering Price Per Share ($96,251,384 / 3,441,986 shares outstanding) $27.96
Redemption Proceeds Per Share (99/100 of $27.96)/1/ $27.68
</TABLE>
1 See "What Do Shares Cost?"
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
Investment Income:
<S> <C> <C> <C>
Dividends (net of foreign taxes withheld of $213,782) $ 31,831,796
Interest 5,844,814
TOTAL INCOME 37,676,610
Expenses:
Investment advisory fee $ 7,509,707
Custodian fees 133,244
Transfer and dividend disbursing agent fees and expenses 506,382
Directors'/Trustees' fees 14,836
Auditing fees 15,356
Legal fees 10,302
Portfolio accounting fees 176,572
Distribution services fee--Institutional Service Shares 1,946,654
Distribution services fee--Class C Shares 388,614
Shareholder services fee--Institutional Shares 4,504,786
Shareholder services fee--Institutional Service Shares 1,622,211
Shareholder services fee--Class C Shares 129,538
Share registration costs 370,457
Printing and postage 66,166
Insurance premiums 6,068
Miscellaneous 19,345
TOTAL EXPENSES 17,420,238
Waivers:
Waiver of investment advisory fee $ (759,554)
Waiver of distribution services fee--Institutional Service Shares (1,427,546)
Waiver of shareholder services fee--Institutional Shares (4,504,786)
Waiver of shareholder services fee--Institutional Service Shares (194,666)
TOTAL WAIVERS (6,886,552)
Net expenses 10,533,686
Net investment income 27,142,924
Realized and Unrealized Gain on Investments and Futures Contracts:
Net realized gain on investments and futures contracts 27,327,240
Net change in unrealized appreciation of investments and
futures contracts 454,485,986
Net realized and unrealized gain on investments and futures contracts 481,813,226
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $508,956,150
</TABLE>
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 27,142,924 $ 23,545,370
Net realized gain on investments and futures contracts ($26,799,393 and
$18,621,157, respectively, as computed for federal tax purposes) 27,327,240 15,258,606
Net change in unrealized appreciation of investments and futures contracts 454,485,986 284,412,168
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 508,956,150 323,216,144
Distributions to Shareholders:
Distributions from net investment income
Institutional Shares (19,497,540) (19,446,188)
Institutional Service Shares (5,207,706) (4,226,227)
Class C Shares (111,070) (43,855)
Distributions from net realized gain on investments and futures contracts
Institutional Shares (13,803,989) (36,852,857)
Institutional Service Shares (4,665,973) (8,247,035)
Class C Shares (161,153) (554)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (43,447,431) (68,816,716)
Share Transactions:
Proceeds from sale of shares 1,456,300,443 1,232,374,399
Net asset value of shares issued to shareholders in payment of distributions 28,068,153 40,899,081
declared
Cost of shares redeemed (1,061,778,792) (977,021,217)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 422,589,804 296,252,263
Change in net assets 888,098,523 550,651,691
Net Assets:
Beginning of period 1,938,718,957 1,388,067,266
End of period (including accumulated undistributed net investment income of
$3,356,013 and $1,029,405, respectively) $ 2,826,817,480 $1,938,718,957
</TABLE>
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
ORGANIZATION
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Max-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund 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 Index.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's manager to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed
Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cash flows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $9,743,049.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. At October 31, 1999, the Fund had outstanding futures
contracts as set forth below:
<TABLE>
<CAPTION>
Contracts
Expiration to Deliver/ Unrealized
Date Receive Position Appreciation
- --------------------------------------------------------------------
<S> <C> <C> <C>
December 1999 485 S&P 500
Index Futures Long $2,538,740
- --------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Institutional Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 34,438,353 $ 914,112,968 37,421,180 $ 818,155,777
Shares issued to shareholders in payment of
distributions declared 755,144 18,919,768 1,421,571 29,500,992
Shares redeemed (26,964,995) (715,289,313) (33,733,666) (751,275,289)
NET CHANGE RESULTING FROM INSTITUTIONAL
SHARE TRANSACTIONS 8,228,502 $ 217,743,423 5,109,085 $ 96,381,480
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Institutional Service Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,555,183 $ 439,185,232 18,076,229 $ 397,272,246
Shares issued to shareholders in payment of
distributions declared 356,733 8,891,933 546,583 11,354,168
Shares redeemed (11,882,321) (316,985,650) (10,230,460) (223,926,039)
NET CHANGE RESULTING FROM INSTITUTIONAL
SERVICE SHARE TRANSACTIONS 5,029,595 $ 131,091,515 8,392,352 $ 184,700,375
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Class C Shares: Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,834,755 $103,002,243 771,237 $ 16,946,376
Shares issued to shareholders in payment of
distributions declared 10,371 256,452 1,948 43,921
Shares redeemed (1,094,794) (29,503,829) (81,531) (1,819,889)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS 2,750,332 $ 73,754,866 691,654 $ 15,170,408
NET CHANGE RESULTING FROM SHARE
TRANSACTIONS 16,008,429 $422,589,804 14,193,091 $296,252,263
</TABLE>
1 Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
MANAGEMENT FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
Management Fee
Federated Investment Management Company, the Fund's manager (the "Manager"),
receives for its services an annual investment advisory fee equal to 0.30% of
the Fund's average daily net assets. Under the terms of a sub-advisory agreement
between the Manager and Northern Trust Quantitative Advisors, Inc. (the "Sub-
Manager"), the Sub-Manager receives an annual fee from the manager based on the
average daily net assets of the Fund as follows: 0.05% on the first $100
million, 0.02% on the next $100 million, and 0.01% thereafter. The Manager may
voluntarily choose to waive any portion of its fee. The Manager can modify or
terminate this voluntary waiver at any time at its sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholders
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Class C Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
<TABLE>
<CAPTION>
Percentage of Average
Share Class Name Daily Net Assets of Class
- -------------------------------------------------------------
<S> <C>
Institutional Service Shares 0.30%
- -------------------------------------------------------------
Class C Shares 0.75%
- -------------------------------------------------------------
</TABLE>
Transfer and Dividend Disbursing Agent Fees
and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------
<S> <C>
Purchases $342,091,548
- --------------------------------------------------------------
Sales $ 64,263,083
- --------------------------------------------------------------
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST AND SHAREHOLDERS OF FEDERATED
MAX-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Max-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Max-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 16, 1999
NOTES
NOTES
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion & Analysis discusses market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. To
obtain the SAI, Annual Report, Semi-Annual Report and other information without
charge, and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[LOGO OF FEDERATED INVESTORS]
Federated Max-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E106
0032104A-IS (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLED PAPER LOGO]
[LOGO OF FEDERATED INVESTORS]
WORLD-CLASS INVESTMENT MANAGER/SM/
FEDERATED
MAX-CAP FUND
A Portfolio of Federated Index Trust
INSTITUTIONAL SHARES
P R O S P E C T U S
DECEMBER 31, 1999
PROSPECTUS
Federated Mini-Cap Fund
A Portfolio of Federated Index Trust
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.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 5
How is the Fund Sold? 7
How to Purchase Shares 7
How to Redeem and Exchange Shares 9
Account and Share Information 11
Who Manages the Fund? 11
Financial Information 13
Report of Ernst & Young LLP, Independent Auditors 79
</TABLE>
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
DECEMBER 31, 1999
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. This group of stocks is known as the
Russell 2000(R) Index. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests at least 80% of its assets in the small capitalization 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. The primary factors that may reduce the Fund's returns
include:
. Stock Market Risks. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.
. Sector Risks. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible to
any developments which affect those sectors emphasized by the Fund.
. Risks Related to Company Size. Because the smaller companies in which the Fund
may invest may have unproven track records, a limited product or service base
and limited access to capital they may be more likely to fail than larger
companies.
. 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.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[chart goes here]
The bar chart shows the Fund's Class C Shares total return on a calendar
year-end basis.
The total return displayed for the Fund does not reflect the payment of any
sales charges or recurring shareholder account fees. If these charges or fees
had been included, the return shown would have been lower.
The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was (0.04%).
Within the period shown in the Chart, the Fund's Class C Shares highest
quarterly return was 15.24% (quarter ended December 31, 1998). Its lowest
quarterly return was (20.80%) (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Class C Shares Average Annual Total
Returns, reduced to reflect applicable sales charges, for the calendar periods
ended December 31, 1998. The table shows the Fund's Class C Shares total returns
averaged over a period of years relative to the Russell 2000 Index(R)2, a broad
based market index. Total returns for the index shown do not reflect sales
charges, expenses or other fees that the SEC requires to be reflected in the
Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index.
<TABLE>
<CAPTION>
Calendar Period Class C Russell
Shares 2000(R)
<S> <C> <C>
1 Year (5.84%) (2.55%)
Start of Performance1 (4.32%) (1.74%)
</TABLE>
1 The Fund's Class C Shares start of performance date was November 10, 1997. 2
Russell 2000 Index(R) measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 10% of
the total market capitalization of the Russell 3000 Index. Indexes are
unmanaged and investments cannot be made in an index.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
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
Fund's Class C Shares.
<TABLE>
<S> <C>
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
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%
Shareholder Services Fee 0.25%
Other Expenses 0.31%
Total Annual Fund Operating Expenses 1.81%
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class C Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
C Shares operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Class C Shares 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Expenses assuming $284 $569 $980 $2,127
redemption
Expenses assuming no $184 $569 $980 $2,127
redemption
</TABLE>
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,
1999, the capitalization range of the Index was $2 million to $27.9 billion. As
of the same date, the weighted median market capitalization of the Fund was $610
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?
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock. Stock Index Futures 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 rise and fall. 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. Consequently, the Fund's share price may
decline.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.
Liquidity Risks
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
Over-the-counter (OTC) derivative contracts generally carry greater liquidity
risk than exchange-traded contracts.
Sector Risks
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Manager
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
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
(as described in the prospectus), it is processed at the next calculated net
asset value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open.
The Fund generally values equity securities according to the last sale price
in the market in which they are primarily traded (either a national securities
exchange or the OTC market).
Futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are generally
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option.
The 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.
<TABLE>
<CAPTION>
Maximum Sales Charge
Minimum
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge Charge/2/
<S> <C> <C> <C>
Class C $1,500/$100 None 1.00%
</TABLE>
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."
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:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a money
market fund); . purchased through investment professionals who did not receive
advanced sales payments; . if, after you purchase Shares, you become
disabled as defined by the IRS; . if the Fund redeems your Shares and closes
your account for not meeting the minimum balance requirement; . if your
redemption is a required retirement plan distribution; or . upon the death of
the last surviving shareholder of the account. If your redemption
qualifies, you or your investment professional should notify the Distributor at
the time of redemption to eliminate the CDSC. If the Distributor is not
notified, the CDSC will apply. To keep the sales charge as low as possible,
the Fund redeems your Shares in this order: . Shares that are not subject to a
CDSC; and . Shares 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).
The CDSC is then calculated using the share price at the time of purchase or
redemption, 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 expenses, which
affect their performance. Contact your investment professional or call 1-800-
341-7400 for more information concerning the other class.
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 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 shares with different 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
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated 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 .
Establish your account with the Fund by submitting a completed New Account Form;
and . 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 next
calculated NAV after 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after 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 (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
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 subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
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 at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 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 next calculated NAV after
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 service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. 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:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
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 when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or . wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member. 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:
. to allow your purchase to clear;
. during periods of market volatility; or
. 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.
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 PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. 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 that
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 in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact 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.
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.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption 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
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 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, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you 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 are taxable as ordinary income; capital gains
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. Who Manages the Fund? The
Board of Trustees governs the Fund. The Board selects and oversees the Manager,
Federated Investment Management Company. 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 has delegated daily management of the Fund's 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 South LaSalle Street, Chicago, IL
60675. The Sub-Manager is a subsidiary of Northern Trust Corporation and is an
investment adviser primarily to corporate defined benefit and defined
contribution plans as well as public pension funds and tax-exempt foundations
and endowments. These plans have as of September 30, 1999, placed approximately
$56.7 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 681
nationwide non- financial institution clients invest. In total, the Sub- Manager
manages 67 commingled/common trust funds. Northern Trust Corporation 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 September 30, 1999, total assets of Northern Trust Corporation were $30
billion and trust assets under administration were $1.383 trillion.
The Manager and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
Management Fees
The Manager receives an annual management fee equal to 0.50% of the Fund's
average daily net assets. The Manager may waive a portion of its fee or
reimburse the Fund for certain operating expenses. 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 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
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 Manager is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. 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 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 any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 79.
<TABLE>
<CAPTION>
Period Ended October 31 1999 1998/1/
<S> <C> <C>
Net Asset Value, Beginning of Period $13.00 $ 16.75
Income from Investment Operations:
Net investment income/2/ 0.00 0.00
Net realized and unrealized gain (loss) on investments and futures contracts 1.42 (2.25)
TOTAL FROM INVESTMENT OPERATIONS 1.42 (2.25)
Less Distributions:
Distributions from net investment income (0.01) (0.04)
Distributions from net realized gain on investments and futures contracts (0.82) (1.46)
TOTAL DISTRIBUTIONS (0.83) (1.50)
Net Asset Value, End of Period $13.59 $ 13.00
Total return/3/ 11.44% (14.47%)
Ratios to Average Net Assets:
1.81% 1.72%/4/
Expenses
Net investment income (net operating loss) (0.09 %) 0.00%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $4,252 $ 1,101
Portfolio turnover 47% 48%
</TABLE>
1 Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
2 Amount of net investment income per share does not round to $0.01. 3 Based on
net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Shares Value
COMMON STOCKS--86.1%/1/
Basic Materials--4.8%
<S> <C> <C>
1,500 /2/ACX Technologies, Inc. $ 11,719
800 /2/AFC Cable Systems, Inc. 30,100
4,200 ASARCO, Inc. 123,900
1,800 /2/ATMI, Inc. 48,487
6,700 /2/Airgas, Inc. 63,650
2,635 Albemarle Corp. 46,771
1,500 /2/Alpine Group, Inc. 19,781
1,650 American Business Products, Inc. 21,553
500 American Woodmark Corp. 11,125
2,300 Arch Chemicals, Inc. 33,925
1,800 Arch Coal, Inc. 20,137
13,600 Battle Mountain Gold Co. 36,550
13,906 /2/Bethlehem Steel Corp. 96,473
1,300 /2/Boise Cascade Office Products Corp. 13,325
2,700 /2/Buckeye Technologies, Inc. 40,837
700 /2/Bush Boake Allen, Inc. 16,362
12,560 CK Witco Corp. 117,750
2,400 CONSOL Energy, Inc. 27,900
700 /2/CSS Industries, Inc. 15,619
3,700 /2/Cadiz, Inc. 30,987
3,600 Calgon Carbon Corp. 25,200
2,500 Cambrex Corp. 75,625
2,700 Caraustar Industries, Inc. 65,137
500 Carbo Ceramics, Inc. 13,000
2,000 Carpenter Technology Corp. 48,750
1,200 Castle (A.M.) & Co. 14,850
900 Centex Construction Products, Inc. 32,006
2,000 ChemFirst, Inc. 53,750
2,300 Chesapeake Corp. 69,000
1,100 /2/Citation Corp. 18,081
1,200 Cleveland Cliffs, Inc. 35,850
1,400 Commercial Metals Corp. 45,675
4,000 Corn Products International, Inc. 130,250
500 Curtiss Wright Corp. 18,125
4,600 /2/Cytec Industries, Inc. 118,737
1,800 /2/Daisytek International Corp. 29,925
4,100 Delta & Pine Land Co. 119,925
1,300 Deltic Timber Corp. 29,169
2,500 Dexter Corp. 87,656
4,750 Dimon, Inc. 16,625
2,800 /2/Earthshell Corp. 9,625
2,000 /2/Embrace Systems Corp. 3,500
6,600 Ethyl Corp. 27,225
3,700 Ferro Corp. 75,387
2,000 Florida Rock Industries, Inc. 67,500
1,400 Fuller (H.B.) Co. 76,650
5,700 /2/Gaylord Container Corp. 32,062
1,600 Gentek, Inc. 14,100
2,200 Geon Co. 57,750
3,300 Georgia Gulf Corp. 71,156
900 /2/Giant Cement Holding, Inc. 17,212
800 Gibraltar Steel Corp. 19,550
2,700 Glatfelter (P.H.) Co. 39,487
7,000 /2/Grace (W.R.) & Co. 104,562
1,400 Greif Brothers Corp., Class A 39,900
5,300 Hanna (M.A.) Co. 56,644
2,400 /2/Hines Horticulture, Inc. 21,000
1,600 Imco Recycling, Inc. 23,400
2,600 /2/International Fibercom, Inc. 15,600
1,600 International Specialty Products, Inc. 12,100
10,600 LTV Corp. 38,425
2,450 Lilly Industries, Inc., Class A 32,922
2,400 /2/Lone Star Technologies, Inc. 50,250
5,500 Longview Fibre Co. 62,562
1,600 MacDermid, Inc. 54,200
4,100 /2/Mail-Well, Inc. 54,837
1,600 Matthews International Corp., Class A 40,200
1,600 /2/Maverick Tube Corp. 29,600
500 /2/Maxxam, Inc. 22,687
1,500 /2/McMoRan Exploration Co. 33,562
1,000 /2/Miami Computer Supply Corp. 21,625
2,000 Minerals Technologies, Inc. 86,250
2,769 Mississippi Chemical Corp. 15,403
2,300 NL Industries, Inc. 26,594
2,200 National Steel Corp., Class B 13,200
1,000 /2/Nortek, Inc. 30,625
2,550 OM Group, Inc. 95,625
1,300 /2/Octel Corp. 15,925
4,400 Olin Corp. 60,775
3,600 /2/Omnova Solutions, Inc. 25,200
300 /2/Optical Cable Corp. 3,712
2,700 Oregon Steel Mills 22,781
1,093 Phelps Dodge Corp. 61,618
3,100 /2/Playtex Products, Inc. 37,200
2,800 Potlatch Corp. 118,125
1,500 Quanex Corp. 32,531
3,000 Rayonier, Inc. 123,000
1,000 Republic Group, Inc. 17,250
1,350 Rock-Tenn Co. 20,587
900 Rouge Industries, Inc., Class A 5,062
3,300 Schulman (A.), Inc. 51,356
2,250 /2/Shorewood Packaging Corp. 28,547
2,700 Southern Peru Copper Corp. 43,875
4,500 /2/Steel Dynamics, Inc. 61,594
3,650 /2/Stillwater Mining Co. 73,456
2,200 Texas Industries, Inc. 78,787
500 /2/Trex Co. Inc. 11,844
4,800 /2/UCAR International, Inc. 93,900
10,600 USEC, Inc. 96,062
3,500 Universal Corp. 82,250
900 Valhi, Inc. 9,731
2,200 /2/Veterinary Centers of America 25,850
4,600 /2/Walter Industries, Inc. 54,050
5,615 Wausau-Mosinee Paper Corp. 70,889
8,100 Worthington Industries, Inc. 134,662
TOTAL 4,827,883
Capital Goods--8.2%
1,000 /2/A.S.V., Inc. 15,562
2,950 AAR Corp. 49,228
2,000 /2/ABC Rail Products Corp. 21,500
400 AEP Industries, Inc. 12,800
6,300 AGCO Corp. 67,725
2,650 AMCOL International Corp. 32,462
3,400 AMETEK, Inc. 67,150
1,000 /2/Aavid Thermal Technologies 22,500
1,000 /2/Advanced Energy Industries, Inc. 41,125
1,968 Albany International Corp., Class A 29,889
1,100 /2/Alliant Techsystems, Inc. 67,650
700 /2/Alltrista Corp. 16,056
1,700 /2/Amphenol Corp., Class A 100,512
4,160 Applied Power, Inc., Class A 120,900
3,300 Aptargroup, Inc. 88,687
1,100 /2/Arguss Holdings, Inc. 16,225
3,497 /2/Artesyn Technologies, Inc. 69,066
1,600 /2/Astec Industries, Inc. 37,500
1,900 Aviall, Inc. 16,981
1,100 /2/Aviation Sales Co. 19,112
2,500 /2/BE Aerospace, Inc. 25,156
2,900 BMC Industries, Inc. 16,856
3,513 Baldor Electric Co. 68,284
1,900 Barnes Group, Inc. 38,594
2,600 Belden, Inc. 47,775
1,400 /2/Benchmark Electronics, Inc. 22,400
2,000 /2/Black Box Corp. 101,500
101 /2/Blount International, Inc. 1,483
2,200 Brady (W.H.) Co. 63,800
1,700 Brush Wellman, Inc. 22,525
600 Butler Manufacturing Co. 14,812
1,400 C&D Technologies, Inc. 44,975
1,000 /2/C-COR Electronics, Inc. 39,250
900 /2/CIRCOR International, Inc. 8,550
2,500 CLARCOR, Inc. 42,656
2,000 CMI Corp. 13,750
2,968 CTS Corp. 167,877
1,000 /2/Casella Waste Systems, Inc. 13,437
1,750 Chart Industries, Inc. 8,641
3,000 /2/Checkpoint System, Inc. 22,500
3,600 /2/Cognex Corp. 107,775
1,600 /2/Coinstar, Inc. 12,200
1,100 /2/Coleman Co., Inc. 9,969
1,300 Columbus McKinnon Corp. 15,681
2,900 /2/Comfort Systems USA, Inc. 21,025
1,400 Commercial Intertech Corp. 17,762
600 Cubic Corp. 12,600
1,700 /2/Cuno, Inc. 34,000
3,100 /2/DII Group, Inc. 111,600
2,300 /2/Delco-Remy International, Inc. 20,269
900 Detroit Diesel Corp. 16,369
2,400 /2/Dionex Corp. 106,650
4,300 Donaldson Company, Inc. 99,975
500 /2/Dupont Photomasks, Inc. 24,750
2,650 /2/Dycom Industries, Inc. 86,291
1,400 /2/Electro Scientific Industries, Inc. 75,600
900 /2/Emcor Group, Inc. 16,875
1,800 /2/Esterline Technologies Corp. 24,750
2,000 Exide Corp. 17,750
2,588 /2/Fairchild Corp., Class A 21,027
4,800 Federal Signal Corp. 90,300
4,300 Fisher Scientific International, Inc. 106,694
3,978 Flowserve Corp. 67,129
4,300 Foster Wheeler Corp. 48,375
500 Franklin Electronics, Inc. 36,062
2,000 Furon Co. 51,875
1,350 /2/Gardner Denver, Inc. 16,284
3,600 GenCorp, Inc. 40,950
600 General Binding Corp. 8,850
3,450 General Cable Corp. 25,444
1,300 /2/Genlyte Group, Inc. 29,006
700 /2/Global Imaging Systems, Inc. 9,669
2,400 /2/Global Industrial Technologies, Inc. 29,400
1,512 Graco, Inc. 50,652
1,975 Granite Construction, Inc. 40,858
3,200 /2/Griffon Corp. 23,600
3,200 /2/Group Maintenance America Corp. 30,800
1,400 /2/HADCO Corp. 51,450
3,100 /2/Halter Marine Group, Inc. 16,856
1,720 Harman International Industries, Inc. 70,305
1,000 Harmon Industries, Inc. 13,250
4,400 Harnischfeger Industries, Inc. 4,950
4,400 Harsco Corp. 129,525
500 Heico Corp. 8,719
5,400 Hussmann International, Inc. 86,400
1,300 /2/Hypercom Corp. 10,400
3,100 IDEX Corp. 76,337
2,200 /2/Insituform Technologies, Inc., Class A 52,662
3,000 /2/Integrated Electrical Services 32,625
1,700 /2/Ionics, Inc. 50,150
4,700 JLG Industries, Inc. 60,219
500 /2/JLK Direct Distribution, Inc., Class A 4,125
2,300 /2/Jacobs Engineering Group, Inc. 81,650
3,100 /2/Kaiser Aluminum Corp. 19,956
2,400 Kaman Corp., Class A 26,400
3,400 Kaydon Corp. 84,362
1,300 /2/Kellstrom Industries, Inc. 10,725
4,100 /2/Kemet Corp. 131,072
3,000 Kennametal, Inc. 86,250
3,400 Kimball International, Inc., Class B 54,400
1,400 /2/Knoll, Inc. 38,675
1,100 LSI Industries, Inc. 26,469
600 Lawson Products, Inc. 13,650
4,000 Lincoln Electric Holdings 89,500
1,350 Lindsay Manufacturing Co. 27,422
2,100 /2/Littlelfuse, Inc. 46,725
1,700 /2/Lydall, Inc. 12,537
400 /2/MOOG, Inc., Class A 9,600
2,900 /2/MSC Industrial Direct Co. 27,731
2,800 /2/Magnetek, Inc. 19,250
2,775 Manitowoc, Inc. 82,903
2,150 /2/Mastec, Inc. 70,412
300 /2/Mestek, Inc. 5,869
3,200 /2/Metals USA, Inc. 23,800
4,100 /2/Mettler Toledo International, Inc., ADR 122,231
4,000 Milacron, Inc. 65,750
4,200 /2/Miller Industries, Inc. 10,237
3,400 /2/Morrison Knudsen Corp. 31,025
3,800 /2/Mueller Industries, Inc. 121,362
1,585 Myers Industries, Inc. 22,289
729 NACCO Industries, Inc., Class A 33,807
1,400 New England Business Service, Inc. 36,400
7,360 /2/Newpark Resources, Inc. 47,380
3,500 Newport News Shipbuilding, Inc. 106,313
1,500 /2/Nichols Research Corp. 42,844
1,500 Nordson Corp. 66,469
1,800 /2/Oak Industries, Inc. 73,800
4,000 /2/Orbital Sciences Corp. 59,000
400 /2/PEC Israel Economic Corp. 14,450
1,000 Park Electrochemical Corp. 34,875
700 /2/Parkervision, Inc. 15,925
4,496 /2/Paxar Corp. 41,869
500 Pitt-DesMoines, Inc. 11,312
1,600 /2/Plexus Corp. 42,400
1,200 /2/Power-One, Inc. 24,000
2,600 Precision Castparts Corp. 76,700
2,900 /2/Presstek, Inc. 23,381
900 Primex Technologies, Inc. 20,700
3,300 /2/Quanta Services, Inc. 91,987
1,600 RTI International Metals 11,600
1,200 /2/Racing Champions Corp. 5,925
2,900 /2/Rayovac Corp. 72,137
2,200 Regal Beloit Corp. 47,850
2,025 Reliance Steel & Aluminum Co. 42,525
800 Robbins & Myers, Inc. 12,950
800 /2/Rogers Corp. 29,000
3,200 Roper Industries, Inc. 98,800
1,411 Ryerson Tull, Inc. 28,925
1,550 /2/SLI, Inc. 16,662
1,400 /2/SPS Technologies, Inc. 43,400
1,300 Sauer, Inc., ADR 16,819
1,600 Scott Technologies, Inc. 30,400
7,300 Sensormatic Electronics Corp. 110,412
1,100 /2/Sequa Corp., Class A 54,175
1,200 /2/Silgan Holdings, Inc. 18,450
2,200 Smith (A.O.) Corp. 53,350
1,600 Spartech Corp. 45,800
1,300 /2/Specialty Equipment Cos., Inc. 27,137
1,400 Standard Register 30,625
1,200 Standex International Corp. 24,825
1,400 /2/Stericycle, Inc. 21,875
3,000 Stewart & Stevenson Services 39,750
1,000 Stone & Webster, Inc. 15,500
1,300 /2/Stoneridge, Inc. 20,150
1,037 Superior Telecom, Inc. 16,138
1,200 Technitrol, Inc. 43,650
1,000 Tennant Co. 33,000
2,200 /2/Terex Corp. 58,162
2,400 /2/The IT Group, Inc. 23,700
1,800 /2/Thermedics, Inc. 9,562
600 /2/Thermo Fibertek, Inc. 4,237
1,700 Thomas Industries, Inc. 30,387
5,400 Timken Co. 96,862
1,700 Titan International, Inc. 12,219
1,900 Titanium Metals Corp. 11,400
2,100 Tredegar Industries, Inc. 46,069
4,300 Trinity Industries, Inc. 128,194
1,200 /2/Triumph Group, Inc. 28,875
1,000 /2/U.S. Can Corp. 19,500
1,400 /2/U.S. Liquids, Inc. 9,362
2,400 /2/U.S. Plastic Lumber Corp. 33,750
1,300 URS Corp. 23,400
3,400 /2/United Stationers, Inc. 86,700
2,200 /2/Valence Technology, Inc. 11,000
1,900 Valmont Industries, Inc. 33,012
2,000 /2/Vicor Corp. 55,500
616 Virco Manufacturing Corp. 9,163
2,400 /2/WMS Industries, Inc. 32,550
2,250 Wabash National Corp. 35,719
4,100 Wallace Computer Services, Inc. 90,712
1,400 /2/Waste Connections, Inc. 21,612
300 /2/Waste Industries, Inc. 3,675
1,800 Watsco, Inc. 18,225
1,800 Watts Industries, Inc., Class A 24,637
1,323 West Pharmaceutical Services, Inc. 45,726
1,500 /2/Wolverine Tube, Inc. 20,625
1,000 Woodward Governor Co. 26,500
2,400 /2/Wyman Gordon Co. 47,250
1,600 ZixIt Corp. 63,600
1,000 /2/Zomax Optical Media, Inc. 27,875
TOTAL 8,351,744
Communication Services--1.9%
1,600 /2/Adelphia Business Solutions, Inc. 45,400
1,300 /2/Advanced Communications Group, Inc. 7,800
2,500 /2/Advanced Radio Telecom Corp. 27,344
1,300 /2/Aerial Communications, Inc. 55,250
1,400 CFW Communications Co. 31,850
1,000 CT Communications, Inc. 48,125
3,100 /2/CapRock Communications Corp. 89,319
2,400 /2/CommNet Cellular, Inc. 75,750
1,033 /2/Commonwealth Telephone Enterprises, Inc. 55,265
700 /2/Destia Communications, Inc. 9,800
5,300 /2/E.Spire Communications, Inc. 38,094
3,900 /2/General Communications, Inc., Class A 19,012
4,900 /2/ICG Communications, Inc. 80,237
2,100 /2/IDT Corp. 48,037
4,500 /2/ITC DeltaCom, Inc. 108,000
3,100 /2/IXC Communications, Inc. 133,881
4,900 /2/Intermedia Communications, Inc. 127,400
1,800 /2/MGC Communications, Inc. 49,500
1,600 North Pittsburgh Systems, Inc. 25,600
500 /2/NorthEast Optic Network, Inc. 18,187
3,300 /2/Omnipoint Corp. 272,662
1,500 /2/Pacific Gateway Exchange, Inc. 34,125
3,900 /2/PageMart Wireless, Inc., Class A 21,694
10,000 /2/Paging Network, Inc. 9,375
2,400 /2/Powertel, Inc. 141,300
1,500 /2/Powerwave Technologies, Inc. 97,594
3,150 /2/Price Communications Corp. 68,512
2,400 /2/Primus Telecommunications Group, Inc. 53,100
3,900 /2/Star Telecommunications, Inc. 29,737
4,000 /2/Talk.com, Inc. 63,750
220 Talk.com, Inc., Rights 0
1,100 /2/US LEC Corp., Class A 30,456
1,200 /2/Viatel, Inc. 40,050
800 /2/WorldPort Communications, Inc. 624
TOTAL 1,956,830
Consumer Cyclicals--12.4%
993 /2/99 Cents Only Stores 29,666
2,000 /2/ADVO, Inc. 35,375
900 /2/AMERCO 26,494
1,900 Aaron Rents, Inc. 30,044
1,100 Ackerley Communications, Inc. 18,356
1,600 /2/Action Performance Cos., Inc. 32,550
500 /2/AdForce, Inc. 13,812
2,200 /2/Aftermarket Technology Co. 20,762
4,300 /2/AgriBioTech, Inc. 13,706
2,300 /2/Alterra Healthcare Corp. 13,512
900 /2/American Axle & Manufacturing Holdings, Inc. 12,544
1,800 /2/American Retirement Corp. 8,887
3,100 /2/Ames Department Stores, Inc. 98,231
800 /2/Anchor Gaming 48,800
1,900 /2/Ann Taylor Stores Corp. 80,869
350 Anthony & Sylvan Pools Corp. 2,231
3,000 Apogee Enterprises, Inc. 18,937
1,000 /2/Applied Analytical Industries, Inc. 13,125
1,740 /2/Applied Graphics Technologies, Inc. 12,397
2,325 Applied Industrial Technologies, Inc. 36,619
1,950 Arctic Cat, Inc. 18,525
2,100 /2/Argosy Gaming Corp. 25,987
2,700 Arvin Industries, Inc. 76,950
2,000 /2/Assisted Living Concepts, Inc. 2,250
2,400 Authentic Fitness Corp. 46,650
2,300 /2/Avis Rent A Car, Inc. 41,112
4,400 /2/Aztar Corp. 42,625
2,500 /2/Bally Total Fitness Holding Corp. 60,156
1,300 Bandag, Inc. 32,500
2,700 /2/Barnesandnoble.com, Inc. 49,612
1,300 Bassett Furniture Industries, Inc. 23,400
300 /2/Berlitz International, Inc. 6,000
2,100 /2/Beyond.com Corp. 19,425
3,200 /2/Boca Resorts, Inc., Class A 31,000
3,900 /2/Bombay Co., Inc. 16,087
8,300 /2/Borders Group, Inc. 107,900
3,800 /2/Boyd Gaming Corp. 24,700
1,300 /2/Bright Horizons Family Solutions, Inc. 19,094
1,900 Brown Shoe Co., Inc. 33,844
900 /2/Buckle, Inc. 14,850
2,700 /2/Budget Group, Inc., Class A 18,900
1,940 Burlington Coat Factory Warehouse 33,222
5,600 /2/Burlington Industries, Inc. 20,650
1,400 /2/Burns International Services Corp. 14,087
1,000 Bush Industries, Inc., Class A 14,562
2,200 /2/CB Richard Ellis Services 27,087
1,645 /2/CDnow, Inc. 22,310
1,300 /2/CORT Business Services Corp. 26,406
850 CPI Corp. 21,728
2,000 /2/CSK Auto Corp. 35,750
8,000 Callaway Golf Co. 107,500
1,200 /2/Capital Senior Living Corp. 6,150
1,100 /2/CareMatrix Corp. 2,200
800 /2/Career Education Corp. 17,600
500 /2/Careerbuilder, Inc. 3,625
1,200 /2/Carriage Services, Inc. 8,175
5,600 Casey's General Stores, Inc. 72,100
1,400 /2/Castle & Cooke, Inc. 19,425
1,600 Cato Corp., Class A 18,400
4,600 /2/CellNet Data Systems, Inc. 7,762
2,600 /2/Central Garden & Pet Co. 18,850
1,050 Central Parking Corp. 28,153
2,800 /2/Cerner Corp. 41,825
4,372 /2/Champion Enterprises, Inc. 39,894
1,000 /2/Championship Auto Racing Teams, Inc. 22,937
800 /2/Charles River Associates, Inc. 20,200
10,500 /2/Charming Shoppes, Inc. 52,172
1,000 Chemed Corp. 29,937
700 /2/Chicos Fas, Inc. 21,962
1,800 /2/Children's Place Retail Stores, Inc. 46,912
5,900 /2/Choice Hotels International, Inc. 88,500
700 Churchill Downs, Inc. 18,200
1,800 Coachmen Industries, Inc. 26,437
300 /2/Coldwater Creek, Inc. 7,237
6,600 /2/Collins & Aikman Corp. 39,187
900 /2/Columbia Sportswear Co. 18,225
9,700 /2/CompUSA, Inc. 55,169
200 /2/CompX International, Inc. 3,700
1,900 /2/Copart, Inc. 43,700
500 /2/Corinthian Colleges, Inc. 9,750
1,000 /2/Cornell Corrections, Inc. 12,937
900 /2/Corporate Executive Board Co. 33,975
2,100 /2/Cost Plus, Inc. 76,650
500 /2/Creative Computers, Inc. 3,062
500 /2/Creditrust Corp. 8,906
2,000 /2/Crestline Capital Corp. 44,500
800 /2/Crossmann Communities, Inc. 13,400
1,500 /2/Cyberian Outpost, Inc. 12,469
5,354 D. R. Horton, Inc. 63,244
5,700 /2/Dal-Tile International, Inc. 53,081
1,700 /2/Dan River, Inc., Class A 9,031
900 /2/David's Bridal, Inc. 8,944
400 Deb Shops, Inc. 8,400
700 /2/Delia's, Inc. 4,375
1,900 /2/Department 56, Inc. 36,100
800 /2/Diamond Technology Partners, Class A 51,700
900 /2/Direct Focus, Inc. 20,587
1,000 /2/Discount Auto Parts, Inc. 14,250
2,600 /2/Dollar Thrifty Automotive Group 43,875
1,400 /2/Donna Karan International, Inc. 11,725
448 /2/DoubleClick, Inc. 62,720
1,400 Dover Downs Entertainment 22,225
1,700 /2/Dress Barn, Inc. 30,228
500 Duff & Phelps Credit Rating 37,500
1,600 /2/Dura Automotive Systems, Inc. 30,000
2,000 /2/Education Management Corp. 19,000
2,400 /2/Egghead.com, Inc. 22,350
2,100 Elcor Corp. 51,712
1,500 /2/Electro Rent Corp. 18,000
500 /2/Electronics Boutique PLC 10,187
1,600 Enesco Group, Inc. 20,200
4,300 Ethan Allen Interiors, Inc. 152,919
6,700 /2/Executone Information Systems, Inc. 18,216
7,600 /2/Extended Stay America, Inc. 63,175
1,200 /2/F.Y.I., Inc. 39,600
1,300 /2/Factory 2-U Stores, Inc. 33,150
4,700 /2/Fairfield Communities, Inc. 57,575
2,250 /2/Family Golf Centers, Inc. 3,656
300 /2/Fatbrain.com, Inc. 5,400
3,200 Fedders Corp. 19,800
500 /2/Fidelity Holding, Inc. 7,062
1,800 /2/Finish Line, Inc., Class A 12,431
3,500 Fleetwood Enterprises, Inc. 76,344
2,300 /2/Footstar, Inc. 80,500
1,700 Forest City Enterprises, Inc., Class A 42,500
300 /2/Forrester Research, Inc. 14,287
1,425 /2/Fossil, Inc. 39,366
2,200 /2/Franklin Covey Co. 17,737
5,200 /2/Furniture Brands International, Inc. 100,750
2,050 G & K Services, Inc., Class A 77,003
2,400 /2/Genesco, Inc. 31,800
2,600 /2/Getty Images, Inc. 80,112
800 Getty Realty Holding Corp. 9,900
400 /2/Global Sports, Inc. 8,750
2,000 /2/Goody's Family Clothing, Inc. 20,250
100 Grey Advertising, Inc. 36,100
1,600 /2/Group 1 Automotive, Inc. 26,800
4,000 /2/Gtech Holdings Corp. 80,500
800 /2/Guess ?, Inc. 10,400
1,700 Guilford Mills, Inc. 14,981
2,100 /2/Guitar Center, Inc. 19,162
2,300 /2/Gymboree Corp. 14,806
4,350 /2/HA-LO Industries, Inc. 21,206
3,000 Handleman Co. 48,375
3,000 /2/Hanover Compressor Co. 111,000
12,600 /2/Hanover Direct, Inc. 33,862
2,000 Haverty Furniture Cos., Inc. 27,500
1,900 /2/Hayes Lemmerz International, Inc. 41,087
1,400 /2/Heidrick & Struggles International, Inc. 32,200
6,400 Heilig-Meyers Co. 28,000
1,609 /2/Hexcel Corporation 8,648
2,500 /2/Hollywood Park, Inc. 43,281
3,600 /2/Homebase, Inc. 13,725
2,500 Hughes Supply, Inc. 54,219
300 /2/IDG Books Worldwide, Inc., Class A 5,362
1,575 /2/ITT Educational Services, Inc. 31,106
1,100 /2/Igen, Inc. 27,087
2,350 /2/InfoUSA, Inc. 12,998
500 /2/Information Holdings, Inc. 9,000
3,000 /2/Information Resources, Inc. 31,875
2,175 /2/Insight Enterprises, Inc. 81,291
1,966 /2/Insignia Financial Group, Inc. 15,605
5,200 /2/Interdigital Communications Corp. 28,925
4,400 Interface, Inc. 17,875
2,400 Intermet Corp. 24,300
1,350 Interpool, Inc. 10,294
1,700 /2/Intertan, Inc. 38,250
800 /2/JAKKS Pacific, Inc. 32,800
1,700 Jo-Ann Stores, Inc. 23,694
3,300 /2/Jones Lang LaSalle, Inc. 41,044
3,700 Jostens, Inc. 78,162
5,000 /2/Journal Register Co. 70,937
2,675 /2/Just For Feet, Inc. 3,678
1,700 Justin Industries, Inc. 23,800
700 K Swiss, Inc., Class A 9,012
5,100 Kaufman & Broad Homes Corp. 102,319
2,700 Kellwood Co. 47,756
100 /2/Kenneth Cole Productions, Inc., Class A 3,912
1,700 /2/Keystone Automotive Industries, Inc. 14,556
1,200 /2/Kroll-O'Gara Co. 19,050
2,700 LNR Property Corp. 52,312
5,600 La-Z Boy Chair Co. 102,200
800 Landauer, Inc. 20,500
1,400 /2/Lands' End, Inc. 107,712
1,200 /2/Learning Tree International, Inc. 22,050
4,700 Lee Enterprises, Inc. 138,650
5,000 Lennar Corp. 82,187
700 /2/Lithia Motors, Inc., Class A 13,956
2,700 Lodgian, Inc. 12,994
2,400 M.D.C. Holdings, Inc. 37,500
1,200 /2/MIPS Technologies, Inc. 34,650
1,400 /2/Macrovision Corp. 79,275
500 /2/MapQuest.com, Inc. 7,750
2,375 Marcus Corp. 33,398
5,200 Mark IV Industries, Inc. 100,100
1,500 /2/Marketing Services Group, Inc. 17,062
900 /2/Marvel Enterprises, Inc. 4,612
3,900 Mascotech, Inc. 56,794
1,200 /2/Maximus, Inc. 27,825
1,000 McGrath Rentcorp. 17,000
1,300 /2/MemberWorks, Inc. 34,612
2,581 /2/Men's Wearhouse, Inc. 56,621
5,027 MeriStar Hospitality Corp. 80,746
5,542 /2/Metromedia International Group, Inc. 20,436
2,700 /2/Michaels Stores, Inc. 90,619
3,800 /2/Micro Warehouse, Inc. 46,075
1,800 Midas, Inc. 42,300
3,173 /2/Midway Games, Inc. 63,262
700 Mikasa, Inc. 8,006
300 /2/Modem Media . Poppe Tyson, Inc. 20,700
2,400 Modine Manufacturing Co. 59,700
1,825 /2/Monaco Coach Corp. 42,887
1,000 Movado Group 22,000
3,200 /2/Musicland Stores, Inc. 25,000
300 NCH Corp. 14,344
2,000 /2/NCI Building System, Inc. 31,625
1,000 /2/NCO Group, Inc. 42,375
1,900 /2/NFO Worldwide, Inc. 21,137
1,100 /2/NVR, Inc. 45,100
2,600 /2/National Equipment Services, Inc. 27,462
850 /2/National RV Holdings, Inc. 17,372
4,300 /2/NationsRent, Inc. 27,412
3,300 /2/Nautica Enterprise, Inc. 49,706
4,050 /2/Navigant Consulting, Inc. 115,678
1,200 /2/Neff Corp. 13,275
1,100 /2/Network Event Theater, Inc. 25,300
1,100 /2/Nextera Enterprises, Inc. 5,844
1,800 /2/O'Reilly Automotive, Inc. 78,525
1,700 /2/O'Sullivan Industries Holdings, Inc. 26,350
2,200 OEA, Inc. 15,125
800 /2/ONSALE, Inc. 13,400
5,000 Oakwood Homes Corp. 14,687
12,100 /2/Officemax, Inc. 61,256
5,200 Ogden Corp. 47,125
1,300 OshKosh B'Gosh, Inc., Class A 26,650
1,200 OshKosh Truck Corp., Class B 36,075
700 Oxford Industries, Inc. 15,050
400 /2/PC Connections, Inc. 8,300
2,887 /2/Pacific Sunwear of California 87,151
2,062 /2/Palm Harbor Homes, Inc. 34,796
2,100 Penton Media, Inc. 38,850
4,900 Pep Boys-Manny Moe & Jack 61,250
8,900 /2/Per-Se Technologies, Inc. 26,978
12,500 /2/PetSmart, Inc. 48,437
2,250 /2/PETCO Animal Supplies, Inc. 26,016
2,400 Phillips-Van Heusen Corp. 19,200
10,300 Pier 1 Imports, Inc. 61,156
900 Pillowtex Corp. 3,037
4,100 Pittston Brink's Group 78,669
2,100 /2/Playboy Enterprises, Inc., Class B 53,812
3,000 /2/Players International, Inc. 22,125
2,700 Polaris Industries, Inc., Class A 94,331
2,200 /2/Polymer Group, Inc. 43,037
2,100 /2/Prepaid Legal Services, Inc. 50,925
2,200 /2/Primark Corp. 55,825
5,500 /2/Prime Hospitality Corp. 42,969
500 /2/Private Business, Inc. 1,062
1,400 /2/ProBusiness Services, Inc. 35,175
300 /2/Professional Detailing, Inc. 7,500
3,150 /2/Profit Recovery Group International, Inc. 129,741
2,100 /2/Protection One, Inc. 4,331
800 /2/Provant, Inc. 14,100
800 Pulitzer, Inc. 34,300
3,400 Pulte Corp. 68,425
2,200 /2/Quiksilver, Inc. 31,075
3,600 R.H. Donnelley Corp. 67,950
4,900 /2/Reebok International Ltd. 48,081
2,950 Regis Corp. Minnesota 54,759
1,800 /2/Rent-A-Center, Inc. 32,962
1,799 /2/Rent-Way, Inc. 29,908
1,400 /2/Restoration Hardware, Inc. 13,737
1,800 Rollins, Inc. 28,238
1,100 Russ Berrie & Co., Inc. 21,175
3,000 Russell Corp. 45,562
1,600 Ryland Group, Inc. 33,000
1,100 /2/SCP Pool Corp. 24,956
4,500 /2/SITEL Corp. 20,250
400 /2/SalesLogix Corp. 12,600
950 /2/Salton, Inc. 27,075
1,000 Schawk, Inc. 8,812
1,500 /2/Scholastic Corp. 69,750
1,900 /2/School Specialty, Inc. 28,144
2,000 /2/Scotts Co. 80,250
2,000 /2/Select Comfort Corp. 11,250
1,900 /2/Service Experts, Inc. 11,400
900 /2/Shoe Carnival, Inc. 9,562
2,500 /2/Shop At Home, Inc. 26,719
3,100 Shopko Stores, Inc. 77,694
1,900 Simpson Industries, Inc. 19,891
800 /2/Simpson Manufacturing Co., Inc. 32,450
1,000 Skyline Corp. 24,875
800 /2/Source Information Management Co. 9,600
1,700 Spiegel, Inc., Class A 24,650
1,100 Springs Industries, Inc., Class A 43,794
1,800 /2/Staff Leasing, Inc. 15,637
900 Standard Motor Products, Inc. 14,512
2,700 Standard Pacific Corp. 29,025
800 /2/StarTek, Inc. 36,300
700 Starrett (L.S.) Co., Class A 16,800
2,100 /2/Station Casinos, Inc. 50,794
3,100 /2/Stein Mart, Inc. 20,537
900 /2/Steinway Musical Instruments 15,975
800 Strayer Education, Inc. 14,050
4,900 Stride Rite Corp. 32,156
2,100 Sturm Ruger & Co., Inc. 18,637
9,200 Sunbeam Corp. 43,700
4,500 /2/Sunglass Hut International, Inc. 54,281
1,900 /2/Sunrise Assisted Living, Inc. 20,900
3,800 /2/Sunterra Corp. 38,000
2,100 Superior Industries International, Inc. 56,044
900 /2/Synthetic Industries, Inc. 25,425
2,900 /2/Syntroleum Corp. 18,850
3,800 /2/Systemax, Inc. 31,112
1,300 TJ International, Inc. 40,300
1,200 Talbots, Inc. 56,475
600 /2/Tarrant Apparel Group, Inc. 7,237
2,300 /2/TeleTech Holdings, Inc. 32,631
3,500 Terra Industries, Inc. 4,156
5,900 /2/The Boyds Collection, Ltd. 46,831
750 Thor Industries, Inc. 18,937
1,200 /2/Timberland Co., Class A 59,250
2,200 /2/Toll Brothers, Inc. 38,500
1,200 Toro Co. 43,050
4,300 /2/Tower Automotive, Inc. 70,144
700 /2/Tractor Supply Co. 14,000
2,500 /2/Trammell Crow Co. 36,250
3,400 /2/Trans World Entertainment Corp. 35,275
400 /2/Trendwest Resorts, Inc. 8,900
500 /2/Tropical Sportswear International Corp. 9,937
4,500 True North Communications, Inc. 181,406
600 /2/Tuesday Morning Corp. 13,800
600 /2/Tweeter Home Entertainment Group, Inc. 25,650
1,400 /2/U.S. Franchise Systems, Inc., Class A 17,850
1,301 /2/U.S. Home Corp. 36,428
3,900 /2/U.S. Office Products Co. 10,725
200 /2/UBid, Inc. 7,325
6,400 Unifi, Inc. 76,800
1,300 Unifirst Corp. 15,925
2,300 /2/United Auto Group, Inc. 26,881
1,400 /2/United Retail Group, Inc. 14,000
1,600 Universal Forest Products, Inc. 23,200
1,100 /2/Urban Outfitters, Inc. 24,200
2,400 /2/Vail Resorts, Inc. 53,400
400 /2/Valley Media, Inc. 4,550
1,100 /2/Value America, Inc. 13,681
1,500 /2/Value City Department Stores, Inc. 23,062
2,800 /2/Valuevision International, Inc., Class A 91,525
1,500 WD 40 Co. 34,875
1,400 Wackenhut Corp., Class A 26,337
1,600 Webb (DEL E.) Corp. 35,300
3,300 Wellman, Inc. 49,706
2,200 /2/Wellsford Real Properties 18,150
900 /2/West Marine, Inc. 8,100
1,000 /2/West TeleServices Corp. 13,937
1,200 /2/Wet Seal, Inc., Class A 16,800
1,000 /2/Whitehall Jewellers, Inc. 26,062
2,400 Windmere-Durable Holdings 31,200
1,500 Winnebago Industries, Inc. 26,062
4,700 Wolverine World Wide, Inc. 48,175
1,487 Wynns International, Inc. 23,141
1,200 /2/Xceed, Inc. 25,500
1,500 Xtra Corp. 62,344
2,800 /2/Ziff-Davis, Inc. 41,825
1,300 /2/Ziff-Davis, Inc.ZD Net 26,081
300 /2/bebe stores, Inc. 7,912
1,500 /2/e4L, Inc. 3,937
500 /2/iTurf, Inc., Class A 5,344
TOTAL 12,468,161
Consumer Staples--6.3%
15,200 /2/7-Eleven, Inc. 30,400
1,700 ABM Industries, Inc. 40,587
1,900 /2/AMC Entertainment, Inc. 23,512
7,000 /2/AMF Bowling, Inc. 31,062
1,000 /2/Administaff, Inc. 15,000
3,500 /2/Advantica Restaurant Group 9,187
1,100 /2/Agribrands International, Inc. 48,675
5,100 /2/AmeriSource Health Corp., Class A 76,500
1,900 /2/American Italian Pasta Co., Class A 47,737
2,800 Applebee's International, Inc. 80,675
3,200 /2/Ascent Entertainment Group, Inc. 55,600
1,900 /2/Aurora Foods, Inc. 24,462
2,137 Avado Brands, Inc. 12,021
2,950 Banta Corp. 66,744
1,900 /2/Beringer Wine Estates Holdings, Inc., Class B 75,525
1,900 /2/Big Flower Holdings, Inc. 57,356
2,621 Bindley Western Industries, Inc. 32,926
1,517 Block Drug, Inc., Class A 52,905
4,400 Bob Evans Farms, Inc. 60,500
3,900 Bowne & Co., Inc. 43,387
1,260 Brooke Group Ltd. 19,294
4,525 /2/Buffets, Inc. 42,139
2,344 /2/Building One Services Corp. 26,077
6,200 CBRL Group, Inc. 82,925
1,500 /2/CD Radio, Inc. 38,250
1,200 /2/CDI Corp. 31,800
2,925 /2/CEC Entertainment, Inc. 93,783
5,500 CKE Restaurants, Inc. 37,125
1,700 /2/Canandaigua Wine Co., Inc., Class A 102,850
21,200 /2/Caremark Rx, Inc. 103,350
1,000 /2/Carmike Cinemas, Inc., Class A 12,062
2,300 Carter Wallace, Inc. 41,544
1,900 /2/Cheesecake Factory, Inc. 58,187
4,400 Chiquita Brands International 20,900
4,200 Church and Dwight, Inc. 109,462
2,000 /2/Citadel Communications Corp. 96,625
100 Coca-Cola Bottling Co. 5,262
3,200 /2/Computer Horizons Corp. 35,600
1,500 /2/Consolidated Graphics, Inc. 30,000
2,257 /2/Consolidated Products, Inc. 25,955
1,800 /2/Cumulus Media, Inc., Class A 64,575
1,300 /2/Dave & Buster's, Inc. 12,594
5,600 /2/Del Monte Foods Co. 78,050
1,500 Dreyers Grand Ice Cream, Inc. 25,594
1,800 /2/Duane Reade, Inc. 48,375
4,500 Earthgrains Co. 102,656
1,700 /2/Emmis Communications, Corp., Class A 122,612
2,100 /2/Entercom Communication Corp. 104,606
100 Farmer Brothers Co. 16,600
4,100 Fleming Cos., Inc. 48,944
600 /2/GC Cos., Inc. 17,850
1,900 Gaylord Entertainment Co. 61,869
834 /2/General Cigar Holdings, Inc. 4,795
3,200 /2/Grand Union Co. 40,000
1,100 Gray Communications 19,800
1,800 Great Atlantic & Pacific Tea Co., Inc. 51,412
1,500 /2/Hain Food Group, Inc. 37,594
3,300 Harland (John H.) Co. 62,700
2,500 /2/Henry Schein, Inc. 32,500
1,333 Herbalife International, Inc., Class A 19,662
3,800 Herbalife International, Inc., Class B 51,656
3,300 /2/Hollywood Entertainment Corp. 46,612
2,100 /2/IHOP Corp. 37,931
3,454 Imperial Sugar Co. 18,349
1,000 Ingles Markets, Inc., Class A 12,937
6,220 /2/Interim Services, Inc. 102,241
2,600 /2/International Home Foods, Inc. 49,725
1,800 International Multifoods Corp. 38,025
2,200 /2/Ivex Packaging Corp. 20,762
700 /2/J&J Snack Foods Corp. 13,475
4,400 /2/Jack in the Box, Inc. 105,875
1,900 Kelly Services, Inc., Class A 55,694
2,300 /2/Korn/Ferry International 51,175
3,800 /2/Labor Ready, Inc. 38,712
2,600 Lance, Inc. 31,362
2,700 /2/Landrys Seafood Restaurants, Inc. 20,250
1,700 Libbey, Inc. 45,050
300 Liqui Box Corp. 16,500
1,500 /2/Loews Cineplex Entertainment Corp. 10,219
4,000 /2/Lone Star Steakhouse & Saloon 32,000
2,400 Luby's Cafeterias, Inc. 28,500
600 /2/Mannatech, Inc. 4,237
1,500 Merrill Corp. 30,937
3,450 /2/Metamor Worldwide, Inc. 65,119
1,500 Michael Foods, Inc. 38,250
900 /2/Mondavi (Robert) Corp., Class A 32,512
1,300 Morrison Management Specialists, Inc. 27,787
6,200 /2/NBTY, Inc. 49,987
1,000 /2/NPC International, Inc. 12,000
800 National Presto Industries, Inc. 29,600
1,474 Natures Sunshine Products, Inc. 10,871
1,500 /2/O' Charleys, Inc. 22,969
7,500 Olsten Corp. 75,469
1,200 /2/On Assignment, Inc. 34,500
1,100 /2/On Command Corp. 18,906
1,500 Oneida Ltd. 35,531
3,475 Owens & Minor, Inc. 32,578
600 /2/P. F. Chang's China Bistro, Inc. 12,900
7,500 /2/PSS World Medical, Inc. 58,125
2,350 /2/Papa Johns International, Inc. 87,831
2,600 /2/Patterson Dental Co. 117,162
3,100 /2/Paxson Communications Corp. 36,425
1,200 /2/Pegasus Communications Corp. 53,100
1,250 /2/Performance Food Group Co. 33,906
6,600 /2/Perrigo Co. 49,912
2,800 /2/Personnel Group of America, Inc. 18,725
1,300 Pilgrim's Pride Corp. 11,700
650 /2/Pilgrim's Pride Corp., Class A 4,509
400 /2/Priority HealthCare Corp., Class B 8,025
5,200 /2/Proiurenet, Inc. 780
700 /2/Radio One, Inc. 34,912
3,100 /2/Ralcorp Holdings, Inc. 60,450
1,100 /2/Rare Hospitality International, Inc. 21,931
3,920 /2/Renaissance Worldwide, Inc. 13,475
800 Riviana Foods, Inc. 15,000
4,310 /2/Romac International, Inc. 29,092
3,400 Ruby Tuesday, Inc. 64,812
3,200 Ruddick Corp. 54,600
4,200 /2/Ryan's Family Steak Houses, Inc. 43,969
700 /2/Saga Communications, Inc., Class A 16,887
600 Sanderson Farms, Inc. 5,962
1,600 Schweitzer-Mauduit International, Inc. 19,100
1,000 /2/Scientific Games Holdings Corp. 17,375
2,700 /2/Sinclair Broadcast Group, Inc. 27,000
773 Smart & Final, Inc. 7,051
4,800 /2/Smithfield Foods, Inc. 109,200
2,700 Smucker (J.M.) Co., Class A 53,662
2,025 /2/Sonic Corp. 56,700
3,100 /2/StaffMark, Inc. 22,281
700 Stepan, Co. 16,756
3,600 /2/Suiza Foods Corp. 129,825
46 Super Valu Stores, Inc. 966
700 Tejon Ranch Co. 18,812
3,568 /2/Tetra Tech, Inc. 56,642
4,600 /2/Topps Co. 45,137
1,882 /2/Triarc Companies, Inc., Class A 37,405
6,100 Tupperware Corp. 120,856
900 /2/United Natural Foods, Inc. 7,931
500 United Television, Inc. 63,625
5,000 Universal Foods Corp. 95,625
3,000 /2/Vlasic Foods International, Inc. 23,062
850 /2/Volt Information Science, Inc. 16,787
1,100 /2/Wackenhut Corrections Corp. 14,094
3,450 /2/Westwood One, Inc. 159,131
2,800 /2/Whole Foods Market, Inc. 95,200
1,200 /2/Wild Oats Markets, Inc. 42,300
1,300 Worthington Foods, Inc. 30,794
1,000 /2/Young Broadcasting, Inc., Class A 46,375
1,400 Zapata Corp. 7,175
TOTAL 6,414,099
Energy--2.3%
1,100 /2/Atwood Oceanics, Inc. 31,969
2,970 /2/Barrett Resources 99,681
1,300 /2/Basin Exploration, Inc. 21,369
1,000 /2/Belco Oil & Gas Corp. 6,250
1,900 Berry Petroleum Co., Class A 23,750
2,900 /2/Brown (Tom), Inc. 39,875
2,400 Cabot Oil & Gas Corp., Class A 38,700
600 /2/Cal Dive International, Inc. 20,175
8,184 Chesapeake Energy Corp. 29,667
4,725 Cross Timbers Oil Co. 52,566
4,500 EEX Corp. 16,594
1,100 /2/Evergreen Resources, Inc. 23,787
2,900 /2/Forest Oil Corp. 38,787
1,300 /2/Friede Goldman International, Inc. 12,025
6,500 /2/Global Industries Ltd. 52,000
17,600 /2/Grey Wolf, Inc. 46,200
1,700 /2/HS Resources, Inc. 26,562
14,300 /2/Harken Energy Corp. 14,300
5,300 Helmerich & Payne, Inc. 126,206
1,700 /2/IRI International Corp. 6,800
4,800 /2/Input/Output, Inc. 25,200
8,800 /2/Key Energy Group, Inc. 39,600
2,084 /2/Louis Dreyfus Natural Gas Corp. 41,680
6,100 /2/Marine Drilling Cos., Inc. 98,744
2,792 /2/Meridian Resource Corp. 12,390
2,200 Mitchell Energy & Development Corp., Class A 52,525
4,700 /2/National-Oilwell, Inc. 63,744
3,800 /2/Newfield Exploration Co. 111,862
1,900 /2/Nuevo Energy Co. 26,956
2,100 /2/Oceaneering International, Inc. 28,481
2,200 /2/Offshore Logistics, Inc. 20,350
6,900 /2/Parker Drilling Co. 25,875
3,500 /2/Patterson Energy, Inc. 44,844
8,300 Pennzoil-Quaker State Co. 98,044
10,700 Pioneer Natural Resources, Inc. 100,313
1,700 /2/Plains Resources, Inc. 29,219
4,300 Pogo Producing Co. 86,269
2,000 /2/Pool Energy Services Co. 43,625
5,400 /2/Pride International, Inc. 74,250
1,300 /2/SEACOR SMIT, Inc. 59,475
2,600 /2/Seitel, Inc. 20,637
1,200 St. Mary Land & Exploration Co. 30,600
1,600 /2/Stone Energy Corp. 77,800
1,630 /2/Swift Energy Co. 16,911
3,400 /2/Tesoro Petroleum Corp. 41,225
900 /2/The Houston Exploration Co. 17,606
200 /2/Thermo Ecotek Corp. 1,525
2,800 /2/Transmontaigne, Co. 32,550
3,100 /2/Tuboscope, Inc. 34,487
1,400 /2/UTI Energy Corp. 26,862
5,300 Valero Energy Corp. 97,387
6,500 /2/Varco International, Inc. 68,656
2,400 /2/Veritas DGC, Inc. 33,750
4,500 Vintage Petroleum, Inc. 48,937
TOTAL 2,359,642
Financials-17.7%
1,195 1st Source Corp. 33,012
1,200 /2/Acceptance Insurance Cos., Inc. 17,325
1,000 /2/Advance Paradigm, Inc. 42,625
2,000 Advanta Corp., Class A 35,625
800 Advest Group, Inc. 15,450
2,500 /2/Affiliated Managers Group 66,875
1,000 Alabama National Bancorp 23,750
400 /2/Alexander's, Inc. 29,275
1,100 Alexandria Real Estate Equities, Inc. 31,625
4,300 Alfa Corp. 76,862
500 /2/Alleghany Corp. 96,000
1,200 Alliance Bancorp 24,600
6,100 Allied Capital Corp. 122,381
3,025 Amcore Financial, Inc. 71,466
1,612 AmerUs Life Holdings, Inc., Class A 38,890
847 American Annuity Group, Inc. 15,193
2,500 American Health Properties, Inc. 50,469
1,700 American Heritage Life Investments 65,875
1,900 American Industrial Properties REIT 21,850
6,700 /2/Americredit Corp. 116,412
1,500 Amli Residential Properties Trust 31,125
5,200 /2/Amresco, Inc. 15,275
2,700 Anchor Bancorp Wisconsin, Inc. 43,200
800 Anchor Financial Corp. 24,200
700 Andover Bancorp, Inc. 20,475
4,200 /2/Arcadia Financial Ltd. 16,800
1,300 Area Bancshares Corp. 33,800
1,900 Argonaut Group, Inc. 45,719
2,500 Arm Financial Group, Inc., Class A 200
1,800 Associated Estates Realty Corp. 15,525
1,180 /2/BOK Financial Corp. 24,927
4,694 BRE Properties, Inc., Class A 106,495
750 BSB Bancorp, Inc. 16,547
1,560 BT Financial Corp. 34,515
1,400 Baldwin & Lyons, Inc., Class B 28,875
400 BancFirst Corp. 12,900
700 BancFirst Ohio Corp. 15,487
2,400 BancWest Corp. 100,350
800 Banco Santander Puerto Rico 14,300
5,920 Bancorpsouth, Inc. 102,860
1,256 Bank Granite Corp. 28,260
3,000 Bank United Corp., Class A 117,000
585 BankAtlantic Bancorp, Inc., Class A 2,962
3,900 BankAtlantic Bancorp, Inc., Class B 24,375
2,470 Banknorth Group, Inc. 83,440
2,000 Bay View Capital Corp. 27,750
2,300 Bedford Property Investors, Inc. 40,250
1,850 Berkley, (W. R.) Corp. 42,434
1,400 Blanch, (E. W.) Holdings, Inc. 90,650
1,800 Boykin Lodging Co. 23,287
2,546 Bradley Real Estate, Inc. 42,645
3,800 Brandywine Realty Trust 63,887
1,729 Brenton Banks, Inc. 22,045
1,500 Brookline Bancorp, Inc. 15,750
1,150 Brown & Brown, Inc. 38,812
3,400 Burnham Pacific Properties, Inc. 34,000
2,400 CBL & Associates Properties, Inc. 53,400
2,300 CFS Bancorp, Inc. 24,006
1,800 CNA Surety Corp. 20,700
900 CPB, Inc. 22,275
1,240 CVB Financial Corp. 31,930
4,300 Cabot Industrial Trust 86,000
4,733 Camden Property Trust 128,087
2,300 Capital Automotive 29,325
500 Capital City Bank Group, Inc. 11,687
9,700 Capital Federal Financial 97,000
2,400 Capital Re Corp. 33,900
6,550 Capstead Mortgage Corp. 25,791
2,300 Carolina First Corp. 47,581
2,670 Cash America International, Inc. 25,198
1,000 Cathay Bancorp, Inc. 38,375
1,921 /2/Centennial Bancorp 21,731
2,400 Center Trust, Inc. 24,600
2,100 CenterPoint Properties Corp. 68,512
900 Century South Banks, Inc. 21,937
2,200 Charter Municipal Mortgage Acceptance Co. 27,225
2,300 Chateau Communities, Inc. 58,650
1,700 Chelsea GCA Realty, Inc. 52,700
1,457 Chemical Financial Corp. 47,535
1,500 Chicago Title Corp. 66,094
3,025 Chittenden Corp. 93,397
1,600 /2/ChoicePoint, Inc. 98,900
2,600 Citizens Banking Corp. 72,150
1,833 City Holding Co. 29,099
2,800 Colonial Properties Trust 71,400
2,919 Commerce Bancorp, Inc. 130,808
2,700 Commerce Group, Inc. 68,512
3,200 Commercial Net Lease Realty 36,800
1,469 Commonwealth Bancorp 24,789
5,000 Community First Bankshares, Inc. 95,156
1,224 Community Trust Bancorp, Inc. 26,316
800 /2/CompuCredit Corp. 20,350
1,400 Conning Corp. 12,163
1,200 /2/ContiFinancial Corp. 487
4,200 Cornerstone Realty Income Trust, Inc. 43,575
1,000 Corus Bankshares, Inc. 27,437
2,600 Cousins Properties, Inc. 82,387
3,850 Crawford & Co., Class B 53,900
2,400 /2/Credit Acceptance Corp. 13,500
2,400 Crown American Realty Trust 14,700
1,000 /2/DVI, Inc. 13,500
1,300 Dain Rauscher Corp. 69,794
3,200 /2/Data Broadcasting Corp. 37,800
1,604 /2/Delphi Financial Group, Inc., Class A 51,328
6,500 Developers Diversified Realty 92,625
1,400 Dime Community Bancorp, Inc. 28,262
3,400 Doral Financial Corp. 43,562
2,184 Downey Financial Corp. 48,321
2,400 East West Bancorp, Inc. 29,700
1,700 EastGroup Properties, Inc. 31,131
3,200 Eaton Vance Corp. 109,400
2,900 Enhance Financial Services Group, Inc. 52,925
1,500 Entertainment Properties Trust 21,094
4,000 Equity Inns, Inc. 30,000
1,800 Essex Property Trust, Inc. 58,612
992 F & M BancorpMaryland 24,924
1,367 F & M Bancorporation, Inc.Wisconsin 49,468
2,426 F & M National Corp. 72,770
1,400 FBL Financial Group, Inc., Class A 25,637
1,000 FCNB Corp. 18,000
1,982 FNB Corp. 50,789
1,000 /2/FPIC Insurance Group, Inc. 15,875
500 /2/Farm Family Holdings, Inc. 19,437
700 Farmers Capital Bank Corp. 24,325
1,000 /2/Federal Agricultural Mortgage Association, Class C 18,375
4,300 Federal Realty Investment Trust 78,206
5,300 /2/FiNet.com, Inc. 12,422
2,852 Fidelity National Financial, Inc. 44,741
1,150 /2/Financial Federal Corp. 24,725
5,950 First American Financial Corp. 88,134
1,200 First Busey Corp. 28,200
1,800 First Charter Corp. 34,200
600 First Citizens Bancshares, Inc., Class A 45,600
600 First Commerce Bancshares, Inc., Class B 12,300
3,300 First Commmonwealth Financial Corp. 93,637
1,600 First Federal Capital Corp. 25,200
2,929 First Financial Bancorp 71,028
1,016 First Financial Bankshares, Inc. 34,544
657 First Financial Corp. 23,118
1,400 First Financial Holdings, Inc. 26,162
1,007 First Indiana Corp. 24,671
4,000 First Industrial Realty Trust 98,750
1,300 First Liberty Financial Corp. 40,462
1,300 First Merchants Corp. 30,225
2,604 First Midwest Bancorp, Inc. 106,438
1,000 /2/First Republic Bank 25,000
4,587 First Sentinel Bancorp, Inc. 37,556
1,700 /2/First Sierra Financial, Inc. 25,075
1,325 First Union Corp. 56,561
2,700 First United Bancshares 43,369
1,240 First Washington Bancorp, Inc. 21,080
800 First Washington Realty Trust, Inc. 16,350
2,200 /2/FirstFed Financial Corp. 35,200
2,500 Firstbank Corp. 55,937
800 Flagstar Bancorp, Inc. 12,350
2,000 Foremost Corp. of America 56,500
1,100 /2/Franchise Mortgage Acceptance Co. LLC 8,387
1,500 Freedom Securities Corp. 22,312
2,400 /2/Friedman, Billings, Ramsey Group, Inc., Class A 12,450
1,600 /2/Frontier Financial Corp. 38,400
3,753 Frontier Insurance Group, Inc. 33,308
1,200 GBC Bancorp 24,525
2,800 Gables Residential Trust 67,725
1,900 Gallagher (Arthur J.) & Co. 98,325
900 Glacier Bancorp, Inc. 16,537
3,400 Glenborough Realty Trust, Inc. 44,412
2,500 Glimcher Realty Trust 37,031
800 Golf Trust of America, Inc. 14,350
1,580 Grand Premier Financial, Inc. 25,280
1,800 Great Lakes REIT, Inc. 25,988
700 Great Southern Bancorp, Inc. 15,050
1,000 Greater Bay Bancorp 36,750
1,000 Guarantee Life Co., Inc. 31,063
4,200 HCC Insurance Holdings, Inc. 47,250
3,100 HSB Group, Inc. 118,575
2,200 /2/Hambrecht & Quist Group 108,625
900 /2/Hamilton Bancorp, Inc. 14,288
955 Hancock Holding Co. 37,723
1,507 Harbor Florida Bancshares, Inc. 18,932
1,400 Harleysville Group, Inc. 23,888
832 Harleysville National Corp. 27,768
900 Harris Financial, Inc. 9,563
3,300 Health Care Property Investors, Inc. 86,625
3,000 Health Care REIT, Inc. 53,625
4,699 Healthcare Realty Trust, Inc. 90,456
293 Heller Financial, Inc. 6,959
1,400 Hilb Rogal & Hamilton Co. 35,088
1,900 Home Properties of New York, Inc. 50,706
4,400 Horace Mann Educators Corp. 124,025
5,300 Hospitality Properties Trust 111,963
1,800 Hudson River Bancorp, Inc. 19,913
4,309 Hudson United Bancorp 135,464
8,000 INMC Mortgage Holdings, Inc. 111,500
1,250 /2/INSpire Insurance Solutions, Inc. 7,969
3,500 IRT Property Co. 29,531
3,652 /2/Imperial Bancorp 90,615
2,800 Imperial Credit Commercial Mortgage Investment Corp. 30,450
2,754 /2/Imperial Credit Industries, Inc. 14,803
8,100 Independence Community Bank 96,694
1,300 Independent Bank Corp. 17,388
3,700 Innkeepers USA Trust 31,913
1,650 InterWest Bancorp, Inc. 30,525
1,400 International Bancshares Corp. 63,525
1,400 Investors Financial Services Corp. 51,800
1,200 Irwin Financial Corp. 24,600
3,550 JDN Realty Corp. 67,672
1,400 JP Realty, Inc. 23,975
900 JSB Financial, Inc. 54,113
933 Jeffbanks, Inc. 27,698
2,300 Jefferies Group, Inc. 49,019
800 John Nuveen & Co., Inc., Class A 28,600
800 Kansas City Life Insurance Co. 31,100
2,900 Kilroy Realty Corp. 55,644
2,800 Koger Equity, Inc. 43,400
3,300 Konover Property Trust, Inc. 21,038
2,900 LTC Properties, Inc. 30,813
1,300 LaSalle Hotel Properties 16,331
1,600 LandAmerica Financial Group, Inc. 29,700
1,900 /2/Leap Wireless International, Inc. 73,150
4,500 Leucadia National Corp. 105,469
1,800 Lexington Corporate Properties Trust 19,575
1,648 Liberty Corp. 79,207
1,400 Liberty Financial Cos., Inc. 33,688
2,200 /2/Local Financial Corp. 20,350
2,569 MAF Bancorp, Inc. 55,394
1,500 MGI Properties, Inc. 14,531
1,900 MMI Companies, Inc. 15,556
3,200 Macerich Co. (The) 64,000
2,300 Manufactured Home Communities, Inc. 53,619
500 /2/Markel Corp. 86,469
1,200 Medallion Financial Corp. 24,525
1,400 /2/Mede America Corp. 31,150
2,485 /2/Medical Assurance, Inc. 58,087
2,000 Merchants New York Bancorp, Inc. 35,000
4,064 Metris Cos., Inc. 139,954
320 Michigan Financial Corp. 9,520
863 Mid American Bancorp 25,782
2,000 Mid-American Apartment Communities, Inc. 44,250
1,100 Mid-State Bancshares 37,400
500 Midland Co. 11,000
900 Midwest Banc Holdings, Inc. 14,063
1,600 Mills Corp. 28,800
700 Mississippi Valley Bancshares, Inc. 22,269
5,000 Mony Group, Inc. 157,500
3,062 Morgan Keegan, Inc. 54,733
1,277 NBT Bancorp, Inc. 23,864
1,600 National Bancorp Alaska, Inc. 41,600
1,819 National City Bancshares, Inc. 50,932
1,000 /2/National Discount Brokers Group, Inc. 23,938
1,300 National Golf Properties, Inc. 27,788
2,600 National Health Investors, Inc. 39,325
1,855 National Penn Bancshares, Inc. 48,810
800 /2/National Processing, Inc. 6,950
200 /2/National Western Life Insurance Co., Class A 17,088
4,900 Nationwide Health Properties, Inc. 81,156
2,200 /2/Net.B@nk, Inc. 48,675
1,000 /2/New Century Financial Corp. 13,688
500 /2/NextCard, Inc. 15,594
1,400 Niagara Bancorp, Inc. 14,788
1,500 Northwest Bancorp, Inc. 12,281
1,500 OceanFirst Financial Corp. 26,813
3,500 /2/Ocwen Financial Corp. 23,406
6,600 Ohio Casualty Corp. 110,138
451 Old Kent Financial Corp. 18,378
1,000 Omega Financial Corp. 32,250
2,139 Omega Healthcare Investors 42,379
3,643 One Valley Bancorp West Virginia, Inc. 132,970
1,233 Oriental Financial Group 27,897
2,900 Orion Capital Corp. 141,738
1,400 /2/PFF Bancorp, Inc. 28,525
1,100 /2/PICO Holdings, Inc. 18,081
1,900 PMA Capital Corp. 38,000
2,500 PS Business Parks, Inc. 56,563
1,263 PXRE Group Ltd. 15,472
2,600 Pacific Capital Bancorp 86,125
1,900 Pacific Gulf Properties, Inc. 38,475
900 Pan Pacific Retail Properties, Inc. 16,425
900 Park National Corp. 89,100
1,100 Parkway Properties, Inc. 33,688
600 /2/Penn Treaty American Corp. 10,800
1,300 Pennsylvania Real Estate Investment Trust 24,213
600 Peoples Holding Co. 19,350
900 /2/Philadelphia Consolidated Holding Corp. 13,050
4,600 Phoenix Investment Partners Ltd. 38,813
2,900 /2/Pinnacle Holdings, Inc. 69,600
2,800 Pioneer Group, Inc. 34,825
2,800 Premier Bankshares, Inc. 49,350
1,600 Premier National Bancorp, Inc. 29,400
4,100 Prentiss Properties Trust 87,894
2,500 Presidential Life Corp. 45,938
900 Prime Group Realty Trust 12,938
4,635 Prime Retail, Inc. 36,790
300 /2/Prism Financial Corp. 3,844
900 /2/Professionals Group, Inc. 21,656
1,000 /2/Provident American Corp. 27,938
2,723 Provident Bankshares Corp. 58,630
1,772 Queens County Bancorp, Inc. 55,707
1,100 R&G Financial Corp., Class B 16,775
2,600 RFS Hotel Investors, Inc. 31,200
925 RLI Corp. 30,814
3,853 Radiant Group, Inc. 203,487
4,300 Raymond James Financial, Inc. 87,075
2,900 Realty Income Corp. 65,250
4,300 Reckson Associates Realty Corp. 79,550
1,000 Redwood Trust, Inc. 13,000
3,800 Regency Realty Corp. 75,288
900 Reliance Bancorp, Inc. 36,309
6,900 Reliance Group Holdings, Inc. 24,581
4,372 Republic Bancorp, Inc.Michigan 57,383
600 Republic Bancorp, Inc.Kentucky 5,625
600 /2/Republic Bancshares, Inc. 8,963
5,335 Republic Security Financial Corp. 45,014
2,300 Resource America, Inc., Class A 16,675
2,396 Resource Bancshares Mortgage Group, Inc. 13,478
3,400 Richmond County Financial Corp. 62,475
2,000 Riggs National Corp. 30,250
900 /2/Risk Capital Holdings, Inc. 11,756
700 Rock Financial Corp. 13,738
2,900 S & T Bancorp, Inc. 67,425
1,300 SCPIE Holdings, Inc. 45,663
2,300 SL Green Realty Corp. 41,831
400 SLM Corp. 19,550
1,000 Sandy Spring Bancorp, Inc. 28,000
1,100 Saul Centers, Inc. 15,606
2,800 Seacoast Financial Services Corp. 30,800
1,100 Second Bancorp, Inc. 28,050
3,900 /2/Security Capital Group, Inc. 53,625
3,000 Selective Insurance Group, Inc. 56,063
1,025 Shoreline Financial Corp. 20,180
3,100 Shurgard Storage Centers, Inc., Class A 73,238
100 Siebert Financial Corp. 1,425
1,900 /2/Silicon Valley Bancshares 61,988
700 Simmons 1st National Corp., Class A 20,825
8,448 Sky Financial Group, Inc. 202,752
1,900 Smith (Charles E.) Residential Realty, Inc. 64,600
2,900 /2/Southwest Bancorp. of Texas, Inc. 50,388
1,297 Southwest Securities Group, Inc. 30,885
1,300 Sovran Self Storage, Inc. 27,625
900 St. Francis Capital Corp. 20,250
1,500 StanCorp Financial Group, Inc. 38,063
513 Starwood Hotels & Resorts Worldwide, Inc. 11,767
1,600 State Auto Financial Corp. 18,400
4,500 Staten Island Bancorp, Inc. 87,188
2,500 Sterling Bancshares, Inc. 31,250
600 Sterling Financial Corp. 22,950
1,200 Stewart Information Services Corp. 17,850
3,000 Storage USA, Inc. 87,375
2,400 Summit Properties, Inc. 45,900
1,800 Sun Communities, Inc. 57,375
4,000 Sunstone Hotel Investors, Inc. 38,250
1,900 /2/Superior National Insurance Group, Inc. 22,800
3,905 Susquehanna Bankshares, Inc. 64,921
600 Tanger Factory Outlet Centers, Inc. 12,975
3,700 Taubman Centers, Inc. 41,856
3,400 /2/TeleBanc Financial Corp. 81,600
1,700 Texas Regional Bancshares, Inc., Class A 47,494
1,700 The Trust Company of New Jersey 39,313
2,300 Thornburg Mortgage Asset Co. 20,700
1,700 Town & Country Trust 29,431
300 /2/Track Data Corp. 2,841
1,100 Trenwick Group, Inc. 22,344
1,400 /2/Triad Guaranty, Inc. 28,788
2,700 Triangle Bancorp, Inc. 62,100
2,600 Trinet Corporate Realty Trust, Inc. 59,963
2,856 Trustco Bank Corp. 84,431
4,000 /2/UICI 106,000
1,752 UMB Financial Corp. 71,175
1,500 US Restaurant Properties 24,000
990 USB Holdings Co., Inc. 14,850
1,400 USBANCORP, Inc. 18,550
4,528 UST Corp. 140,368
5,600 /2/Unicapital Corp. 9,100
2,000 /2/Unistar Financial Service Corp. 55,250
5,700 United Assets Management Corp. 118,275
4,600 United Bankshares, Inc. 113,275
3,600 United Community Financial Corp. 35,550
11,000 United Dominion Realty Trust, Inc. 120,313
850 United Fire & Casualty Co. 18,966
1,707 United National Bancorp 39,038
1,700 /2/United Payors & United Providers, Inc. 28,581
1,100 Urban Shopping Centers, Inc. 28,394
200 Value Line, Inc. 6,975
5,800 /2/Ventas, Inc. 28,275
400 WFS Financial, Inc. 8,050
2,600 Walden Residential Properties, Inc. 55,738
5,800 Washington Federal, Inc. 132,313
456 Washington Mutual, Inc. 16,388
3,800 Washington Real Estate Investment Trust 57,950
3,800 Webster Financial Corp. Waterbury 108,775
2,800 Weingarten Realty Investors 107,100
2,150 Wesbanco, Inc. 56,438
1,705 West Coast Bancorp 23,550
1,065 Westcorp, Inc. 16,641
2,200 Western Bancorp 103,125
1,800 Western Properties Trust 18,900
4,500 Westernbank Puerto Rico 62,438
3,100 Westfield America, Inc. 42,625
600 White Mountain Insurance Group, Inc. 75,900
2,525 Whitney Holding Corp. 93,425
20,700 /2/Wyndham International, Inc., Class A 59,513
1,000 Zenith National Insurance Corp. 22,313
TOTAL 18,000,061
Health Care--6.5%
1,000 /2/Abgenix, Inc. 44,375
300 /2/Accredo Health, Inc. 9,900
2,200 /2/Acuson Corp. 22,825
1,700 /2/Affymetrix, Inc. 149,813
1,300 /2/Alaris Medical, Inc. 2,356
700 /2/Albany Molecular Research, Inc. 17,413
1,300 /2/Algos Pharmaceuticals Corp. 12,838
2,500 /2/Alkermes, Inc. 88,281
2,000 Alpharma, Inc., Class A 70,375
2,200 /2/AmeriPath, Inc. 16,294
1,600 /2/American Superconductor Corp. 28,500
1,300 /2/Anesta Corp. 14,463
5,500 /2/Apria Healthcare Group, Inc. 86,969
1,200 Arrow International, Inc. 32,550
1,400 /2/Aviron 34,038
500 /2/Bacou U.S.A., Inc. 7,938
1,375 /2/Barr Laboratories, Inc. 41,680
10,000 /2/Beverly Enterprises, Inc. 39,375
5,500 /2/Bio-Technology General Corp. 53,625
1,600 /2/Biomatrix, Inc. 36,300
1,100 /2/BriteSmile, Inc. 7,150
1,600 /2/CONMED Corp. 39,900
1,300 /2/Cardiothoracic Systems, Inc. 22,588
5,700 /2/Catalytica, Inc. 71,606
1,800 /2/Celgene Corp. 54,675
2,000 /2/Cell Pathways, Inc. 18,625
2,900 /2/Cephalon, Inc. 47,125
1,000 /2/Chattem, Inc. 17,625
1,500 /2/Chirex, Inc. 42,375
700 /2/Closure Medical Corp. 9,188
2,400 /2/Columbia Laboratories, Inc. 16,350
1,500 Cooper Companies, Inc. 37,500
2,400 /2/Cor Therapeutics, Inc. 48,450
248 /2/Coram Healthcare Corp., Warrants 0
1,600 /2/Corixa Corp. 20,800
1,800 /2/Coulter Pharmaceutical, Inc. 30,600
6,200 /2/Covance, Inc. 60,063
6,300 /2/Coventry Health Care, Inc. 36,225
1,900 /2/Cyberonics, Inc. 26,719
2,100 /2/Cygnus, Inc. 20,869
1,300 /2/Datascope Corp. 46,800
1,200 Diagnostic Products Corp. 27,900
4,700 /2/Dura Pharmaceuticals, Inc. 60,072
2,100 /2/Duramed Pharmaceuticals, Inc. 17,456
1,900 /2/Eclipse Surgical Technologies, Inc. 17,694
1,300 /2/Entremed, Inc. 31,200
2,326 /2/Enzo Biochem, Inc. 49,718
3,800 /2/Enzon, Inc. 111,388
5,400 /2/First Health Group Corp. 125,550
1,400 /2/Geltex Pharmaceuticals, Inc. 17,238
4,587 /2/Gilead Sciences, Inc. 289,841
1,000 /2/Gliatech, Inc. 8,188
2,100 /2/Guilford Pharmaceuticals, Inc. 33,075
2,900 /2/Haemonetics Corp. 54,194
2,000 /2/Hanger Orthopedic Group, Inc. 24,625
2,600 /2/Hemispherx Biopharma, Inc. 19,013
3,000 Hooper Holmes, Inc. 80,625
2,400 /2/Human Genome Sciences, Inc. 209,700
2,200 /2/IDEC Pharmaceuticals Corp. 255,613
4,200 /2/IDEXX Laboratories, Inc. 63,525
2,700 /2/Imclone Systems, Inc. 75,263
900 /2/Impath, Inc. 21,600
2,500 /2/Incyte Pharmaceuticals, Inc. 48,125
1,400 /2/Inhale Therapeutic Systems 38,588
5,600 Integrated Health Services, Inc. 1,575
2,500 Invacare Corp. 52,188
500 /2/Invitrogen Corp. 12,500
3,000 /2/Isis Pharmaceuticals, Inc. 34,688
3,900 Jones Pharma, Inc. 120,900
1,200 /2/KV Pharmaceutical Co., Class B 20,625
1,500 /2/King Pharmaceuticals, Inc. 45,375
2,600 /2/LCA Vision, Inc. 11,863
6,800 /2/Laboratory Corporation of America Holdings 20,400
2,600 /2/Laser Vision Centers, Inc. 22,344
1,700 /2/LaserSight, Inc. 23,481
3,200 /2/LifePoint Hospitals, Inc. 37,800
4,692 /2/Ligand Pharmaceuticals, Inc., Class B 38,416
4,100 /2/Liposome Co., Inc. 32,288
2,200 /2/Macrochem Corp. 12,169
3,400 /2/Magellan Health Services, Inc. 20,613
3,900 /2/Matria Healthcare, Inc. 15,722
1,500 /2/Maxxim Medical, Inc. 36,000
1,100 /2/Medco Research, Inc. 26,538
3,050 /2/Medicis Pharmaceutical Corp., Class A 93,025
2,200 Mentor Corp. 51,838
5,000 /2/Mid Atlantic Medical Services, Inc. 27,188
3,800 /2/Millennium Pharmaceuticals, Inc. 266,475
300 Mine Safety Appliances Co. 19,875
1,500 /2/NCS HealthCare, Inc., Class A 4,453
1,300 /2/Neurogen Corp. 20,800
1,500 /2/Novoste Corp. 25,781
1,300 /2/OEC Medical Systems, Inc. 46,313
3,100 /2/Oakley, Inc. 20,150
1,700 /2/Ocular Sciences, Inc. 31,238
3,232 /2/Organogenesis, Inc. 24,240
4,300 /2/Orthodontic Centers of America, Inc. 59,125
1,500 /2/Osteotech, Inc. 19,594
2,700 /2/Parexel International Corp. 25,819
1,700 /2/Pathogenesis Corp. 25,500
1,600 /2/Pediatrix Medical Group 14,200
700 /2/Perclose, Inc. 34,213
1,951 /2/Pharmaceutical Product Development, Inc. 19,632
1,800 /2/Pharmaceutical Resources, Inc. 11,025
1,300 /2/Pharmacyclics, Inc. 45,988
8,100 /2/Phycor, Inc. 20,250
2,000 /2/Protein Design Laboratories, Inc. 80,125
1,300 /2/Province Heathcare Co. 20,963
3,000 /2/Quest Diagnostic, Inc. 84,000
7,700 /2/Quorum Health Group, Inc. 61,600
1,700 /2/Regeneron Pharmaceuticals, Inc. 13,600
4,675 /2/Renal Care Group, Inc. 87,072
1,650 /2/Res-Care, Inc. 24,028
1,600 /2/ResMed, Inc. 55,400
3,343 /2/Respironics, Inc. 28,207
3,600 /2/Rexall Sundown, Inc. 38,025
3,400 /2/Roberts Pharmaceutical Corp. 109,650
8,500 /2/SICOR, Inc. 40,375
1,100 /2/Sabratek Corp. 894
800 /2/SafeScience, Inc. 15,200
4,900 /2/Safeskin Corp. 41,038
1,600 /2/SangStat Medical Corp. 34,600
500 /2/Schein Pharmaceutical, Inc. 4,250
2,200 /2/Serologicals Corp. 8,525
2,850 /2/Sierra Health Services, Inc. 20,841
2,600 /2/Sola International, Inc. 36,400
7,200 /2/Steris Corp. 95,850
4,600 /2/Summit Technology, Inc. 71,588
6,324 /2/Sun Healthcare Group, Inc. 379
2,400 /2/Sunrise Medical, Inc. 13,500
4,700 /2/Sunrise Technologies International, Inc. 29,375
1,700 /2/SuperGen, Inc. 47,813
1,000 /2/Syncor International Corp. 36,625
2,100 /2/Techne Corp. 82,688
2,800 /2/Theragenics Corp. 29,750
1,700 /2/Thermo Cardiosystems, Inc. 10,731
8,000 /2/Total Renal Care Holdings, Inc. 58,500
1,800 /2/Transkaryotic Therapies, Inc. 83,700
900 /2/Trex Medical Corp. 2,700
3,200 /2/Triad Hospitals, Inc. 31,200
2,700 /2/Triangle Pharmaceuticals, Inc. 43,875
2,600 /2/Twinlab Corp. 21,125
2,900 /2/U.S. Bioscience, Inc. 46,763
7,008 /2/US Oncology, Inc. 31,317
4,500 /2/Unilab Corp. 25,594
3,200 Varian Medical Systems, Inc. 67,400
1,400 /2/Ventana Medical Systems 28,088
2,700 /2/Vertex Pharmaceuticals, Inc. 77,288
1,700 /2/Vical, Inc. 24,225
700 Vital Signs, Inc. 15,138
1,800 /2/Wesley Jessen VisionCare, Inc. 48,375
1,250 /2/Xomed Surgical Products, Inc. 76,016
TOTAL 6,561,935
Technology--19.9%
1,300 /2/24/7 Media, Inc. 56,144
2,200 /2/3DFX Interactive, Inc. 21,175
1,000 /2/ACT Networks, Inc. 6,500
3,100 /2/ACTV, Inc. 49,019
1,100 /2/AVT Corp. 36,850
1,100 /2/Abacus Direct Corp. 161,150
300 /2/About.com, Inc. 14,175
4,300 /2/Acclaim Entertainment, Inc. 30,638
2,100 /2/Actel Corp. 39,638
2,400 /2/Activision, Inc. 33,900
1,300 /2/Actuate Software Corp. 44,200
1,600 /2/Adaptive Broadband Corp. 59,100
2,100 /2/Adtran, Inc. 77,963
2,000 /2/Advanced Digital Information Corp. 74,500
7,600 /2/Advanced Fibre Communications 166,250
900 /2/Advantage Learning Systems, Inc. 24,863
1,200 /2/Advent Software, Inc. 72,150
1,900 /2/Aeroflex, Inc. 10,569
600 /2/Allaire Corp. 43,763
2,900 /2/Allen Telecom, Inc. 26,281
2,600 /2/Alliance Semiconductor Corp. 30,225
1,700 /2/Alpha Industries, Inc. 93,925
4,500 /2/American Management System, Inc. 116,438
1,400 /2/American Mobile Satellite Corp. 15,575
325 American Satellite Network, Warrants 0
1,500 /2/American Xtal Technology, Inc. 19,406
9,100 /2/Amkor Technology, Inc. 183,706
4,300 /2/Ampex, Inc., Class A 10,481
1,200 /2/Anacomp, Inc. 20,925
1,600 /2/Anadigics, Inc. 61,600
700 Analogic Corp. 18,375
2,300 Analysts International Corp. 26,881
2,700 /2/Ancor Communications, Inc. 85,556
8,800 /2/Andrew Corp. 113,300
2,700 /2/Anicom, Inc. 11,138
2,200 /2/Anixter International, Inc. 45,925
2,900 /2/AnswerThink Consulting Group, Inc. 47,850
2,550 /2/Antec Corp. 123,675
1,950 /2/Apex, Inc. 33,150
500 /2/AppliedTheory Corp. 6,125
1,500 /2/Ardent Software, Inc. 33,094
2,500 Ashton Techonology Group, Inc. 16,016
2,400 /2/Aspect Development, Inc. 84,900
5,200 /2/Aspect Telecommunications Corp. 130,975
2,700 /2/Aspen Technology, Inc. 34,425
1,300 /2/Asyst Technologies, Inc. 50,375
506 /2/At Home Corp., Class A 18,912
10,500 /2/Aura System, Inc. 3,885
2,800 /2/Auspex Systems, Inc. 15,575
900 /2/Autobytel.com, Inc. 12,656
700 /2/Autoweb.com, Inc. 5,994
3,519 /2/Avant! Corp. 45,307
2,400 /2/Avid Technology, Inc. 26,550
1,700 /2/Aware, Inc. 54,081
609 Avnet, Inc. 33,234
3,000 /2/Axent Technologies, Inc. 44,438
1,150 /2/BARRA, Inc. 25,408
2,100 /2/Banyan Systems, Inc. 21,788
1,600 /2/Bell & Howell Co. 45,000
700 /2/Best Software, Inc. 14,044
3,900 /2/Billing Information Concepts Corp. 19,500
1,800 /2/BindView Development Corp. 54,000
950 /2/Bio Rad Laboratories, Inc., Class A 22,800
800 /2/Bottomline Technologies, Inc. 13,050
5,674 /2/Brightpoint, Inc. 44,505
1,100 /2/Brio Technology, Inc. 26,675
5,700 /2/Broadvision, Inc. 419,663
1,200 /2/Brooks Automation, Inc. 22,800
1,200 /2/Brooktrout Technology, Inc. 15,525
2,687 /2/Burr Brown Corp. 105,633
4,200 /2/C-Cube Microsystems, Inc. 186,900
900 /2/CACI International, Inc., Class A 19,294
600 /2/CAIS Internet, Inc. 7,125
2,500 /2/CCC Information Service Group, Inc. 27,500
5,200 /2/CHS Electronics, Inc. 4,550
700 /2/CTC Communications Group, Inc. 12,338
2,950 /2/Cable Design Technologies, Class A 57,156
5,400 /2/Cambridge Technology Partners, Inc. 59,738
1,000 /2/Carrier Access Corp. 49,438
500 Catapult Communications Corp. 7,938
2,700 /2/Celera Genomics Group 105,638
3,600 /2/Cellstar Corp. 25,425
6,200 /2/Century Business Services, Inc. 61,613
4,800 /2/Ciber, Inc. 78,300
6,400 /2/Cirrus Logic, Inc. 63,600
2,200 /2/Clarify, Inc. 169,950
600 /2/CoStar Group, Inc. 14,775
300 /2/Cognizant Technology Solutions Corp. 13,781
2,600 /2/Coherent, Inc. 53,463
2,200 Cohu, Inc. 41,525
1,800 /2/Com21, Inc. 23,850
5,100 /2/CommScope, Inc. 203,363
2,500 /2/Complete Business Solutions, Inc. 36,250
5,100 /2/Compucom System, Inc. 16,416
2,400 /2/Computer Network Technology 38,550
1,700 Computer Task Group, Inc. 21,463
4,300 /2/Concentric Network Corp. 110,188
1,400 /2/Concord Communications, Inc. 72,713
1,300 /2/Concur Technologies, Inc. 14,463
5,100 /2/Concurrent Computer Corp. 58,650
1,400 /2/Cotelligent, Inc. 4,200
2,250 /2/Credence Systems Corp. 102,656
2,600 /2/Cree Research, Inc. 110,988
1,600 /2/Cybercash, Inc. 13,200
1,100 /2/Cybex Computer Products Corp. 42,969
2,900 /2/Cymer, Inc. 107,119
11,100 /2/Cypress Semiconductor Corp. 283,744
1,900 /2/Cytyc Corp. 75,525
1,000 /2/DBT Online, Inc. 23,375
4,200 /2/DSP Communications, Inc. 147,788
1,200 /2/DSP Group, Inc. 57,300
3,100 Dallas Semiconductor Corp. 182,513
1,100 /2/Data Transmission Network Corp. 27,019
1,700 /2/Datastream Systems, Inc. 17,425
2,850 /2/Dendrite International, Inc. 89,419
1,600 /2/Digital River, Inc. 36,300
6,700 /2/Digtial Microwave Corp. 99,663
1,600 /2/Documentum, Inc. 45,400
800 /2/EMCORE Corp. 11,000
2,700 /2/ESS Technology, Inc. 35,606
600 /2/EarthWeb, Inc. 18,675
2,000 /2/Echelon Corp. 15,750
3,100 /2/Eclipsys Corp. 49,213
1,900 /2/Edify Corp. 24,581
900 /2/Electric Lightwave, Inc., Class A 13,669
2,100 /2/Electroglas, Inc. 57,947
1,800 /2/Emulex Corp. 280,688
1,300 /2/Engineering Animation, Inc. 11,700
1,700 /2/Entrust Technologies, Inc. 42,713
4,349 /2/Epicor Software Corp. 20,930
2,300 /2/Etec Systems, Inc. 87,831
1,000 /2/Exar Corp. 36,125
1,200 /2/Excalibur Technologies Corp. 11,100
600 /2/Excel Switching Corp. 21,338
1,200 /2/Exchange Applications, Inc. 32,700
2,500 /2/FSI International, Inc. 20,000
1,050 FactSet Research Systems 69,759
1,100 Fair Isaac & Co., Inc. 42,488
3,400 /2/Filenet Corp. 56,206
1,700 /2/First Consulting Group, Inc. 14,344
900 /2/FlashNet Communications, Inc. 8,663
300 /2/Flycast Communications Corp. 15,113
3,700 /2/GT Interactive Software 10,175
2,800 /2/GenRad, Inc. 53,550
3,200 /2/General Semiconductor, Inc. 33,600
1,000 /2/Genesys Telecommunications Laboratories, Inc. 49,125
2,100 Gerber Scientific, Inc. 39,638
6,600 /2/Glenayre Technologies, Inc. 19,594
400 /2/Globix Corp. 14,400
2,100 /2/Go2Net, Inc. 147,788
1,000 /2/Great Plains Software, Inc. 55,500
2,600 /2/HNC Software 103,838
4,275 /2/Harbinger Corp. 68,133
2,800 /2/Harmonic Lightwaves, Inc. 166,250
2,400 Helix Technology Corp. 96,750
1,400 Henry Jack & Associates, Inc. 50,925
700 /2/Hi/fn, Inc. 25,419
2,100 /2/Hutchinson Technology, Inc. 53,550
3,280 /2/Hyperion Solutions Corp. 79,950
1,500 /2/IDX Systems Corp. 27,375
1,650 /2/IMRglobal Corp. 16,913
900 /2/IPC Information Systems, Inc. 48,375
2,500 /2/ISS Group, Inc. 95,313
900 /2/ITI Technologies, Inc. 24,413
2,400 /2/Identix, Inc. 18,150
4,100 /2/Imation Corp. 125,819
2,400 /2/In Focus Systems, Inc. 47,550
4,448 /2/Inacom Corp. 21,406
600 /2/Inet Technologies, Inc. 22,950
2,800 /2/InfoCure Corp. 44,100
900 /2/Informatica Corp. 65,025
20,100 /2/Informix Corp. 153,263
1,600 Innovex, Inc. 12,800
8,800 /2/Integrated Device Technology, Inc. 180,950
1,900 /2/Integrated Systems, Inc. 31,944
2,200 Inter-Tel, Inc. 34,925
900 /2/InterVU, Inc. 49,388
4,600 /2/Intergraph Corp. 17,825
400 /2/International Integration, Inc. 25,850
5,500 /2/International Rectifier Corp. 106,906
1,800 /2/International Telecommunication Data Systems, Inc. 17,888
3,100 /2/Intervoice, Inc. 38,363
1,500 /2/Intraware, Inc. 27,563
28,600 /2/Iomega Corp. 87,588
2,200 /2/JDA Software Group, Inc. 19,800
700 /2/Juno Online Services, Inc. 10,588
3,000 /2/Kent Electronics Corp. 58,313
5,700 /2/Komag, Inc. 9,441
1,300 /2/Kopin Corp. 54,600
1,350 /2/Kronos, Inc. 60,581
2,500 /2/Kulicke & Soffa Industries 73,594
3,800 /2/LTX Corp. 60,088
4,100 /2/Lam Research Corp. 346,194
1,700 /2/Lason Holdings, Inc. 63,166
300 /2/Latitude Communications, Inc. 9,600
4,800 /2/Lattice Semiconductor Corp. 169,800
1,000 /2/Launch Media, Inc. 10,875
3,000 Learn2.Com, Inc. 9,094
2,000 /2/MAPICS, Inc. 17,000
2,100 /2/MEMC Electronic Materials 29,925
1,700 /2/MICROS Systems Corp. 78,678
700 /2/MKS Instruments, Inc. 14,700
3,200 /2/MMC Networks, Inc. 102,000
2,500 /2/MRV Communications, Inc. 54,219
3,100 /2/MTI Technology Corp. 52,506
2,000 MTS Systems Corp. 20,250
400 /2/Maker Communications, Inc. 10,675
500 /2/Manhattan Associates, Inc. 2,469
2,100 /2/Manugistics Group, Inc. 24,150
300 Marketwatch.Com, Inc. 15,750
3,700 /2/Mastech Corp. 63,363
6,600 /2/Maxtor Corp. 36,300
1,000 Maxwell Technologies, Inc. 10,625
800 /2/Mechanical Technology, Inc. 17,000
300 /2/Media Metrix, Inc. 14,063
1,300 /2/Mediconsult.com, Inc. 7,719
3,800 /2/Medquist, Inc. 121,600
7,000 /2/Mentor Graphics Corp. 56,438
1,100 /2/Mercury Computer Systems, Inc. 49,363
3,900 /2/Mercury Interactive Corp. 316,388
8,500 /2/Merisel, Inc. 11,422
2,500 /2/MessageMedia, Inc. 29,531
3,800 Methode Electronics, Inc., Class A 60,800
1,100 /2/Metricom, Inc. 48,331
700 /2/Metro Information Services, Inc. 9,538
3,000 /2/Micrel, Inc. 163,125
4,000 /2/MicroStrategy, Inc. 386,500
1,100 /2/Micromuse, Inc. 117,563
3,700 /2/Micron Electronics, Inc. 37,925
1,000 /2/Molecular Devices Corp. 37,000
1,100 /2/Mpath Interactive, Inc. 12,375
1,200 /2/Multex.com, Inc. 19,275
1,700 /2/NVIDIA Corp. 37,613
3,400 National Computer Systems, Inc. 128,563
2,475 /2/National Instruments Corp. 74,405
1,400 /2/Navarre Corp. 9,100
2,700 /2/NeoMagic Corp. 21,516
700 /2/Neon Systems, Inc. 12,425
1,100 /2/Net Perceptions, Inc. 17,600
600 /2/NetObjects, Inc. 4,238
600 /2/Netopia, Inc. 32,025
2,300 /2/Network Equipment Technologies, Inc. 23,431
1,300 /2/Network Peripherals, Inc. 36,400
700 /2/ONYX Software Corp. 15,663
400 /2/Omega Research, Inc. 2,300
1,300 /2/OnHealth Network Co. 8,369
1,900 /2/OneMain.com, Inc. 30,875
2,900 /2/Open Market, Inc. 51,475
1,200 Optical Coating Laboratories, Inc. 128,250
5,200 /2/P-COM, Inc. 24,050
200 /2/PC Order.com Inc. 9,900
53 PE Corp.-PE Biosystems Group, Warrants 841
1,400 /2/PLX Technology, Inc. 22,400
2,000 /2/PRI Automation, Inc. 80,250
7,100 /2/Pairgain Technologies, Inc. 86,975
1,300 /2/Pegasus Systems, Inc. 55,575
3,100 /2/Pegasystems, Inc. 24,219
2,700 /2/Peregrine Systems, Inc. 118,463
4,800 PerkinElmer, Inc. 195,900
1,400 /2/Pervasive Software, Inc. 13,650
2,700 /2/Phoenix Technology, Ltd. 31,050
2,300 /2/Photronics, Inc. 48,156
4,300 /2/PictureTel Corp. 15,050
1,900 /2/Pinnacle Systems, Inc. 52,725
2,625 Pioneer Standard Electronics, Inc. 34,289
3,300 Pittway Corp., Class A 108,900
1,800 /2/Plantronics, Inc. 105,413
4,700 Polaroid Corp. 104,869
3,800 /2/Policy Management System Corp. 72,913
2,200 /2/Polycom, Inc. 110,000
1,100 /2/Power Integrations, Inc. 112,131
4,900 /2/Premiere Technologies, Inc. 26,950
2,600 /2/Premisys Communications, Inc. 25,188
1,700 /2/Progress Software Corp. 56,950
600 /2/Project Software & Development, Inc. 28,875
1,100 /2/Proxicom, Inc. 84,425
1,100 /2/Proxim, Inc. 51,494
1,900 /2/ProxyMed, Inc. 23,750
1,900 /2/PubliCARD, Inc. 14,606
1,100 /2/QRS Corp. 61,188
2,400 /2/QuadraMed Corp. 13,500
2,300 /2/REMEC, Inc. 24,006
3,800 /2/RSA Security, Inc. 134,900
500 /2/RWD Technologies, Inc. 4,063
700 /2/RadiSys Corp. 37,100
1,100 /2/Radiant Systems, Inc. 17,325
3,100 /2/Rare Medium Group, Inc. 45,725
300 /2/Razorfish, Inc. 22,125
4,900 /2/Read-Rite Corp. 19,294
2,500 /2/Remedy Corp. 107,500
5,500 /2/S3, Inc. 55,000
3,300 /2/SAGA Systems, Inc. 47,850
1,300 /2/SCM Microsystems, Inc. 61,425
900 /2/SERENA Software, Inc. 16,875
800 /2/SPSS, Inc. 14,200
1,100 /2/SS&C Technologies, Inc. 4,950
2,600 /2/SVI Holdings, Inc. 20,475
1,400 /2/Sagent Technology, Inc. 18,638
1,300 /2/Sanchez Computer Associates 28,600
2,200 /2/Sandisk Corp. 133,375
1,900 /2/Santa Cruz Operation, Inc. 25,056
2,600 /2/Sawtek, Inc. 106,600
2,700 /2/Security First Technologies Corp. 108,506
3,200 /2/Semtech Corp. 122,600
3,500 /2/Silicon Valley Group, Inc. 43,750
200 /2/Siliconix, Inc. 11,650
300 /2/Silknet Software, Inc. 24,000
1,900 /2/Sipex Corp. 21,850
3,000 /2/Smart Modular Technologies, Inc. 111,375
900 /2/SoftNet Systems, Inc. 20,250
1,400 /2/Source Media, Inc. 10,719
905 /2/SpectraSite Holdings, Inc. 9,050
2,633 /2/SpeedFam-IPEC, Inc. 29,128
1,700 /2/Sportsline USA, Inc. 61,094
1,600 /2/Spyglass, Inc. 25,700
1,200 /2/Stanford Telcommunications, Inc. 33,600
3,817 /2/Structural Dynamics Research Corp. 37,693
400 /2/Sunquest Information Systems, Inc. 5,300
800 /2/Superior Consultant Holdings Corp. 8,500
8,800 /2/Sybase, Inc. 118,800
2,300 /2/Sykes Enterprises, Inc. 71,013
500 /2/Syntel, Inc. 4,125
3,500 /2/Systems & Computer Technology Corp. 37,625
1,200 /2/THQ, Inc. 49,350
1,500 /2/TSI International Software Ltd. 36,000
4,400 /2/Technology Solutions Corp. 90,200
2,900 /2/Tekelec, Inc. 36,794
4,700 Tektronix, Inc. 158,625
1,100 /2/Telescan, Inc. 18,288
500 /2/TenFold Corp. 11,750
1,500 /2/Terayon Communication Systems, Inc. 65,625
1,708 Texas Instruments, Inc. 153,277
600 /2/TheStreet.com, Inc. 11,963
1,100 /2/Theglobe.com, Inc. 11,825
200 /2/Thermo Bioanalysis Corp. 3,400
400 /2/Thermo Optek Corp. 3,400
300 /2/ThermoSpectra Corp. 4,725
600 /2/Thermoquest Corp. 6,300
3,900 /2/Titan Corp. 65,325
1,400 /2/Towne Services, Inc. 3,850
2,700 /2/TranSwitch Corp. 127,069
1,150 /2/Transaction Network Services, Inc. 45,784
3,300 /2/Transaction Systems Architects, Inc., Class A 101,475
2,200 /2/Trimble Navigation Ltd. 35,750
1,550 /2/Triquint Semiconductor, Inc. 124,000
1,200 /2/Tut Systems, Inc. 40,050
4,200 Tyler Technologies, Inc. 19,688
4,500 /2/UNOVA, Inc. 59,906
1,000 /2/USinternetworking, Inc. 33,313
2,300 /2/Ultratech Stepper, Inc. 36,513
500 /2/Unigraphics Solutions, Inc. 10,781
2,800 /2/Vantive Corp. 32,550
3,200 /2/Varian Semiconductor Equipment Associates, Inc. 72,400
3,200 /2/Varian, Inc. 60,400
900 /2/Veeco Instruments, Inc. 30,544
1,300 /2/Verity, Inc. 89,538
3,600 /2/VerticalNet, Inc. 201,600
2,800 /2/Visio Corp. 110,863
2,200 /2/Visual Networks, Inc. 91,575
2,600 /2/WESCO International, Inc. 20,475
600 Watkins Johnson Co. 22,200
3,700 /2/Wave Systems Corp. 35,150
2,300 /2/Wavo Corp. 9,128
600 /2/WebTrends Corp. 37,050
1,800 /2/Westell Technologies, Inc., Class A 12,713
9,600 /2/Western Digital Corp. 30,600
3,525 /2/Wind River Systems, Inc. 71,822
4,800 /2/World Access, Inc. 61,500
1,100 /2/WorldGate Communications, Inc. 23,513
2,300 /2/Xircom, Inc. 116,006
800 /2/Xoom, Inc. 50,000
2,600 /2/Zebra Technologies Corp., Class A 141,375
900 /2/eFax.com, Inc. 7,791
400 /2/eShare Technologies, Inc. 1,950
1,400 /2/iVillage, Inc. 35,788
TOTAL 20,151,574
Transportation--2.2%
800 /2/AHL Services, Inc. 15,200
3,600 Air Express International Corp. 95,850
6,000 /2/AirTran Holdings, Inc. 27,375
5,200 Airborne Freight Corp. 111,800
2,600 /2/Alaska Air Group, Inc. 103,350
4,600 Alexander and Baldwin, Inc. 110,400
3,602 /2/America West Holdings Corp., Class B 74,516
800 /2/American Classic Voyages 20,000
2,300 /2/American Freightways Corp. 47,438
300 /2/Amtran, Inc. 6,113
2,000 Arnold Industries, Inc. 20,063
1,300 /2/Atlantic Coast Airlines Holdings 30,225
1,550 /2/Atlas Air, Inc. 41,850
4,400 C.H. Robinson Worldwide, Inc. 148,775
1,000 /2/Carey International, Inc. 21,188
400 /2/Cheap Tickets, Inc. 6,400
1,300 Circle International Group, Inc. 28,600
2,200 /2/Consolidated Freightways Corp. 17,325
800 /2/Covenant Transport, Inc., Class A 12,300
1,000 /2/Dril-Quip, Inc. 23,375
1,650 /2/Eagle USA Airfreight, Inc. 48,675
3,300 Florida East Coast Industries, Inc. 122,925
1,000 /2/Forward Air Corp. 29,438
2,100 /2/Fritz Companies, Inc. 23,494
1,800 /2/Frontier Airlines, Inc. 17,888
1,845 /2/Heartland Express, Inc. 25,023
700 /2/Hub Group, Inc. 13,300
2,300 Hunt (J.B.) Transportation Services, Inc. 29,613
2,150 /2/Iron Mountain, Inc. 65,038
2,150 /2/Kirby Corp. 38,969
700 /2/Knight Transportation, Inc. 9,450
1,100 /2/Landstar System, Inc. 44,550
1,000 /2/M.S. Carriers, Inc. 28,250
3,000 /2/Mesa Air Group, Inc. 16,875
1,250 /2/Mesaba Holdings, Inc. 14,375
1,500 /2/Midwest Express Holdings, Inc. 43,969
2,850 /2/MotivePower Industries, Inc. 34,022
2,900 Overseas Shipholding Group, Inc. 37,338
800 /2/Pierce Leahy Corp. 23,550
2,000 Pittston BAX Group 14,750
1,300 /2/Preview Travel, Inc. 39,650
1,400 RPC Energy Services, Inc. 9,713
1,400 Roadway Express, Inc. 29,225
4,925 Rollins Truck Leasing Corp. 47,403
2,200 SkyWest, Inc. 54,588
3,925 /2/Swift Transportation Co. 68,442
6,200 /2/Trans World Airlines, Inc. 20,538
700 /2/US Xpress Enterprises, Inc., Class A 5,950
2,850 USFreightways Corp. 129,141
3,275 Werner Enterprises, Inc. 52,195
2,600 Westinghouse Air Brake, Co. 47,775
5,400 /2/Wisconsin Central Transportation Corp. 74,925
2,600 /2/Yellow Corp. 44,200
TOTAL 2,267,380
Utilities--3.9%
6,100 AGL Resources, Inc. 106,369
1,000 American States Water Co. 34,313
1,200 Aquarion Co. 43,575
3,250 Atmos Energy Corp. 73,734
4,300 Avista Corp. 77,400
2,300 Black Hills Corp. 51,750
3,500 CMP Group, Inc. 93,188
900 CTG Resources, Inc. 33,413
1,200 California Water Service Group 34,800
1,200 Cascade Natural Gas Corp. 21,750
1,800 Central Hudson Gas & Electric Corp. 67,388
466 /2/Citizens Utilities Co., Class B 5,385
2,400 Cleco Corp. 79,500
1,100 Connecticut Energy Corp. 41,525
900 E'Town Corp. 41,456
2,400 Eastern Enterprises 122,700
2,200 Eastern Utilities Association 66,550
6,400 /2/El Paso Electric Co. 58,400
1,800 Empire Distribution Electric Co. 44,325
2,800 Energen Corp. 51,800
3,600 Equitable Resources, Inc. 131,400
3,400 Hawaiian Electric Industries, Inc. 114,750
4,000 Idacorp, Inc. 120,750
3,133 Indiana Energy, Inc. 63,247
1,900 Laclede Gas Co. 40,494
5,625 MDU Resources Group, Inc. 131,484
1,700 Madison Gas & Electric Co. 35,488
1,400 NUI Corp. 34,738
1,900 New Jersey Resources Corp. 77,306
2,700 Northwest Natural Gas Co. 69,863
2,500 Northwestern Corp. 57,031
3,400 ONEOK, Inc. 99,238
1,300 Otter Tail Power Co. 54,600
1,200 Pennsylvania Enterprises 40,875
3,800 Philadelphia Suburban Corp. 87,400
3,300 Piedmont Natural Gas, Inc. 105,600
3,900 Public Service Co. of New Mexico 69,713
2,200 Public Service Co. of North Carolina, Inc. 69,163
3,900 RGS Energy Group, Inc. 97,256
2,500 SIGCORP, Inc. 65,000
200 SJW Corp. 23,450
1,832 Semco Energy, Inc. 25,763
10,228 Sierra Pacific Resources 230,130
824 South Jersey Industries, Inc. 21,424
1,989 /2/Southern Union Co. 40,277
3,300 Southwest Gas Corp. 76,725
2,700 Southwestern Energy Co. 21,600
1,300 TNP Enterprises, Inc. 51,838
600 Trigen Energy Corp. 13,988
3,900 UGI Corp. 93,600
3,460 /2/UniSource Energy Corp. 39,790
1,500 United Illuminating Co. 77,625
2,936 United Water Resources, Inc. 99,090
4,000 WICOR, Inc. 119,000
2,800 WPS Resources Corp. 80,850
4,900 Washington Gas Light Co. 133,219
1,600 Western Gas Resources, Inc. 26,300
1,100 Yankee Energy Systems, Inc. 46,750
TOTAL 3,936,136
TOTAL COMMON STOCKS (IDENTIFIED COST $77,341,795) 87,295,445
PREFERRED STOCKS--0.0%
Health Care--0.0%
76 Genesis Health Ventures, Inc. (IDENTIFIED COST $28,732) 0
Principal Value
Amount
SHORT-TERM U.S. GOVERNMENT OBLIGATION0.7%3
700,000 United States Treasury Bill, 1/6/2000 (IDENTIFIED COST 694,120
$694,097)
REPURCHASE AGREEMENT11.6%4
11,820,000 ABN AMRO, Inc., 5.34%, dated 10/29/1999, due 11/1/1999 (AT 11,820,000
AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $89,884,624)5 $ 99,809,565
</TABLE>
/1/The Fund purchases Index futures contracts to efficiently manage cash flows
resulting from shareholder purchases and redemptions, dividend and capital
gain payments to shareholders and corporate actions while maintaining
exposure to the Index and minimizing trading costs. The total market value of
open Index futures contracts is $12,954,000 at October 31, 1999, which
represents 12.8% of net assets. Taking into consideration these open Index
futures contracts, the Fund's effective total exposure to the Index is 98.8%.
/2/Non-income producing security.
/3/Represents a security held as collateral which is used to ensure the Fund is
able to satisfy the obligations of its outstanding long futures contracts.
/4/The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
/5/The cost of investments for federal tax purposes amounts to $90,816,464. The
net unrealized appreciation of investments on a federal tax basis amounts to
$8,993,101 which is comprised of $23,515,299 appreciation and $14,522,198
depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($101,486,465) at October 31, 1999.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
REIT --Real Estate Investment Trust
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investment in repurchase agreement $ 11,820,000
Investments in securities 87,989,565
TOTAL INVESTMENTS IN SECURITIES, AT VALUE (IDENTIFIED COST $89,884,624 AND TAX 99,809,565
COST $90,816,464)
Cash 249,382
Income receivable 94,007
Receivable for investments sold 238,824
Receivable for shares sold 1,114,662
Receivable for daily variation margin 107,208
Prepaid Expenses 8,105
TOTAL ASSETS 101,621,753
Liabilities:
Payable for investments purchased $ 27,327
Payable for shares redeemed 107,961
TOTAL LIABILITIES 135,288
Net Assets for 7,448,325 shares outstanding $ 101,486,465
Net Assets Consist of:
Paid in capital $ 81,577,514
Net unrealized appreciation of investments and futures contracts 9,963,361
Accumulated net realized gain on investments and futures contracts 9,945,590
TOTAL NET ASSETS $ 101,486,465
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Shares:
Net Asset Value and Offering Price Per Share ($97,234,518 / 7,135,433 shares $ 13.63
outstanding)
Redemption Proceeds Per Share $ 13.63
Class C Shares:
Net Asset Value and Offering Price Per Share ($4,251,947 / 312,892 shares $ 13.59
outstanding)
Redemption Proceeds Per Share (99/100 of $13.59)1 $ 13.45
</TABLE>
/1/See "What Do Shares Cost?"
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $306) $ 1,356,995
Interest 626,467
TOTAL INCOME 1,983,462
Expenses:
Investment advisory fee $ 591,726
Custodian fees 75,641
Transfer and dividend disbursing agent fees and expenses 80,656
Directors'/Trustees' fees 4,816
Auditing fees 14,052
Legal fees 3,306
Portfolio accounting fees 82,887
Distribution services feeClass C Shares 18,981
Shareholder services feeInstitutional Shares 289,536
Shareholder services feeClass C Shares 6,327
Share registration costs 36,691
Printing and postage 57,789
Insurance premiums 1,672
Miscellaneous 6,389
TOTAL EXPENSES 1,270,469
Waiver:
Waiver of shareholder services feeInstitutional Shares (150,559)
Net expenses 1,119,910
Net investment income 863,552
Realized and Unrealized Gain on Investments and Futures Contracts:
Net realized gain on investments and futures contracts 10,152,390
Net change in unrealized appreciation of investments and futures contracts 3,230,965
Net realized and unrealized gain on investments and futures contracts 13,383,355
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,246,907
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 863,552 $ 1,082,998
Net realized gain on investments and futures contracts ($11,177,834 and 10,152,390 7,723,489
$7,778,675, respectively, as computed for federal tax purposes)
Net change in unrealized appreciation of investments and futures contracts 3,230,965 (24,459,690)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 14,246,907 (15,653,203)
Distributions to Shareholders:
Distributions from net investment income
Institutional Shares (962,809) (1,195,686)
Class C Shares (1,640) (506)
Distributions from net realized gain on investments and futures contracts
Institutional Shares (7,701,941) (12,347,168)
Class C Shares (77,652) (3,988)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (8,744,042) (13,547,348)
Share Transactions:
Proceeds from sale of shares 247,992,067 234,148,863
Net asset value of shares issued to shareholders in payment of distributions 5,642,185 6,316,298
declared
Cost of shares redeemed (277,245,957) (242,139,218)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (23,611,705) (1,674,057)
Change in net assets (18,108,840) (30,874,608)
Net Assets:
Beginning of period 119,595,305 150,469,913
End of period (including accumulated undistributed net investment income of $0 and $ 101,486,465 $ 119,595,305
$85,541, respectively)
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999
Organization
Federated Index Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Mini-Cap Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund 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. This group of stocks is known as the
Russell 2000(R) Index.
Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
Listed equity securities are valued at the last sale price reported on a
national securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for certain
dividends. The following reclassifications have been made to the financial
statements. <TABLE> <CAPTION>
Increase (Decrease)
Accumulated Accumulated
Net Realized Gain Undistributed
on Investments and Net Investment
Futures Contracts Income
<S> <C>
$(15,356) $15,356
</TABLE>
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Futures Contracts
The Fund purchases stock index futures contracts to manage cash flows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the fiscal year ended October 31, 1999, the Fund had realized gains on
futures contracts of $220,671. Futures contracts have market risks, including
the risk that the change in the value of the contract may not correlate with
changes in the value of the underlying securities.
At October 31, 1999, the Fund had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
Expiration Date Contracts to Position Unrealized
Deliver/ Appreciation
Receive
<S> <C> <C> <C>
December 1999 60 Russell 2000 Long $38,420
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
Year Ended October 31 1999 1998/1/
<S> <C> <C>
Class C Shares:
Shares sold 536,474 95,668
Shares issued to shareholders in payment of distributions declared 5,613 303
Shares redeemed (313,903) (11,263)
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 228,184 84,708
Year Ended October 31 1999 1998
Institutional Shares:
Shares sold 17,708,794 15,678,221
Shares issued to shareholders in payment of distributions declared 436,951 425,161
Shares redeemed (20,110,830) (16,024,006)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS (1,965,085) 79,376
NET CHANGE RESULTING FROM SHARE TRANSACTIONS (1,736,901) 164,084
</TABLE>
/1/Reflects operations for the period from November 10, 1997 (date of initial
public investment) to October 31, 1998.
Management Fee and Other Transactions with Affiliates
Management Fee
Federated Investment Management Company, the Fund's investment adviser (the
"Manager"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. Under the terms of a sub-advisory
agreement between the Manager and Northern Trust Quantitative Advisors, Inc.
(the "Sub-Manager") the Sub-Manager receives an annual fee from the Manager
equal to 0.065% of the Fund's average daily net assets.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp., ("FSC") the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class C
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
Share Class Name Percentage of Average Daily Net
Assets of Class
<S> <C>
Class C Shares 0.75%
</TABLE>
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
Federated Services Company ("FServ"), through its subsidiary FSSC, serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of- pocket expenses.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $49,606,507
Sales $72,665,530
</TABLE>
YEAR 2000 (Unaudited)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Manager and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF TRUSTEES OF FEDERATED INDEX TRUST
AND SHAREHOLDERS OF FEDERATED MINI-CAP FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Mini-Cap Fund (one of the
portfolios constituting Federated Index Trust) as of October 31, 1999, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Mini-Cap Fund of Federated Index Trust at October 31, 1999, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 16, 1999
[Logo of Federated]
Federated Mini-Cap Fund
A Portfolio of Federated Index Trust
Class C shares
DECEMBER 31, 1999
A Statement of Additional Information (SAI) dated December 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI, Annual and Semi-Annual
Reports to shareholders as they become available. The Annual Report's Management
Discussion and Analysis discusses market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
To obtain the SAI, Annual Report, Semi-Annual Report and other information
without charge, and make inquiries, call your investment professional or the
Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
[Logo of Federated]
Federated Mini-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
- --------------------------
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E601
G01169-01 (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C)Federated Investors, Inc.
STATEMENT OF ADDITIONAL INFORMATION
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, 1999. Obtain the
prospectuses and the Annual Report's Management Discussion & Analysis without
charge by calling 1-800-341-7400.
DECEMBER 31, 1999
Contents
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What do Shares Cost? 12
How is the Fund Sold? 13
Exchanging Securities For Shares 13
Subaccounting Services 13
Redemption in Kind 13
Massachusetts Partnership Law 14
Account and Share Information 14
Tax Information 14
Who Manages and Provides Services to the Fund? 15
How Does the Fund Measure Performance? 20
Who is Federated Investors, Inc.? 22
Frank Russell Company 24
Addresses Back Cover
Cusip 31420E304
2062305B(12/99)
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. On December 5, 1994, the Trustees changed the name of the Fund from
Mini-Cap Fund to the Federated Mini-Cap Fund.
The Board of Trustees has established two classes of shares of the Fund known as
Institutional Shares and Class C Shares (Shares). This SAI relates to both
classes of Shares
Effective March 31, 1999, Federated Management, former Manager to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).
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
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
The Fund may treat such redeemable preferred stock as a fixed income security.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the interest rate and prepayment risks of these mortgage backed
securities.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. 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). 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.
The Fund may also trade derivative contracts 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 the Fund uses derivative contracts 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 interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks 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 its total net assets.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts. The Fund may buy
and sell stock index futures as a substitute for direct investments in the
Index in order to help fully replicate the performance of the Index.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
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 put options on the Index (in anticipation of a decrease in the value of the
underlying asset).
Buy or write options to close out existing option positions.
The Fund may also write call options on portfolio securities 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 the Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the 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
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Manager.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Manager or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
interest rate risks for the Fund. Delayed delivery transactions also involve
credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Manager deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
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 on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable securities with
a value that equals or exceeds the Fund's obligations. Unless the Fund has
other readily marketable assets to set aside, it cannot trade assets used to
secure such obligations without entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to miss
favorable trading opportunities or to realize losses on derivative contracts
or special transactions.
Inter-fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
Federated Complex Funds
<TABLE>
<S> <C>
Cash Trust Series II Federated Municipal Securities Income Trust
Cash Trust Series, Inc. Federated Municipal Trust
Edward D. Jones & Co. Daily Passport Cash Trust Federated Short-Term Municipal Trust
Federated Adjustable Rate U.S. Government Fund, Inc. Federated Stock and Bond Fund, Inc.
Federated American Leaders Fund, Inc. Federated Stock Trust
Federated ARMs Fund Federated U.S. Government Bond Fund
Federated Equity Funds Federated U.S. Government Securities Fund: 1-3 Years
Federated Equity Income Fund, Inc. Federated U.S. Government Securities Fund: 2-5 Years
Federated Fund for U.S. Government Securities, Inc. Federated U.S. Government Securities Fund: 5-10 Years
Federated GNMA Trust Federated Utility Fund, Inc.
Federated Government Income Securities, Inc. Fixed Income Securities, Inc.
Federated High Income Bond Fund, Inc. Intermediate Municipal Trust
Federated High Yield Trust International Series, Inc.
Federated Income Securities Trust Investment Series Funds, Inc.
Federated Income Trust Managed Series Trust
Federated Index Trust Money Market Management, Inc.
Federated Institutional Trust Money Market Obligations Trust
Federated Insurance Series Money Market Trust
Federated Municipal Opportunities Fund, Inc. Tax-Free Instruments Trust
Federated Municipal Securities Fund, Inc. World Investment Series, Inc.
</TABLE>
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below:
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
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. Consequently, the Fund's share
price may decline.
. The Manager attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.
Risks Related to Company Size
. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Manager allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
Interest Rate Risks
. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Manager's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call Risks
. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
. If a fixed income security is called, the 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
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Manager from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Manager attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
FUNDAMENTAL INVESTMENT OBJECTIVE
The fund seeks to provide investment results generally corresponding to the
aggregate price and dividend performance of publicly-traded common stocks
comprising the Russell 2000(R) Index
INVESTMENT LIMITATIONS
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
Issuing Senior Securities and Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Concentration of Investments
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments are not deemed
to constitute an industry.
Lending Cash or Securities
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
The above limitations cannot be changed unless authorized by the Board of
Trustees (Board) and by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
Pledging Assets
The Fund will not mortgage, pledge or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
Investing in Restricted Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities to 15% of its net assets.
Investing in Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Buying on Margin
The Fund will not purchase securities on margin provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Investing in Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
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 deposit, to be "cash items."
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of non-
fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;
. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading
on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last
asked price for the option as provided by an investment dealer or other
financial institution that deals in the option. The Board may determine in
good faith that another method of valuing such investments is necessary to
appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its 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 investment professional selling Shares, 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:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. 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 according to a sales agreement with
the Distributor; and the immediate family members of the above persons;
. 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 these entities; and
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) 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 banks, and registered investment managers)
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.
For some classes of shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the 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
relating to attendance at 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.
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in 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
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although 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. 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 Fund have equal voting rights except that in matters effecting
only a particular Fund or class, only Shares of that Fund or class are entitled
to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding Shares
of all series entitled to vote.
As of December 3, 1999, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Institutional Shares: Charles Schwab &
Co., Inc., San Francisco, CA owned approximately 851,986 (10.51%) shares.
As of December 3, 1999, the Fund's the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class C Shares: MLPF&S, For
the Sole Benefit of Its Customer, Jacksonville, FL, owned approximately 50,446
(15.11%) shares, Donaldson Lufkin Jenrette Securities Corporation Inc., Jersey
City, NJ, owned approximately 24,187 (7.24%) shares, and Edward Jones & Co.,
Maryland Heights, MO owned approximately 18,943 (5.67%) shares.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
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 each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Manager.
As of December 3, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Institutional Shares, and Class C Shares.
<TABLE>
<CAPTION>
Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex
<S> <C> <C> <C>
John F. Donahue*+# Chief Executive Officer and Director or Trustee of the $0 $0 for the
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated Trust and
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company; Chairman and Director, companies
Pittsburgh, PA Federated Investment Counseling and Federated Global in the Fund Complex
CHAIRMAN and TRUSTEE Investment Management Corp.; Chairman, Passport
Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $2,455.86 $113,860.22 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, 54 other investment
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); companies
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $2,701.88 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Wood/Commercial Dept. Vice President, John R. Wood and Associates, Inc., 54 other investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies
Realtors ventures in Southwest Florida; formerly: President, in the Fund Complex
3255 Tamiami Trail North Naples Property Management, Inc. and Northgate Village
Naples, FL Development Corporation.
TRUSTEE
Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $2,455.86 $47,958.02 for the
Birth Date: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Trust and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex
J. Christopher Donahue+*# President or Executive Vice President of the Federated $0 $0 for the
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds Trust and
Federated Investors Tower in the Federated Fund Complex; President, Chief 16 other investment
1001 Liberty Avenue Executive Officer and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President and Trustee, Federated Investment in the Fund Complex
EXECUTVE VICE PRESIDENT and Management Company; President and Trustee, Federated
TRUSTEE Investment Counseling; President and Director, Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
Director or Trustee of the Federated Fund Complex;
Lawrence D. Ellis, M.D.* Professor of Medicine, University of Pittsburgh; Medical $2,455.86 $113,860.22 for the
Birth Date: October 11, 1932 Director, University of Pittsburgh Medical Center -- Trust and
3471 Fifth Avenue Downtown; Hematologist, Oncologist, and Internist, 54 other investment
Suite 1111 University of Pittsburgh Medical Center; Member, companies
Pittsburgh, PA National Board of Trustees, Leukemia Society of America. in the Fund Complex
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund Complex; $2,243.09 $113,860.22 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts Trust and
One Royal Palm Way General Court; President, State Street Bank and Trust 54 other investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The
Boston Stock Exchange.
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund $1,930.14 $0 for the
Birth Date: April 10, 1945 Complex; Management Consultant. Trust and
80 South Road 50 other investment
Westhampton Beach, NY Previous Positions: Chief Executive Officer, PBTC companies
International Bank; Partner, Arthur Young & Company (now in the Fund Complex
TRUSTEE Ernst & Young LLP); Chief Financial Officer of
Retail Banking Sector, Chase Manhattan Bank;
Senior Vice President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $2,642.26 $113,860.22 for the
S.J.D. President, Law Professor, Duquesne University; Trust and
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, Michael 54 other investment
President, Duquesne University Baker Corp. (engineering, construction, operations and companies
Pittsburgh, PA technical services). in the Fund Complex
TRUSTEE
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $2,455.86 $113,860.22 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; television producer; business owner. in the Fund Complex
John S. Walsh Director or Trustee of some of the Federated Fund $1,860.62 $0 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. Trust and
2007 Sherwood Drive (manufacturer of construction temporary heaters); 48 other investment
Valparaiso, IN President and Director, Manufacturers Products, Inc. companies
TRUSTEE (distributor of portable construction heaters); in the Fund Complex
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
Glen R. Johnson. Staff member, Federated Securities Corp. $0 $0 for the
Birth Date: May 2, 1929 Trust and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund Complex
PRESIDENT
Edward C. Gonzalez Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice Trust and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated company
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company and Federated Investment Counseling,
Federated Global Investment Management Corp. and
Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the Federated $0 $0 for the
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and Trust and
Federated Investors Tower Director, Federated Investors, Inc.; Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company and Federated Investment companies
Pittsburgh, PA Counseling; Director, Federated Global Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT and Management Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President $0 $0 for the
Birth Date: June 17, 1954 - Funds Financial Services Division, Federated Trust and
Federated Investors Tower Investors, Inc.; formerly: various management positions 54 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER
Richard B. Fisher President or Vice President of some of the Funds in the $0 $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of Trust and
Federated Investors Tower the Funds in the Federated Fund Complex; Executive Vice 6 other investment
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and companies
Pittsburgh, PA Director, Federated Securities Corp. in the Fund Complex
VICE PRESIDENT
J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 12 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice in the Fund Complex
CHIEF INVESTMENT OFFICER President, Federated Investors, Inc.; formerly:
Executive Vice President and Senior Vice President,
Federated Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.
Thomas M. Franks Vice President of the Trust. Mr. Franks joined Federated $0 $0 for the
Birth Date: December 15, 1954 in 1985 and has been a Senior Portfolio Manager and Vice Trust and
Federated Investors Tower President of the Fund's Manager since 1990. Mr. Franks no other investment
1001 Liberty Avenue is a Chartered Financial Analyst and received his M.S. companies
Pittsburgh, PA in Industrial Administration from Carnegie Mellon in the Fund Complex
PORTFOLIO DIRECTOR AND VICE University.
PRESIDENT
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
and Trustee of the Trust.
INVESTMENT MANAGER
The Manager oversees the Sub-Manager, Northern Trust Quantitative Advisors,
Inc., a subsidiary of Northern Trust Corporation, which conducts investment
research and makes investment decisions for the Fund. The directors of the Sub-
Manager are James M. Snyder, Perry R. Pero, Sheila A. Penrose, John R. Goodwin,
Stephen N. Potter, and Jeffrey H. Wessel. The executive officers of the Sub-
Manager are James M. Snyder, Chief Executive Officer, Jeffrey H. Wessel,
President and John R. Goodwin, Chief Investment Officer.
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. 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 Manager looks for prompt execution of the order at a favorable
price. The Manager 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 Manager 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 Manager 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 Manager
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 Manager or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Manager or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Manager 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 Manager. 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 Manager 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:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the 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 Fund pays the
transfer agent a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended October 31, 1999 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $591,726 $676,597 $695,438
Brokerage Commissions $ 81,712 $ 83,725 $153,319
12b-1 Fee
Class C Shares $ 18,981 -- --
Shareholder Services Fee
Institutional Shares $138,977 -- --
Class C Shares $ 6,327 -- --
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. 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 SEC' standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return. AVERAGE ANNUAL TOTAL RETURNS AND
YIELD Total returns are given for the one-year, five-year and Start of
Performance periods ended October 31, 1999.
Yield is given for the 30-day period ended October 31, 1999.
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years Start of Performance on August 11, 1992
Institutional Shares
<S> <C> <C> <C> <C>
Total Return N/A 12.43% 10.71% 10.97%
Yield 0.63% N/A N/A N/A
30-Day Period 1 Year Start of Performance on November 10, 1997
Class C Shares
Total Return N/A 10.44% (2.40%)
Yield 0.00% N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
. 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 400 Industrial Index
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
indexes assume 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
A broadly based 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 is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 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 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion. Government Funds In the government
sector, as of December 31, 1998, Federated managed 9 mortgage backed, 5
government/agency and 19 government money market mutual funds, with assets
approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 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, 1998, Federated
managed more than $76.7 billion in assets across 52 money market funds,
including 19 government, 9 prime and 23 municipal with assets approximating
$41.6 billion, $22.8 billion and $12.5 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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 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.
Addresses
FEDERATED MINI-CAP FUND
Institutional Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Manager
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Sub-Manager
Northern Trust Quantitative Advisors, Inc.
50 South LaSalle Street
Chicago, IL 60675
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
MANAGEMENT DISCUSSION AND ANALYSIS
Federated Mini-Cap Fund
Annual Report For 12 Months
Ended October 31, 1999
INSTITUTIONAL SHARES
CLASS C SHARES
The fund's total returns for Institutional and Class C Shares for the 12 months
ended October 31, 1999 were 12.43% and 11.44% respectively/1/. The Russell 2000
Index(R) (Index)/2/, the target index, had a total return of 14.87% during the
period. Share class performance varied from the Index due to transaction costs,
administrative expenses, and holdings of stock index futures contracts, which
are held to enhance fund liquidity. It is important to note that transaction
costs for small company stocks are much higher than that for large company
stocks due to illiquidity factors, i.e., there are sometimes very few buyers and
sellers of small company stocks.
During the last 12 months, the U.S. stock market continued its overall strong
climb, interspersed with some periods of weakness. In late 1998 and early 1999,
the market moved upward, but later in the summer and early fall moved lower
temporarily based on fears of inflation, higher interest rates, and lower
economic growth. However, more recent favorable economic data allayed these
concerns and the market rallied as the Federal Reserve moved to a neutral stance
on further increases in short-term interest rates.
Technology and communications stocks have led the market, buoyed by rapid growth
in the Internet and electronic commerce. Large company stocks continue to
outperform stocks of medium and smaller-size companies.
During the last 12 months, the strongest performing industry groups were
technology, utilities, and producer durables; while consumer staples, materials
processing and integrated oil were among the worst performing industry groups in
the Index.
/1/ Performance quoted represents past performance and is no guarantee of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for Class C Shares based on offering
price was 10.44%.
/2/ This index is unmanaged.
INSTITUTIONAL SHARES
Growth of $25,000 Invested in Federated Mini-Cap Fund
[Please see Appendix A5]
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended
October 31, 1999
<S> <C>
- -----------------------------------------------------------------------
1 Year 12.43%
- -----------------------------------------------------------------------
5 Years 10.71%
- -----------------------------------------------------------------------
Start of Performance (8/11/92) 10.97%
- -----------------------------------------------------------------------
</TABLE>
The graph above illustrates the hypothetical investment of $25,000/1/ in the
Federated Mini-Cap Fund (the "Fund") from August 11, 1992 (start of performance)
to October 31, 1999 compared to the Russell 2000 Index(R) (RUS2)./2/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and together with financial statements contained therein,
constitute the Fund's annual report.
/1/ The Fund's performance assumes the reinvestment of all dividends and
distributions. The RUS2 has been adjusted to reflect reinvestment of
dividends on securities in the index.
/2/ The Russell 2000 Index(R) is not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. This index is unmanaged.
CLASS C SHARES
Growth of $10,000 Invested in Federated Mini-Cap Fund
[Please see Appendix A6]
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended
October 31, 19991
<S> <C>
- ---------------------------------------------------------------------
1 Year 10.44%
- ---------------------------------------------------------------------
Start of Performance (11/10/97) (2.40%)
- ---------------------------------------------------------------------
</TABLE>
The graph above illustrates the hypothetical investment of $10,000/2/ in the
Federated Mini-Cap Fund (the "Fund") from November 10, 1997 (start of
performance) to October 31, 1999 compared to the Russell 2000 Index(R)
(RUS2)./3/
Past performance is no guarantee of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1999, and, together with financial statements contained therein,
constitute the Fund's annual report.
/1/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
/2/ Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less
than one year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The RUS2 has been adjusted
to reflect reinvestment of dividends on securities in the index.
/3/ The Russell 2000 Index(R) is not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. This index is unmanaged.
[Federated Logo]
WORLD-CLASS INVESTMENT MANAGER(SM)
Federated Mini-Cap Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-6061
Cusip 31420E304
Cusip 31420E601
006683 (12/99)
APPENDIX
A1 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Shares of
Federated Mid-Cap Fund are represented by a solid line. The Standard & Poor's
400 Index (the "S&P 400") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a $25,000
hypothetical investment in the Shares of the Fund and the S&P 500. The "x" axis
reflects computation periods from 11/5/92 to 10/31/99. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Shares, compared to the S&P 400. The
ending values were $69,849 and $75,401, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the Fund's Shares Average Annual
Total Returns for the one-year and five-year periods ended 10/31/99 and from the
Fund's start of performance (11/5/92) to 10/31/99. The total returns were
20.23%, 18.44%, and 15.84%, respectively.
A2 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Shares of Federated Max-Cap Fund are represented by a solid line.
The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line.
The line graph is a visual representation of a comparison of change in value of
a $25,000 hypothetical investment in the Shares of the Fund and the S&P 500. The
"x" axis reflects computation periods from 7/11/90 to 10/31/99. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund's Institutional Shares, compared to
the S&P 500. The ending values were $116,774 and $119,916, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the Fund's
Institutional Shares Average Annual Total Returns for the one-year and five-year
periods ended 10/31/99 and from the Fund's start of performance (7/11/90) to
10/31/99. The total returns were 25.11%, 25.53%, and 18.01%, respectively.
A3 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Service Shares of Federated Max-Cap Fund are represented by a
solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a
dotted line. The line graph is a visual representation of a comparison of change
in value of a $25,000 hypothetical investment in the Shares of the Fund and the
S&P 500. The "x" axis reflects computation periods from 9/7/93 to 10/31/99. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Institutional Service
Shares, compared to the S&P 500. The ending values were $80,625 and $84,391,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Institutional Service Shares Average Annual Total Returns
for the one-year and five-year periods ended 10/31/99 and from the Fund's start
of performance (9/7/93) to 10/31/99. The total returns were 24.76%, 25.15%, and
20.97%, respectively.
A4 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Max-Cap Fund are represented by a solid line. The Standard &
Poor's 500 Index (the "S&P 500") is represented by a dotted line. The line graph
is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Shares of the Fund and the S&P 500. The "x" axis
reflects computation periods from 11/10/97 to 10/31/99. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class C Shares, compared to the S&P 500.
The ending values were $14,820 and $15,320, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class C Shares
Average Annual Total Returns for the one-year period ended 10/31/99 and from the
Fund's start of performance (11/10/97) to 10/31/99. The total returns were
22.94% and 22.04%, respectively.
A5 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Shares of Federated Mini-Cap Fund are represented by a solid line.
The Russell 2000 Index (the RUS2") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a $25,000
hypothetical investment in the Shares of the Fund and the RUS2. The "x" axis
reflects computation periods from 8/11/92 to 10/31/99. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Institutional Shares, compared to the
RUS2. The ending values were $53,026 and $61,112, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the Fund's
Institutional Shares Average Annual Total Returns for the one-year, five-year
periods ended 10/31/99 and from the Fund's start of performance (8/11/92) to
10/31/99. The total returns were 12.43%, 10.71% and 10.97%, respectively.
A6 The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Mini-Cap Fund are represented by a solid line. The Russell
2000 Index (the RUS2") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Shares of the Fund and the RUS2. The "x" axis
reflects computation periods from 11/10/97 to 10/31/99. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class C Shares, compared to the RUS2. The
ending values were $9,531 and $10,120, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the Fund's Class C Shares Average
Annual Total Returns for the one-year period ended 10/31/99 and from the Fund's
start of performance (11/10/97) to 10/31/99. The total returns were 10.44% and
(2.40)%, respectively.