1933 Act File No. 33-52149
1940 Act File No. 811-7141
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 4 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 .......................... X
WORLD INVESTMENT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
X 75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on January 13, 1995; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of World Investment
Series, Inc., which is comprised of six portfolios: (1) World Utility Fund
consisting of four classes of shares (a) Class A Shares, (b) Fortress
Shares, (c) Class B Shares, and (d) Class C Shares; (2) Federated Asia
Pacific Growth Fund consisting of three classes of shares (a) Class A
Shares, (b) Class B Shares, and (c) Class C Shares; (3) Federated Emerging
Markets Fund consisting of three classes of shares (a) Class A Shares, (b)
Class B Shares, and (c) Class C Shares; (4) Federated European Growth Fund
consisting of three classes of shares (a) Class A Shares, (b) Class B
Shares, and (c) Class C Shares; (5) Federated International Small Company
Fund consisting of three classes of shares (a) Class A Shares, (b) Class B
Shares, and (c) Class C Shares; and (6) Federated Latin American Growth
Fund consisting of three classes of shares (a) Class A Shares, (b) Class B
Shares, and (c) Class C Shares relates to only five of its portfolios,
Federated Asia Pacific Growth Fund, Federated Emerging Markets Fund,
Federated European Growth Fund, Federated International Small Company Fund
and Federated Latin American Growth Fund, and is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)Cover
Page.
Item 2. Synopsis.................(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c) Summary
of Fund Expenses.
Item 3. Condensed Financial
Information .............(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c)
Performance Information; (1a, 1b)
Financial Highlights.
Item 4. General Description
of Registrant ..........(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c)
Synopsis; (1a-d, 2a-c,3a-c,4a-c,
5a-c,6a-c) Liberty Family of Funds;
(1b) Fortress Investment Program; (1a-d,
2a-c,3a-c,4a-c,5a-c,6a-c) Investment
Information; (1a-d, 2a-c,3a-c,4a-c,5a-
c,6a-c) Investment Objective; (1a-d, 2a-
c,3a-c,4a-c,
5a-c,6a-c) Investment Policies; (1a-d)
Risk Factors and Investment
Considerations; (1a-d) Other Investment
Practices; (1a-d,2a-c,
3a-c,4a-c,5a-c,6a-c) Investment
Limitations.
Item 5. Management of the Fund...(1b) World Investment Series, Inc.
Information; (1a,1c,1d) Fund
Information; (2a-c,3a-c,4a-c,
5a-c,6a-c) Corporation Information; (1b,
2a-c,3a-c,4a-c,5a-c,6a-c) Management of
the Corporation; (1a,1c,1d) Management
of the Fund; (1a,1c,1d, 2a-c,3a-c,4a-
c,5a-c,6a-c) Distribution of Shares;
(1b) Distribution of Fortress Shares;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Administration of the Fund; (1b)
Expenses of the Fund and Fortress
Shares; (1a,1c,1d) Expenses of the
Corporation and Shares; (2a-c,3a-c,4a-
c,5a-c,6a-c) Expenses of the Fund and
Class A Shares, Class B Shares, and
Class C Shares; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c) Brokerage Transactions.
Item 6. Capital Stock and
Other Securities .......(1a-d) Dividends and Distributions ;
(2a-c,3a-c,4a-c,5a-c,6a-c) Account and
Share Information; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c) Shareholder Information;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Voting
Rights; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Tax Information; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c) Federal Income Tax; (1a-
d,2a-c,3a-c,4a-c,5a-c,6a-c) Pennsylvania
Personal Property Taxes;
(1b,2a,3a,4a,5a,6a) Other Classes of
Shares.
Item 7. Purchase of Securities Being
Offered .................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Net
Asset Value; (1a,1c,1d, 2a-c,3a-c,4a-
c,5a-c,6a-c) Investing in the Fund;
(1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-c) How
To Purchase Shares; (1a,2a,3a,4a,5a,6a)
Investing in Class A Shares; (1b)
Investing in Fortress Shares;
(1c,2b,3b,4b,5b,6b) Investing in Class B
Shares; (1d,2c,3c,4c,5c,6c) Investing in
Class C Shares; (1b) Share Purchases;
(1b) Minimum Investment Required; (1b)
What Shares Cost; (1b) Eliminating the
Sales Load; (1b) Systematic Investment
Program; (1b) Exchanging Securities for
Fund Shares; (1b) Certificates and
Confirmations; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c) Exchange Privilege.
Item 8. Redemption or Repurchase.(1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-c) How
To Redeem Shares; (1b) Redeeming
Fortress Shares; (1b) Through a
Financial Institution; (1b) Directly by
Mail; (1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-
c) Special Redemption Features; (1a-
d,2a-c,3a-c,4a-c,5a-c,6a-c) Contingent
Deferred Sales Charge; (1a-d,2a-c,3a-
c,4a-c,5a-c,6a-c) Elimination of
Contingent Deferred Sales Charge; (1b)
Systematic Withdrawal Program; (1b)
Accounts With Low Balances.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Cover
Page.
Item 11. Table of Contents........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Table of
Contents.
Item 12. General Information
and History..............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) General
Information About the Fund; (1a-d,2a-
c,3a-c,4a-c,5a-c,6a-c) About Federated
Investors.
Item 13. Investment Objectives
and Policies.............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Investment Objective and Policies.
Item 14. Management of the Corporation.(1b) See Part A - Management of the
Corporation/Management of the Fund;
(1a,1c,1d,2a-c,3a-c,4a-c,5a-c,6a-c)
World Investment Series, Inc.
Management.
Item 15. Control Persons and Principal
Holders of Securities....(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Fund
Ownership.
Item 16. Investment Advisory and Other
Services.................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Investment Advisory Services; (1a-d,2a-
c,3a-c,4a-c,5a-c,6a-c) Administrative
Services; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-
c) Transfer Agent and Dividend
Disbursing Agent.
Item 17. Brokerage Allocation.....(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption
and Pricing of Securities
Being Offered............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Purchasing Shares; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c) Determining Net Asset
Value; (1b) Exchange Privilege; (1a-
d,2a-c,3a-c,4a-c,5a-c,6a-c) Redeeming
Shares.
Item 20. Tax Status...............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Tax
Status.
Item 21. Underwriters.............(1b-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Distribution Plan and Shareholder
Services Agreement).
Item 22. Calculation of
Performance Data.........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c) Total
Return; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Yield; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Performance Comparisons; (1a-d,2a-c,3a-
c,4a-c,5a-c,6a-c) Appendix.
Item 23. Financial Statements.....(1a,1c,1d) Filed in Part B. (1b) Filed
in Part A.
FEDERATED ASIA PACIFIC GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated Asia Pacific Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information dated
February 13, 1996, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information, which is in paper form only, or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling 1-800-235-4669. To obtain other information or to make inquiries
about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be generated
when document is complete.
SUMMARY OF FUND EXPENSES
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee (3).............................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1) Class A Shares purchased with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class A Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending November 30, 1996. If Class A
Shares were paying or accruing the 12b-1 fee, Class A Shares would be
able to pay up to 0.25% of its average daily net assets for the 12b-1
fee. See "Corporation Information."
(4) The Total Class A Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be subject
to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class A Shares' fiscal year ending
November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee.................................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class B Shares Operating Expenses (3) (4).. %
(1) The contingent deferred sales charge is 5.50% in the first year
declining to 1.00% in the sixth year and 0.00% thereafter. (See
"Contingent Deferred Sales Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4) The Total Class B Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Class B Shares will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Investing in Class B Shares" and "Corporation Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class B Shares' fiscal year ending
November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee.................................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class C Shares Operating Expenses (3)...... %
(1) The contingent deferred sales charge assessed is 1.00% of the lesser
of the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) The Total Class C Shares Operating Expenses are estimated to be %
-----
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Class C Shares will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Investing in Class C Shares" and "Corporation Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class C Shares' fiscal year ending
November 30, 1996.
SYNOPSIS
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking long-
term growth of capital by investing primarily in equity securities of Asian and
Pacific Rim companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. Acontingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in non-U.S. issuers, entering
into repurchase agreements, investing in when-issued securities, lending
portfolio securities, and entering into futures contracts and related options.
These risks are described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital. Any income received from
the portfolio is incidental. The investment objective of the Fund cannot be
changed without the approval of the shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in equity
securities of Asian and Pacific Rim companies. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities of
companies located in Asia and the Pacific Rim. The Fund may invest in
securities of issuers located in any country in Asia or the Pacific Rim where
the Adviser believes there is potential for above-average capital appreciation.
Such countries may include, but are not limited to: Australia, China, Hong
Kong, Indonesia, Japan, South Korea, Malaysia, New Zealand, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, and Thailand and those countries
comprising the Indian sub-continent. The Fund may invest in other countries in
Asia and the Pacific Rim when their markets become sufficiently developed, in
the opinion of the Adviser. The Fund intends to allocate its investments among
at least three countries at all times and does not expect to concentrate
investments in any particular industry.
Asian and Pacific Rim companies are defined as (i) those organized under the
laws of, or with a principal office located in, an Asian or Pacific Rim country
or (ii) those for which the principal securities trading market is in Asia or
the Pacific Rim or (iii) those, wherever organized or traded, which derived
(directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit in their most current fiscal
year from goods produced, services performed, or sales made in Asia or the
Pacific Rim.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Directors (the "Directors") without the approval of the
shareholders of the Fund. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics as
well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in its
claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate
in company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential.
In selecting securities, the Adviser typically evaluates industry trends, a
company's financial strength, its competitive position in domestic and export
markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
securities representing underlying international securities such as American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global
Depositary Certificates ("GDCs"), and International Depositary Receipts ("IDRs")
or securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), GDRs,
GDCs, and IDRs are typically issued by foreign banks or trust companies,
although they also may be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, and IDRs are
collectively known as "Depositary Receipts." Depositary Receipts may be
available for investment through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the receipt's
underlying security. Holders of an unsponsored Depositary Receipt generally
bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through to the holders of the receipts voting rights with respect to the
deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund may
invest up to 35% of its total assets in debt securities. Capital appreciation
in debt securities may arise as a result of favorable changes in the
creditworthiness of issuers, relative interest rate levels, or relative foreign
exchange rates. Any income received from debt securities is incidental to the
Fund's objective of long-term growth of capital. These debt obligations consist
of U.S. and foreign government securities and corporate debt securities,
including, but not limited to, Samurai and Yankee bonds, Eurobonds and
depositary receipts. The issuers of such debt securities may or may not be
domiciled in Asia or the Pacific Rim.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or Ba or lower by Moody's Investors Service,
Inc. ("Moody's"), or, if unrated, are of comparable quality as determined by the
Adviser. The prices of fixed income securities generally fluctuate inversely to
the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of purchase, BB
or lower by S&P or Fitch or Ba or lower by Moody's, or, if unrated, are of
comparable quality as determined by the Adviser.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the Adviser evaluates the investment characteristics of
the convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain Asian or
Pacific Rim markets, investments in other investment companies may be the most
practical or only manner in which the Fund can participate in the securities
markets of certain countries in Asia and the Pacific Rim. The Fund may also
invest in other investment companies for the purpose of investing its short-term
cash on a temporary basis. The Fund may invest up to 10% of its total assets in
the securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by such
companies, in addition to the fees and expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Directors to be liquid, over-the counter options, swap agreements not determined
to be liquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer) to
repurchase the security at an agreed-upon price and specified future date. The
repurchase price reflects an agreed-upon interest rate for the time period of
the agreement. The Fund's risk is the inability of the seller to pay the
agreed-upon price on the delivery date. However, this risk is tempered by the
ability of the Fund to sell the security in the open market in the case of a
default. In such a case, the Fund may incur costs in disposing of the security
which would increase Fund expenses. The Adviser will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for different times in the future. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Directors
and will receive collateral in the form of cash or U.S. government securities
equal to at least 100% of the value of the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant (up to 100% of total assets) and to maintain liquidity (up to
20% of total assets), the Fund may invest in U.S. and foreign debt instruments
as well as cash or cash equivalents, including foreign and domestic money market
instruments, short-term government and corporate obligations, and repurchase
agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot (i.e., cash) basis at prevailing rates or through
forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. Cross-
hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year. The Fund will generally enter into a forward
contract to provide the proper currency to settle a securities transaction at
the time the transaction occurs ("trade date"). The period between trade date
and settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in
a particular currency in an amount in excess of the value of the Fund's assets
denominated in that currency at the time the contract was initiated, but as
consistent with their other investment policies and as not otherwise limited in
their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded over-the-
counter. The Fund may use options to manage interest rate and currency risks.
The Fund may also write covered call options and secured put options to generate
income or lock in gains. The Fund may write covered call options and secured
put options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of the fair market value of its net assets may be
invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is
paid in advance by the dealer. OTC options, which may not be continuously
liquid, are available for a greater variety of assets, and with a wider range of
expiration dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide hedging
purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits exclusive of the margin needed for foreign currency
hedging, on the Fund's futures and related options positions would not exceed 5%
of the net liquidation value of the Fund's assets, provided further that in the
case of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. In addition, the
Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodities
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
("SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant
market advance, it may enter into futures contracts to purchase the index in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In many of
these transactions, the Fund will purchase such securities upon termination of
the futures position but, depending on market conditions, a futures position may
be terminated without the corresponding purchases of common stock. The Fund may
also invest in securities index futures contracts when the Adviser believes such
investment is more efficient, liquid, or cost-effective than investing directly
in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the Adviser believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the Adviser's ability to predict pertinent market movements; (2) there
might be imperfect correlation, or even no correlation, between the change in
market value of the securities held by the Fund and the prices of the futures
and options thereon relating to the securities purchased or sold by the Fund.
The use of futures and related options may reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements but they
can also reduce the opportunity for gain by offsetting the positive effect of
favorable price movements in positions. No assurance can be given that the
Adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the Fund
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses
if it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries
which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign issuers;
credit risks associated with certain foreign governments;
the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
less readily available market quotations on foreign issues;
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
the likelihood that securities of foreign issuers may be less liquid or
more volatile;
foreign brokerage commissions may be higher;
unreliable mail service between countries;
political or financial changes which adversely affect investments in some
countries;
increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
certain markets may require payment for securities before delivery;
religious and ethnic instability; and
certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them.
INVESTING IN ASIA AND THE PACIFIC RIM
The Fund is susceptible to political and economic factors affecting issuers in
Asian and Pacific Rim countries. Many of the countries of Asia and the Pacific
Rim are developing both economically and politically. Asian and Pacific Rim
countries may have relatively unstable governments, economies based on only a
few commodities or industries, and securities markets trading infrequently or in
low volumes. Some Asian and Pacific Rim countries restrict the extent to which
foreigners may invest in their securities markets. Securities of issuers
located in some Asian and Pacific Rim countries tend to have volatile prices and
may offer significant potential for loss as well as gain. Further, certain
companies in Asia and the Pacific Rim may not have firmly established product
markets, may lack depth of management, or may be more vulnerable to political or
economic developments such as nationalization of their own industries.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for Moody's), but
are in the lower rating categories or are unrated, but are of comparable quality
and have speculative characteristics or are speculative. Lower-rated bonds or
unrated bonds are commonly referred to as "junk bonds." There is no minimal
acceptable rating for a security to be purchased or held in the Fund's
portfolio, and the Fund may, from time to time, purchase or hold debt securities
rated in the lowest rating category. A description of the rating categories is
contained in the Appendix to the Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value 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.
The net asset value of each class of Shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies"). Certain
purchases of Class A Shares are not subject to a sales load. See "Investing in
Class A Shares." Certain purchases of Class A Shares qualify for reduced sales
loads. See "Reducing or Eliminating the Sales Load." Class A Shares have no
conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by the institution.
Additionally, no sales load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales load retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the investor
pays no sales load; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales load. Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
of the reinvestment in order to eliminate a sales load. If the shareholder
redeems his Class A Shares in the Fund, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and may no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and distributions paid on
Class B Shares will be considered to be held in a separate sub-account. Each
time any Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge, see "Contingent Deferred Sales Charge--Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attn: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other Federated Funds (as
defined in the "Synopsis" of this prospectus) which are sold with a sales load
different from that of the Fund's or with no sales load, and which are advised
by subsidiaries or affiliates of Federated Investors. These exchanges are made
at net asset value plus the difference between the Fund's sales load already
paid and any sales load of the Federated Fund into which the Shares are to be
exchanged, if higher. Neither the Fund nor any of the funds in the Liberty
Family of Funds imposes any additional fees on exchanges. Shareholders in
certain other Federated Funds may exchange their shares in the Federated Funds
for Class A Shares.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds.) Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period. For more information, see "Contingent
Deferred Sales Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other Class C Shares in the Liberty Family of Funds.) To the
extent that a shareholder exchanges Shares for Class C Shares in other funds in
the Liberty Family of Funds, the time for which the exchanged-for Shares are to
be held will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the applicable holding period. For more information, see
"Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds (where applicable) may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Services Company, 500 Victory Road--2nd Floor, North Quincy,
Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company, a
member firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales load, it is not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
less than six years with respect to Class B Shares and less than one full year
from the date of purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund Shares for shares of other funds
in the Liberty Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for Shares
are redeemed is calculated as if the shareholder had held the shares from the
date on which he became a shareholder of the exchanged-from Shares. Moreover,
the contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Elimination of Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that year's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.10% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by other mutual funds with similar objectives and policies. Under the investment
advisory contract, which provides for the voluntary waiver of the advisory fee
by the Adviser, the Adviser may voluntarily waive some or all of its fee. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The Adviser
can terminate this voluntary waiver at any time in its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the Trustees of which are
John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $72 billion invested across more than
260 funds under management and/or administration by its subsidiaries, as of
December 31, 1994, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Henry A. Frantzen has been the Fund's portfolio manager since its inception.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from 1992 to
1995. He was the Executive Vice President and Director of Equities at
Oppenheimer Management Corporation from 1989 to 1991. Mr. Frantzen received his
B.S. in finance and marketing from the University of North Dakota.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Mark S. Kopinski has been the Fund's portfolio manager since its inception. Mr.
Kopinski joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Kopinski served as Vice President/Portfolio Manager of
international equity funds at Twentieth Century Mutual Funds from 1990 to 1995.
Mr. Kopinski received his M.A. in Asian Studies from the University of Illinois.
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received his
M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to .25 of 1% for Class A Shares and up to .75
of 1% for Class B Shares and Class C Shares of the average daily net assets of
each class of Shares to finance any activity which is principally intended to
result in the sale of Shares subject to the Distribution Plan. The Fund does not
currently make payments to the distributor or charge a fee under the
Distribution Plan for Class A Shares, and shareholders of Class A Shares will be
notified if the Fund intends to charge a fee under the Distribution Plan. For
Class A Shares and Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75 of 1% of Class B Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Directors will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under certain
qualified retirement plans as approved by Federated Securities Corp. (Such
payments are subject to a reclaim from the financial institution should the
assets leave the program within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts 02266-
8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.
The Corporation expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited to:
the cost of organizing the Corporation and continuing its existence; registering
the Corporation with federal and state securities authorities; Directors' fees;
auditors' fees; the cost of meetings of Directors; legal fees of the
Corporation; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to:
registering the portfolio and Class A Shares, Class B Shares, and Class C Shares
of the portfolio; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Corporation's Distribution Plan and fees for Shareholder Services. However, the
Directors reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares and Class C Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, and Class C Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
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 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. Furthermore,
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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
FEDERATED ASIA PACIFIC GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
An Open-End, Diversified
Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Cusip #s
---------
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED ASIA PACIFIC GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
The Class A Shares of Federated Asia Pacific Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies.
THE CLASS A 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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated February 13, 1996, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information, which is in paper form only, or a paper copy of this prospectus, if
you have received your prospectus electronically, free of charge by calling 1-
800-235-4669. To obtain other information or to make inquiries about the Fund,
contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be generated
when document is complete.
SUMMARY OF FUND EXPENSES
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee (3).............................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1) Class A Shares purchased with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class A Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending November 30, 1996. If Class A
Shares were paying or accruing the 12b-1 fee, Class A Shares would be
able to pay up to 0.25% of its average daily net assets for the 12b-1
fee. See "Corporation Information."
(4) The Total Class A Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "What Shares Cost" and "Corporation Information." Wire-
transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class A Shares' fiscal year ending
November 30, 1996.
GENERAL INFORMATION
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares. This
prospectus relates only to the Class A Shares (the "Shares") of the Fund.
Shares of the Fund are designed for individuals and institutions seeking long-
term growth of capital by investing primarily in equity securities of Asian and
Pacific Rim companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500.
However, the minimum initial investment for a retirement account is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in non-U.S. issuers, entering
into repurchase agreements, investing in when-issued securities, lending
portfolio securities, and entering into futures contracts and related options.
These risks are described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital. Any income received from
the portfolio is incidental. The investment objective of the Fund cannot be
changed without the approval of the shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in equity
securities of Asian and Pacific Rim companies. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities of
companies located in Asia and the Pacific Rim. The Fund may invest in
securities of issuers located in any country in Asia or the Pacific Rim where
the investment adviser believes there is potential for above-average capital
appreciation. Such countries may include, but are not limited to: Australia,
China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, New Zealand,
Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan, and Thailand and those
countries comprising the Indian sub-continent. The Fund may invest in other
countries in Asia and the Pacific Rim when their markets become sufficiently
developed, in the opinion of the investment adviser. The Fund intends to
allocate its investments among at least three countries at all times and does
not expect to concentrate investments in any particular industry.
Asian and Pacific Rim companies are defined as (i) those organized under the
laws of, or with a principal office located in, an Asian or Pacific Rim country
or (ii) those for which the principal securities trading market is in Asia or
the Pacific Rim or (iii) those, wherever organized or traded, which derived
(directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit in their most current fiscal
year from goods produced, services performed, or sales made in Asia or the
Pacific Rim.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Directors (the "Directors") without the approval of the
shareholders of the Fund. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics as
well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in its
claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate
in company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
securities representing underlying international securities such as American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global
Depositary Certificates ("GDCs"), and International Depositary Receipts ("IDRs")
or securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), GDRs,
GDCs, and IDRs are typically issued by foreign banks or trust companies,
although they also may be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, and IDRs are
collectively known as "Depositary Receipts." Depositary Receipts may be
available for investment through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the security
underlying the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the receipt's
underlying security. Holders of an unsponsored Depositary Receipt generally
bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through to the holders of the receipts voting rights with respect to the
deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund may
invest up to 35% of its total assets in debt securities. Capital appreciation
in debt securities may arise as a result of favorable changes in the
creditworthiness of issuers, relative interest rate levels, or relative foreign
exchange rates. Any income received from debt securities is incidental to the
Fund's objective of long-term growth of capital. These debt obligations consist
of U.S. and foreign government securities and corporate debt securities,
including, but not limited to, Samurai and Yankee bonds, Eurobonds and
depositary receipts. The issuers of such debt securities may or may not be
domiciled in Asia or the Pacific Rim.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or Ba or lower by Moody's Investors Service,
Inc. ("Moody's"), or, if unrated, are of comparable quality as determined by the
investment adviser. The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of purchase, BB
or lower by S&P or Fitch or Ba or lower by Moody's, or, if unrated, are of
comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the investment adviser evaluates the investment
characteristics of the convertible security as a fixed income investment, and
the investment potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain Asian or
Pacific Rim markets, investments in other investment companies may be the most
practical or only manner in which the Fund can participate in the securities
markets of certain countries in Asia and the Pacific Rim. The Fund may also
invest in other investment companies for the purpose of investing its short-term
cash on a temporary basis. The Fund may invest up to 10% of its total assets in
the securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by such
companies, in addition to the fees and expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Directors to be liquid, over-the counter options, swap agreements not determined
to be liquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer) to
repurchase the security at an agreed-upon price and specified future date. The
repurchase price reflects an agreed-upon interest rate for the time period of
the agreement. The Fund's risk is the inability of the seller to pay the
agreed-upon price on the delivery date. However, this risk is tempered by the
ability of the Fund to sell the security in the open market in the case of a
default. In such a case, the Fund may incur costs in disposing of the security
which would increase Fund expenses. The investment adviser will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for different times in the future. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Directors and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines that
market conditions warrant (up to 100% of total assets) and to maintain liquidity
(up to 20% of total assets), the Fund may invest in U.S. and foreign debt
instruments as well as cash or cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot (i.e., cash) basis at prevailing rates or through
forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. Cross-
hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year. The Fund will generally enter into a forward
contract to provide the proper currency to settle a securities transaction at
the time the transaction occurs ("trade date"). The period between trade date
and settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the
investment adviser will consider the likelihood of changes in currency values
when making investment decisions, the investment adviser believes that it is
important to be able to enter into forward contracts when it believes the
interests of the Fund will be served. The Fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in excess
of the value of the Fund's assets denominated in that currency at the time the
contract was initiated, but as consistent with their other investment policies
and as not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded over-the-
counter. The Fund may use options to manage interest rate and currency risks.
The Fund may also write covered call options and secured put options to generate
income or lock in gains. The Fund may write covered call options and secured
put options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of the fair market value of its net assets may be
invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is
paid in advance by the dealer. OTC options, which may not be continuously
liquid, are available for a greater variety of assets, and with a wider range of
expiration dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide hedging
purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits exclusive of the margin needed for foreign currency
hedging, on the Fund's futures and related options positions would not exceed 5%
of the net liquidation value of the Fund's assets, provided further that in the
case of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. In addition, the
Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodities
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
("SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant
market advance, it may enter into futures contracts to purchase the index in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In many of
these transactions, the Fund will purchase such securities upon termination of
the futures position but, depending on market conditions, a futures position may
be terminated without the corresponding purchases of common stock. The Fund may
also invest in securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid, or cost-effective than
investing directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the Fund
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses
if it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries
which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign issuers;
credit risks associated with certain foreign governments;
the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
less readily available market quotations on foreign issues;
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
the likelihood that securities of foreign issuers may be less liquid or
more volatile;
foreign brokerage commissions may be higher;
unreliable mail service between countries;
political or financial changes which adversely affect investments in some
countries;
increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
certain markets may require payment for securities before delivery;
religious and ethnic instability; and
certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them.
INVESTING IN ASIA AND THE PACIFIC RIM
The Fund is susceptible to political and economic factors affecting issuers in
Asian and Pacific Rim countries. Many of the countries of Asia and the Pacific
Rim are developing both economically and politically. Asian and Pacific Rim
countries may have relatively unstable governments, economies based on only a
few commodities or industries, and securities markets trading infrequently or in
low volumes. Some Asian and Pacific Rim countries restrict the extent to which
foreigners may invest in their securities markets. Securities of issuers
located in some Asian and Pacific Rim countries tend to have volatile prices and
may offer significant potential for loss as well as gain. Further, certain
companies in Asia and the Pacific Rim may not have firmly established product
markets, may lack depth of management, or may be more vulnerable to political or
economic developments such as nationalization of their own industries.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for Moody's), but
are in the lower rating categories or are unrated, but are of comparable quality
and have speculative characteristics or are speculative. Lower-rated bonds or
unrated bonds are commonly referred to as "junk bonds." There is no minimal
acceptable rating for a security to be purchased or held in the Fund's
portfolio, and the Fund may, from time to time, purchase or hold debt securities
rated in the lowest rating category. A description of the rating categories is
contained in the Appendix to the Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Class A Shares in the market value of
all securities and other assets of the Fund, subtracting the interest of Class A
Shares in the liabilities of the Fund and those attributable to Class A Shares,
and dividing the remainder by the total number of Class A Shares outstanding.
The net asset value for Class A Shares may differ from that of Class B Shares
and Class C Shares 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.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; or (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500. Additional investments can be made
for as little as $100. The minimum initial and subsequent investment for
retirement plans is only $50. (Financial institutions may impose different
minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Shares purchased through bank trust departments,
investment advisers registered under the Investment Advisers Act of 1940, as
amended, or retirement plans where the third party administrator has entered
into certain arrangements with Federated Securities Corp. or its affiliates, or
to shareholders designated as Liberty Life Members. However, investors who
purchase Shares through a trust department, investment adviser, or retirement
plan may be charged an additional service fee by the institution. Additionally,
no sales load is imposed for Shares purchased through "wrap accounts" or similar
programs, under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the applicable
sales load. Any portion of the sales load which is not paid to a dealer will be
retained by the distributor. However, the distributor may offer to pay dealers
up to 100% of the sales load retained by it. Such payments may take the form of
cash or promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. In some instances, these incentives will be made available only
to dealers whose employees have sold or may sell a significant amount of Shares.
On purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling 0.25%
of the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Shares made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it calculates
the sales load. In addition, the sales load, if applicable, is reduced for
purchases made at one time by a trustee or fiduciary for a single trust estate
or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $30,000 and he
purchases $20,000 more at the current public offering price, the sales load on
the additional purchase according to the schedule now in effect would be 4.50%,
not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will reduce the sales load after it confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Shares of any fund in the
Liberty Family of Funds, excluding money market accounts, will be aggregated to
provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the privilege,
within 120 days, to reinvest the redemption proceeds at the next-determined net
asset value without any sales load. Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales load. If the shareholder redeems his
Shares in the Fund, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Shares at net asset value, without a sales load, with the
proceeds from the redemption of shares of an unaffiliated investment company
that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attn: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other funds for which
affiliates of Federated Investors serve as investment adviser or principal
underwriter ("Federated Funds") which are sold with a sales load different from
that of the Fund's or with no sales load, and which are advised by subsidiaries
or affiliates of Federated Investors. These exchanges are made at net asset
value plus the difference between the Fund's sales load already paid and any
sales load of the Federated Fund into which the Shares are to be exchanged, if
higher. Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class A
Shares.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company, a
member firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Shares are sold with a sales
load, it is not advisable for shareholders to continue to purchase Shares while
participating in this program.
CONTINGENT DEFERRED SALES CHARGE
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than one
full year from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than one full year from the
date of purchase; (3) Shares held for less than one full year from the date of
purchase on a first-in, first-out basis. A contingent deferred sales charge is
not assessed in connection with an exchange of Fund Shares for shares of other
funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had held
the shares from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated with
respect to certain redemptions (see "Elimination of Contingent Deferred Sales
Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that year's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of Shares.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's investment adviser,
Federated Global Research Corp. (the "Adviser"), subject to direction by the
Directors. The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund. The Adviser's
address is 175 Water Street, New York, New York 10038-4965.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.10% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by other mutual funds with similar objectives and policies. Under the investment
advisory contract, which provides for the voluntary waiver of the advisory fee
by the Adviser, the Adviser may voluntarily waive some or all of its fee. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The Adviser
can terminate this voluntary waiver at any time in its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the Trustees of which are
John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $72 billion invested across more than
260 funds under management and/or administration by its subsidiaries, as of
December 31, 1994, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Henry A. Frantzen has been the Fund's portfolio manager since its inception.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from 1992 to
1995. He was the Executive Vice President and Director of Equities at
Oppenheimer Management Corporation from 1989 to 1991. Mr. Frantzen received his
B.S. in finance and marketing from the University of North Dakota.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Mark S. Kopinski has been the Fund's portfolio manager since its inception. Mr.
Kopinski joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Kopinski served as Vice President/Portfolio Manager of
international equity funds at Twentieth Century Mutual Funds from 1990 to 1995.
Mr. Kopinski received his M.A. in Asian Studies from the University of Illinois.
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received his
M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to .25 of 1% of the average daily net assets of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The Fund does not currently
make payments to the distributor or charge a fee under the Distribution Plan for
Shares, and shareholders will be notified if the Fund intends to charge a fee
under the Distribution Plan. For Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Shares to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform Shareholder Services directly or will select financial institutions to
perform Shareholder Services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Directors will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under certain qualified retirement plans
as approved by Federated Securities Corp. (Such payments are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts 02266-
8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Corporation and portfolio
expenses.
The Corporation expenses for which holders of Class A Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Corporation
and continuing its existence; registering the Corporation with federal and state
securities authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares pay their allocable
portion include, but are not limited to: registering the portfolio and Class A
Shares of the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A Shares
as a class are expenses under the Corporation's Distribution Plan and fees for
Shareholder Services. However, the Directors reserve the right to allocate
certain other expenses to holders of Class A Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares; printing and postage expenses related
to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Class A Shares; legal fees relating solely to Class A Shares; and Directors'
fees incurred as a result of issues related solely to Class A Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
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 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. Furthermore,
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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class A
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class A Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per share of
each class on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Class A Shares and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares.
From time to time, advertisements for Class A Shares of the Fund may refer to
ratings, rankings, and other information in certain financial publications
and/or compare the performance of Class A Shares to certain indices.
OTHER CLASSES OF SHARES
As of the date of this prospectus, the Fund also offers two other classes of
shares called Class B Shares and Class C Shares. This prospectus relates only to
Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund has
also adopted a Distribution Plan whereby the distributor is paid a fee of up to
.75 of 1% and a Shareholder Services fee of up to .25 of 1% of the Class B
Shares' average daily net assets with respect to Class B Shares. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales load. Class C Shares are distributed pursuant
to a Distribution Plan adopted by the Fund whereby the distributor is paid a fee
of up to .75 of 1%, in addition to a Shareholder Services fee of .25 of 1% of
the Class C Shares' average daily net assets. In addition, Class C Shares may be
subject to certain contingent deferred sales charges. Investments in Class C
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain of the
same expenses. Expense differences, however, among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
To obtain more information and a prospectus for either Class B Shares or Class C
Shares, investors may call 1-800-235-4669 or contact their financial
institution.
FEDERATED ASIA PACIFIC GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
G01470-01 (11/95)
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED ASIA PACIFIC GROWTH FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for
Class A Shares, Class B Shares, and Class C Shares, or the stand-alone
prospectus for Class A Shares of Federated Asia Pacific Growth Fund (the
"Fund") dated February 13, 1996. This Statement is not a prospectus itself.
To receive a copy of either prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 13, 1996
A subsidiary of FEDERATED INVESTORS CORP.
Distributor
GENERAL INFORMATION ABOUT THE WORLD INVESTMENT SERIES, INC.
FUND 3 MANAGEMENT 34
INVESTMENT OBJECTIVE AND POLICIES Fund Ownership 42
3 Directors Compensation 42
INVESTMENT ADVISORY SERVICES 44
Convertible Securities 3
Warrants 4 Adviser to the Fund 44
Sovereign Debt Obligations4 Advisory Fees 44
When-Issued and Delayed Delivery Other Related Services 45
Transactions 5 ADMINISTRATIVE SERVICES 45
Lending of Portfolio Securities
TRANSFER AGENT AND DIVIDEND
5
DISBURSING AGENT 46
Repurchase Agreements 6
Reverse Repurchase Agreements 6 BROKERAGE TRANSACTIONS 46
Restricted and Illiquid
Securities 7
Futures and Options 8
Foreign Currency Transactions 21
Special Considerations Affecting
Asia and the Pacific Rim26
Special Considerations Affecting
Emerging
Markets 26
Additional Risk Considerations
27
Portfolio Turnover 28
Investment Limitations 28
PURCHASING SHARES 47 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 58
Distribution Plan and
APPENDIX 58
Shareholder Services Agreement
47
Conversion to Federal Funds 48
Purchases by Sales
Representatives, Directors, and
Employees of the Fund 48
DETERMINING NET ASSET VALUE49
Determining Market Value of
Securities 49
Trading in Foreign Securities 50
REDEEMING SHARES 50
Redemption in Kind 51
TAX STATUS 52
The Fund's Tax Status 52
Foreign Taxes 52
Shareholders' Tax Status52
TOTAL RETURN 53
YIELD 53
PERFORMANCE COMPARISONS 54
ABOUT FEDERATED INVESTORS 56
Mutual Fund Market 57
Institutional 57
Trust Organizations 57
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of World Investment Series, Inc. (the "Corporation"),
which was established as a corporation under the laws of the state of Maryland
on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Combined Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies. The investment objective cannot be changed without the
approval of shareholders.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Fund may
invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The prices of fixed income securities fluctuate
inversely to the direction of interest rates. The holder is entitled to receive
the fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full face
value, in lieu of cash to purchase the issuer's common stock.
Convertible securities are senior to equity securities, and therefore have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
nonconvertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stocks when, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving it investment objective. Otherwise, the Fund will hold or trade the
convertible securities.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may
have a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational
entities, which include international organizations designed or supported by
governmental entities to promote economic reconstruction or development, and
international banking institutions and related government agencies. Examples of
these include, but are not limited to, the International Bank for Reconstruction
and Development (World Bank), European Investment Bank and Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Directors. The
Directors may consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.
FUTURES AND OPTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and
the buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at which
the index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a
drop in rates generally means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e.,
agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates. The Fund may also invest
in securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the investment
adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the
Fund grants to the purchaser of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract, even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The Fund has no obligation to return premiums
paid to it whether or not the option is exercised. It will generally be
the policy of the Fund, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect of
canceling the Fund's position as a seller. The premium which the Fund will
pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge
its portfolio against an increase in market interest rates, a decrease in
stock prices, or when the investment adviser believes such investment is
more efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of
the option if the option is exercised. As stock prices fall or market
interest rates rise and cause the price of futures to decrease, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss
or minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio.
A put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer
of a put option, the Fund has the obligation to purchase a security from
the purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded
on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
RISKS
OPTIONS
Certain hedging vehicles have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the adviser's view as to certain market movements is incorrect,
the risk that the use of such hedging strategies could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may both be
liquid in all circumstances and certain over-the-counter options may have
not markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create
a greater ongoing potential financial risk than would purchase of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of hedging strategies would reduce net asset value,
and possibly income, and such losses can be greater than if the hedging
strategies had not been utilized.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rating payments of fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that specified index falls
below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors, and collars are entered into for good faith
hedging purposes, the investment adviser and the Fund believe such
obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal
acceptable rating for a swap, cap, floor, or collar to be purchased or held
in the Fund's portfolio. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid
than swaps.
RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S.,
(iv) the imposition of different exercise and settlement terms and
procedures and the margin requirements than in the U.S., and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging strategies, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of
the underlying security, financial instrument or currency. In general,
either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, a currency
contract which obligates the Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possibly daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
hedging strategies. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets
if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other hedging strategies
may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation
is required, but if it terminates prior to such time, assets equal to any
remaining obligation would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price
at which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or
through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and a foreign currency involved
in an underlying transaction. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive
change in such currency relationships. The investment adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the Fund's
best interest to do so. The Fund will not speculate in foreign currency
exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
SPECIAL CONSIDERATIONS AFFECTING ASIA AND THE PACIFIC RIM
Investment in securities of issuers domiciled in Japan and Hong Kong entails
special considerations. Overseas trade is important to Japan's economy. Japan
has few natural resources and must export to pay for its imports of these basic
requirements. Because of the concentration of Japanese exports in highly
visible products, Japan has had difficult relations with its trading partners,
particularly the U.S., where the trade imbalance is the greatest. It is
possible that trade sanctions or other protectionist measures could impact Japan
adversely in both the short and the long term. The Japanese securities markets
are less regulated than those in the United States. Evidence has emerged from
time to time of distortion of market prices to serve political or other
purposes. Shareholders' rights are not always equally enforced.
Hong Kong is a British colony which will transfer sovereignty to the Peoples
Republic of China in 1997. China has espoused policies antagonistic to free
enterprise capitalism and democracy. There can be no guarantee that property
rights will continue to be safeguarded in Hong Kong after 1997, although
recently, China has moved toward free enterprise, and has established stock
exchanges of its own.
Some Southeast Asian countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is the risk that
certain Southeast Asian countries may restrict the free conversion of their
currencies into other currencies. Further, certain Southeast Asian currencies
may not be internationally traded. Any devaluations in currencies in which the
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund's net asset value.
SPECIAL CONSIDERATIONS AFFECTING EMERGING MARKETS
Investing in the securities of issuers domiciled in emerging markets, including
certain Asian markets such as Taiwan, Malaysia and Indonesia, may entail special
risks relating to the potential political and economic instability and the risks
of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment, convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading volume in issuers compared to
the volume of trading in U.S. securities could cause price to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities in these markets. In addition, securities
traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
less reliable than in more developed markets. In such emerging securities
markets there may be share registration and delivery delays or failures.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of
risk involved through the holding of portfolio securities in domestic and
foreign securities depositories. However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the investment
adviser, any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of shareholders. No assurance can be given that the Directors'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The investment adviser does not anticipate that portfolio turnover
will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined
by market conditions. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that the Fund will
bear directly.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially the
same investment objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, as amended, or assets exempted by the SEC) in an open-end
investment company with substantially the same investment objectives).
Shareholders will be notified before any material changes in these limitations
become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
will invest no more than 5% of its total assets in any one investment
company, and will invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain
expenses such as management fees, and, therefore, any investment by the
Fund in shares of another investment company would be subject to such
duplicate expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities or futures contracts,
unless the securities or futures contracts are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities or
futures contracts are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants, including those acquired in units or attached to other
securities. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchanges. For purposes of
this investment restriction, warrants will be valued at the lower of cost
or market, except that warrants acquired by the Fund in units with or
attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund has no present intent to borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
in the coming fiscal year. In addition, the Fund expects to lend not more than
5% of its total assets in the coming fiscal year.
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
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 and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
WORLD INVESTMENT SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with World Investment Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated
Shareholder Services; Vice President, Federated Administrative Services;
Treasurer of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Corporation and
Chairman and Director 68 other investment companies in the Fund Complex
Thomas G. Bigley $ 0 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher$ 0 $0 for the Corporation and
President and Director 8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ 0 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0 $0 for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts$ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from January 26, 1994 (organization
date of the Corporation) to November 30, 1994.
#The aggregate compensation is provided for the Corporation which was comprised
of 1 portfolio, as of
November 30, 1994.
+The information is provided for the last calendar year end.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund 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
Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in each prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in each
prospectus. Dr. Henry J. Gailliot, an officer of Federated Global Research
Corp., the Adviser to the Fund, holds approximately 20% of the outstanding
common stock and serves as a director of Commercial Data Services, Inc., a
company which provides computer processing services to Federated Administrative
Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting 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 relation to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is
not obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
PURCHASING SHARES
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales load on Class A Shares only) on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES OF THE FUND
Directors, employees, and sales representatives of the Fund, Federated Global
Research Corp., and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp. and
their spouses and children under 21, may buy Class A Shares at net asset value
without a sales load. Shares may also be sold without a sales load to trusts or
pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities
exchange or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the 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; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges unless the Directors determine in good faith that another method
of valuing such investments is necessary.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, 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 New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. 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
New York Stock Exchange. 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 Directors, although the actual calculation may
be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each prospectus under
"How To Redeem Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares and
applicable Class A Shares redeemed within one year of purchase may be subject to
a contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institution for services rendered,
and the length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount less than the administrative
fee that is stated in the prospectus for servicing a particular shareholder, the
contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges which
trade on Saturdays or on holidays on which the Fund will not make redemptions,
the net asset value of each class of Shares of the Fund may be significantly
affected on days when shareholders do not have an opportunity to redeem their
Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Corporation is obligated to
redeem Shares for any one shareholder in cash only up to the lesser of $250,000
or 1% of the respective class's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine 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 instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The average annual total return for each class of Shares of the Fund 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 net asset value 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
load, adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of Shares redeemed.
YIELD
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any 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:
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P
500), a 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 Standard & Poor's figures.
o 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. From time to time, the Fund will quote
its Lipper ranking in the "pacific region funds" category in
advertising and sales literature.
o MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of
more than 1,000 companies of Europe, Australia, and the Far East.
o IBBOTSON ASSOCIATES INTERNATIONAL BOND INDEX, which provides a detailed
breakdown of local market and currency returns since 1960.
o BEAR STEARNS FOREIGN BOND INDEX, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
o MORNINGSTAR, INC. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values 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.
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of dollar-
cost averaging and may disclose the amount of dividends paid by the Fund over
certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs which
is reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, 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 advisors. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
*source: Investment Company Institute
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
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 Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's Ratings Group
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain indentifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
FEDERATED EMERGING MARKETS FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated Emerging Markets Fund (the "Fund") represent interests
in a diversified portfolio of World Investment Series, Inc. (the "Corporation"),
an open-end management investment company (a mutual fund). The investment
objective of the Fund is to provide long-term growth of capital. Any income
received from the portfolio is incidental. The Fund pursues its investment
objective by investing primarily in a professionally managed portfolio of
securities of issuers and companies domiciled in or having primary operations in
emerging markets.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information dated
February 13, 1996, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information, which is in paper form only, or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling 1-800-235-4669. To obtain other information or to make inquiries
about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be generated
when document is complete.
SUMMARY OF FUND EXPENSES
FEDERATED EMERGING MARKETS FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee (3).............................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1) Class A Shares purchased with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class A Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending November 30, 1996. If Class A
Shares were paying or accruing the 12b-1 fee, Class A Shares would be
able to pay up to 0.25% of its average daily net assets for the 12b-1
fee. See "Corporation Information."
(4) The Total Class A Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be subject
to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class A Shares' fiscal year ending
November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED EMERGING MARKETS FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee.................................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class B Shares Operating Expenses (3) (4).. %
(1) The contingent deferred sales charge is 5.50% in the first year
declining to 1.00% in the sixth year and 0.00% thereafter. (See
"Contingent Deferred Sales Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4) The Total Class B Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be subject
to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class B Shares' fiscal year ending
November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED EMERGING MARKETS FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee.................................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class C Shares Operating Expenses (3)...... %
(1) The contingent deferred sales charge assessed is 1.00% of the lesser
of the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) The Total Class C Shares Operating Expenses are estimated to be %
-----
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be subject
to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class C Shares' fiscal year ending
November 30, 1996.
SYNOPSIS
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares.")
Shares of the Fund are designed for individuals and institutions seeking long-
term growth of capital by investing primarily in a portfolio of common stocks of
emerging market companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, entering into repurchase agreements,
lending portfolio securities, investing in restricted and illiquid securities,
investing in securities on a when-issued and delayed delivery basis, writing
call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
o American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of capital
by investing in equity securities of companies located in Asia and the
Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for above-
average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth and
income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth of
capital by investing in equity securities of small foreign companies in
developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of capital
by investing in equity securities of companies located in Latin America;
o Federated Small Cap Strategies Fund, providing capital appreciation through
common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S. government
securities;
o Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
o Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation of
principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
state of Michigan and Michigan municipalities, primarily through Michigan
municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
o Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through high-
quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of securities of issuers and
companies located in countries having emerging markets. Under normal market
conditions, the Fund intends to invest at least 65% of its total assets in
equity securities of issuers and companies located in countries having emerging
markets.
The Fund expects to diversify investments across emerging markets in Latin
America, Asia, Europe, the Middle East and Africa. The Fund intends to
allocate its investments among at least three countries at all times and
does not expect to concentrate investments in any particular industry.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
EMERGING MARKETS
In managing the Fund's portfolio, the Fund's investment adviser considers
countries having emerging markets to be all countries that are generally
considered have developing or emerging markets or economies. Furthermore, the
Fund's investment adviser considers emerging market countries to be all
countries considered by the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation, as well as countries that are classified by the United
Nations or otherwise regarded by their authorities, as developing.
Generally included in emerging markets are all countries in the world except
Australia, Canada, Japan, New Zealand, the United States, and most western
European countries. The Fund will focus on countries which the investment
adviser believes to have strongly developing economies and markets. Under
normal circumstances the Fund will invest at least 65% of its total assets in,
among others, the following countries: Argentina, Bolivia, Botswana, Brazil,
Chile, China, Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece,
Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Korea, Malaysia,
Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, South Africa, Sri Lanka, Swaziland,
Taiwan, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. The Fund
may invest in countries other than those defined above, if, in the opinion of
the Fund's investment adviser, they are considered to be emerging markets.
While the investment adviser considers the above-mentioned countries eligible
for investment, the Fund will not be invested in all such markets at all times.
Furthermore, the Fund may not pursue investment in such countries due to lack of
adequate custody of the Fund's assets, overly burdensome restrictions and
repatriation, lack of an organized and liquid market, or unacceptable political
or other risks.
Emerging markets companies are defined as (i) those for which the principal
securities trading market is an emerging market country, as described above;
(ii) those which are organized under the laws of, or with a principal office in,
an emerging market country; or (iii) those, wherever organized or traded, who
derive (directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit from its most current year from
goods produced, services performed, or sales made in such emerging market
countries.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics as
well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in its
claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate
in company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
securities representing underlying international securities such as American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global
Depositary Certificates ("GDCs"), International Depositary Receipts ("IDRs"),
and Russian Depositary Certificates ("RDCs") or securities convertible into
foreign equity securities. ADRs and ADSs typically are issued by a United
States bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and RDCs are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as
"Depositary Receipts." Depositary Receipts may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund may
invest up to 35% of its total assets in debt securities. Capital appreciation in
debt securities may arise as a result of favorable changes in the
creditworthiness of issuers, relative interest rate levels, or relative foreign
exchange rates. Any income received from debt securities will be incidental to
the Fund's objective of long-term growth of capital. These debt obligations
consist of U.S. and foreign government securities and corporate debt securities,
including, but not limited to, Samurai and Yankee bonds, Eurobonds and
depositary receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service ("Fitch") or Ba or lower by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, are of comparable quality as determined by the
investment adviser. The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of purchase, BB
or lower by S&P or Fitch or Ba or lower by Moody's, or, if unrated, are of
comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the investment adviser evaluates the investment
characteristics of the convertible security as a fixed income investment, and
the investment potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain foreign
countries, investments in other investment companies may be the most practical
or only manner in which the Fund can participate in the securities markets of
such countries. The Fund may also invest in other investment companies for the
purpose of investing its short term cash on a temporary basis. The Fund may
invest up to 10% of its total assets in the securities of other investment
companies. To the extent that the Fund invests in securities issued by other
investment companies, the Fund will indirectly bear its proportionate share of
any fees and expenses paid by such companies, in addition to the fees and
expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Directors to be liquid, over-the counter options, swap agreements not determined
to be liquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer) to
repurchase the security at an agreed-upon price and specified future date. The
repurchase price reflects an agreed-upon interest rate for the time period of
the agreement. The Fund's risk is the inability of the seller to pay the
agreed-upon price on the delivery date. However, this risk is tempered by the
ability of the Fund to sell the security in the open market in the case of a
default. In such a case, the Fund may incur costs in disposing of the security
which would increase Fund expenses. The investment adviser will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for different times in the future. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Directors and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines that
market conditions warrant (up to 100% of total assets) and to maintain liquidity
(up to 20% of total assets), the Fund may invest in U.S. and foreign debt
instruments as well as cash or cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot (i.e., cash) basis at prevailing rates or through
forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. Cross-
hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year. The Fund will generally enter into a forward
contract to provide the proper currency to settle a securities transaction at
the time the transaction occurs ("trade date"). The period between trade date
and settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the
investment adviser will consider the likelihood of changes in currency values
when making investment decisions, the investment adviser believes that it is
important to be able to enter into forward contracts when it believes the
interests of the Fund will be served. The Fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in excess
of the value of the Fund's assets denominated in that currency at the time the
contract was initiated, but as consistent with their other investment policies
and as not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded over-the-
counter. The Fund may use options to manage interest rate and currency risks.
The Fund may also write covered call options and secured put options to generate
income or lock in gains. The Fund may write covered call options and secured
put options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of the fair market value of its net assets may be
invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is
paid in advance by the dealer. OTC options, which may not be continuously
liquid, are available for a greater variety of assets, and with a wider range of
expiration dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide hedging
purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits exclusive of the margin needed for foreign currency
hedging, on the Fund's futures and related options positions would not exceed 5%
of the net liquidation value of the Fund's assets, provided further that in the
case of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. In addition, the
Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodities
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
("SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant
market advance, it may enter into futures contracts to purchase the index in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In many of
these transactions, the Fund will purchase such securities upon termination of
the futures position but, depending on market conditions, a futures position may
be terminated without the corresponding purchases of common stock. The Fund may
also invest in securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid, or cost-effective than
investing directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the Fund
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses
if it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries
which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them.
RISK CONSIDERATIONS IN EMERGING MARKETS
Investing in securities of issuers in emerging market countries involves
exposure to significantly higher risk than investing in countries with developed
markets. Emerging market countries may have economic structures that are
generally less diverse and mature and political systems that can be expected to
be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or,
in certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or prohibitions
on the repatriation of assets, and may have less protection of property rights
than developed countries.
The economies of emerging market countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in emerging
market countries may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially resulting in a
lack of liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically offer
less regulatory protection for investors.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for Moody's), but
are in the lower rating categories or are unrated, but are of comparable quality
and have speculative characteristics or are speculative. Lower-rated bonds or
unrated bonds are commonly referred to as "junk bonds." There is no minimal
acceptable rating for a security to be purchased or held in the Fund's
portfolio, and the Fund may, from time to time, purchase or hold debt securities
rated in the lowest rating category. A description of the rating categories is
contained in the Appendix to the Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge its
assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the value
of its total assets in securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government and its
agencies or instrumentalities, and repurchase agreements collateralized by
such securities) or acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value 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.
The net asset value of each class of Shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies"). Certain
purchases of Class A Shares are not subject to a sales load. See "Investing in
Class A Shares." Certain purchases of Class A Shares qualify for reduced sales
loads. See "Reducing or Eliminating the Sales Load." Class A Shares have no
conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by the institution.
Additionally, no sales load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales load retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the investor
pays no sales load; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the next-
determined net asset value without any sales load. Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
of the reinvestment in order to eliminate a sales load. If the shareholder
redeems his Class A Shares in the Fund, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and may no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and distributions paid on
Class B Shares will be considered to be held in a separate sub-account. Each
time any Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge, see "Contingent Deferred Sales Charge--Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attn: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other Federated Funds (as
defined in the "Synopsis" of this prospectus) which are sold with a sales load
different from that of the Fund's or with no sales load, and which are advised
by subsidiaries or affiliates of Federated Investors. These exchanges are made
at net asset value plus the difference between the Fund's sales load already
paid and any sales load of the Federated Fund into which the Shares are to be
exchanged, if higher. Neither the Fund nor any of the funds in the Liberty
Family of Funds imposes any additional fees on exchanges. Shareholders in
certain other Federated Funds may exchange their shares in the Federated Funds
for Class A Shares.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds.) Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period. For more information, see "Contingent
Deferred Sales Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other Class C Shares in the Liberty Family of Funds.) To the
extent that a shareholder exchanges Shares for Class C Shares in other funds in
the Liberty Family of Funds, the time for which the exchanged-for Shares are to
be held will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the applicable holding period. For more information, see
"Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds (where applicable) may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Services Company, 500 Victory Road--2nd Floor, North Quincy,
Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company, a
member firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales load, it is not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
less than six years with respect to Class B Shares and less than one full year
from the date of purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund Shares for shares of other funds
in the Liberty Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for Shares
are redeemed is calculated as if the shareholder had held the shares from the
date on which he became a shareholder of the exchanged-from Shares. Moreover,
the contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Elimination of Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that year's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research Corp.,
the Fund's investment adviser, subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by other mutual funds with similar objectives and policies. Under the investment
advisory contract, which provides for the voluntary waiver of the advisory fee
by the Adviser, the Adviser may voluntarily waive some or all of its fee. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The Adviser
can terminate this voluntary waiver at any time in its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the Trustees of which are
John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $72 billion invested across more than
260 funds under management and/or administration by its subsidiaries, as of
December 31, 1994, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Drew J. Collins has been the Fund's portfolio manager its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager its inception. Mr.
Frantzen joined Federated Investors in 1995 as an Executive Vice President of
the Fund's investment adviser. Mr. Frantzen served as Chief Investment Officer
of international equities at Brown Brothers Harriman & Co. from 1992 to 1995.
He was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991. Mr. Frantzen received his B.S. in
finance and marketing from the University of North Dakota.
Jolanta M. Wysocka has been the Fund's portfolio manager since its inception.
Ms. Wysocka joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Ms. Wysocka served as Senior Investment Officer and
Emerging Markets Portfolio Manager at PIMCO Advisers L.P./ Parametric Portfolio
Associates from 1993 to 1995. She served as President of Kinetic Capital
Management, Inc. from 1991 to 1995. Ms. Wysocka served as Vice President,
Research for Ko Securities, Inc. from 1990 to 1991. Ms. Wysocka received her
masters degree in computer science from the Institute of Technology, Zielona
Gora, Poland.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to .25 of 1% for Class A Shares and up to .75
of 1% for Class B Shares and Class C Shares of the average daily net assets of
each class of Shares to finance any activity which is principally intended to
result in the sale of Shares subject to the Distribution Plan. The Fund does not
currently make payments to the distributor or charge a fee under the
Distribution Plan for Class A Shares, and shareholders of Class A Shares will be
notified if the Fund intends to charge a fee under the Distribution Plan. For
Class A Shares and Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75 of 1% of Class B Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Directors will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under certain
qualified retirement plans as approved by Federated Securities Corp. (Such
payments are subject to a reclaim from the financial institution should the
assets leave the program within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts 02266-
8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.
The Corporation expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited to:
the cost of organizing the Corporation and continuing its existence; registering
the Corporation with federal and state securities authorities; Directors' fees;
auditors' fees; the cost of meetings of Directors; legal fees of the
Corporation; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to:
registering the portfolio and Class A Shares, Class B Shares, and Class C Shares
of the portfolio; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Corporation's Distribution Plan and fees for Shareholder Services. However, the
Directors reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares and Class C Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, and Class C Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
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 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. Furthermore,
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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
FEDERATED EMERGING MARKETS FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Cusip #s
---------
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED EMERGING MARKETS FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
The Class A Shares of Federated Emerging Markets Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in a professionally managed
portfolio of securities of issuers and companies domiciled in or having primary
operations in emerging markets.
THE CLASS A 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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated February 13, 1996, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information, which is in paper form only, or a paper copy of this prospectus, if
you have received your prospectus electronically, free of charge by calling 1-
800-235-4669. To obtain other information or to make inquiries about the Fund,
contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be generated
when document is complete.
SUMMARY OF FUND EXPENSES
FEDERATED EMERGING MARKETS FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee............................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)........................... %
12b-1 Fee (3).............................................. %
Total Other Expenses....................................... %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1) Class A Shares purchased with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2) The estimated Management Fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this anticipated voluntary waiver at any time at
its sole discretion. The maximum management fee is %.
-----
(3) Class A Shares have no present intention of paying or accruing the
12b-1 fee during the fiscal year ending November 30, 1996. If Class A
Shares were paying or accruing the 12b-1 fee, Class A Shares would be
able to pay up to 0.25% of its average daily net assets for the 12b-1
fee. See "Corporation Information."
(4) The Total Class A Shares Operating Expenses are estimated to be
% absent the anticipated voluntary waiver of a portion of the
------
Management Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "What Shares Cost" and "Corporation Information." Wire-
transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Class A Shares' fiscal year ending
November 30, 1996.
GENERAL INFORMATION
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares. This
prospectus relates only to Class A Shares (the "Shares") of the Fund.
Shares of the Fund are designed for individuals and institutions seeking long-
term growth of capital by investing primarily in a portfolio of common stocks of
emerging market companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500.
However, the minimum initial investment for a retirement account is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus the applicable
sales load and are redeemed at net asset value. However, a contingent deferred
sales charge is imposed under certain circumstances. For a more complete
description, see "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, entering into repurchase agreements,
lending portfolio securities, investing in restricted and illiquid securities,
investing in securities on a when-issued and delayed delivery basis, writing
call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
o American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of capital
by investing in equity securities of companies located in Asia and the
Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for above-
average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth and
income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth of
capital by investing in equity securities of small foreign companies in
developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of capital
by investing in equity securities of companies located in Latin America;
o Federated Small Cap Strategies Fund, providing capital appreciation through
common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S. government
securities;
o Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
o Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation of
principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
state of Michigan and Michigan municipalities, primarily through Michigan
municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
o Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through high-
quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of securities of issuers and
companies located in countries having emerging markets. Under normal market
conditions, the Fund intends to invest at least 65% of its total assets in
equity securities of issuers and companies located in countries having emerging
markets.
The Fund expects to diversify investments across emerging markets in Latin
America, Asia, Europe, the Middle East and Africa. The Fund intends to allocate
its investments among at least three countries at all times and does not expect
to concentrate investments in any particular industry.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
EMERGING MARKETS
In managing the Fund's portfolio, the Fund's investment adviser considers
countries having emerging markets to be all countries that are generally
considered have developing or emerging markets or economies. Furthermore, the
Fund's investment adviser considers emerging market countries to be all
countries considered by the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation, as well as countries that are classified by the United
Nations or otherwise regarded by their authorities, as developing.
Generally included in emerging markets are all countries in the world except
Australia, Canada, Japan, New Zealand, the United States, and most western
European countries. The Fund will focus on countries which the investment
adviser believes to have strongly developing economies and markets. Under
normal circumstances the Fund will invest at least 65% of its total assets in,
among others, the following countries: Argentina, Bolivia, Botswana, Brazil,
Chile, China, Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece,
Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Korea, Malaysia,
Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, South Africa, Sri Lanka, Swaziland,
Taiwan, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. The Fund
may invest in countries other than those defined above, if, in the opinion of
the Fund's investment adviser, they are considered to be emerging markets.
While the investment adviser considers the above-mentioned countries eligible
for investment, the Fund will not be invested in all such markets at all times.
Furthermore, the Fund may not pursue investment in such countries due to lack of
adequate custody of the Fund's assets, overly burdensome restrictions and
repatriation, lack of an organized and liquid market, or unacceptable political
or other risks.
Emerging markets companies are defined as (i) those for which the principal
securities trading market is an emerging market country, as described above;
(ii) those which are organized under the laws of, or with a principal office in,
an emerging market country; or (iii) those, wherever organized or traded, who
derive (directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit from its most current year from
goods produced, services performed, or sales made in such emerging market
countries.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics as
well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in its
claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate
in company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, the Fund may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or unsponsored
securities representing underlying international securities such as American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), Global
Depositary Certificates ("GDCs"), International Depositary Receipts ("IDRs"),
and Russian Depositary Certificates ("RDCs") or securities convertible into
foreign equity securities. ADRs and ADSs typically are issued by a United
States bank or trust company and evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and RDCs are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as
"Depositary Receipts." Depositary Receipts may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund may
invest up to 35% of its total assets in debt securities. Capital appreciation in
debt securities may arise as a result of favorable changes in the
creditworthiness of issuers, relative interest rate levels, or relative foreign
exchange rates. Any income received from debt securities will be incidental to
the Fund's objective of long-term growth of capital. These debt obligations
consist of U.S. and foreign government securities and corporate debt securities,
including, but not limited to, Samurai and Yankee bonds, Eurobonds and
depositary receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service ("Fitch") or Ba or lower by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, are of comparable quality as determined by the
investment adviser. The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of purchase, BB
or lower by S&P or Fitch or Ba or lower by Moody's, or, if unrated, are of
comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the investment adviser evaluates the investment
characteristics of the convertible security as a fixed income investment, and
the investment potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain foreign
countries, investments in other investment companies may be the most practical
or only manner in which the Fund can participate in the securities markets of
such countries. The Fund may also invest in other investment companies for the
purpose of investing its short term cash on a temporary basis. The Fund may
invest up to 10% of its total assets in the securities of other investment
companies. To the extent that the Fund invests in securities issued by other
investment companies, the Fund will indirectly bear its proportionate share of
any fees and expenses paid by such companies, in addition to the fees and
expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Directors to be liquid, over-the counter options, swap agreements not determined
to be liquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer) to
repurchase the security at an agreed-upon price and specified future date. The
repurchase price reflects an agreed-upon interest rate for the time period of
the agreement. The Fund's risk is the inability of the seller to pay the
agreed-upon price on the delivery date. However, this risk is tempered by the
ability of the Fund to sell the security in the open market in the case of a
default. In such a case, the Fund may incur costs in disposing of the security
which would increase Fund expenses. The investment adviser will monitor the
creditworthiness of the firms with which the Fund enters into repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for different times in the future. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Directors and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines that
market conditions warrant (up to 100% of total assets) and to maintain liquidity
(up to 20% of total assets), the Fund may invest in U.S. and foreign debt
instruments as well as cash or cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot (i.e., cash) basis at prevailing rates or through
forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. Cross-
hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year. The Fund will generally enter into a forward
contract to provide the proper currency to settle a securities transaction at
the time the transaction occurs ("trade date"). The period between trade date
and settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the
investment adviser will consider the likelihood of changes in currency values
when making investment decisions, the investment adviser believes that it is
important to be able to enter into forward contracts when it believes the
interests of the Fund will be served. The Fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in excess
of the value of the Fund's assets denominated in that currency at the time the
contract was initiated, but as consistent with their other investment policies
and as not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded over-the-
counter. The Fund may use options to manage interest rate and currency risks.
The Fund may also write covered call options and secured put options to generate
income or lock in gains. The Fund may write covered call options and secured
put options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of the fair market value of its net assets may be
invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is
paid in advance by the dealer. OTC options, which may not be continuously
liquid, are available for a greater variety of assets, and with a wider range of
expiration dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide hedging
purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits exclusive of the margin needed for foreign currency
hedging, on the Fund's futures and related options positions would not exceed 5%
of the net liquidation value of the Fund's assets, provided further that in the
case of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. In addition, the
Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodities
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
("SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant
market advance, it may enter into futures contracts to purchase the index in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In many of
these transactions, the Fund will purchase such securities upon termination of
the futures position but, depending on market conditions, a futures position may
be terminated without the corresponding purchases of common stock. The Fund may
also invest in securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid, or cost-effective than
investing directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the Fund
may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of the Fund's
investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses
if it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries
which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them.
RISK CONSIDERATIONS IN EMERGING MARKETS
Investing in securities of issuers in emerging market countries involves
exposure to significantly higher risk than investing in countries with developed
markets. Emerging market countries may have economic structures that are
generally less diverse and mature and political systems that can be expected to
be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or,
in certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or prohibitions
on the repatriation of assets, and may have less protection of property rights
than developed countries.
The economies of emerging market countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in emerging
market countries may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially resulting in a
lack of liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically offer
less regulatory protection for investors.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for Moody's), but
are in the lower rating categories or are unrated, but are of comparable quality
and have speculative characteristics or are speculative. Lower-rated bonds or
unrated bonds are commonly referred to as "junk bonds." There is no minimal
acceptable rating for a security to be purchased or held in the Fund's
portfolio, and the Fund may, from time to time, purchase or hold debt securities
rated in the lowest rating category. A description of the rating categories is
contained in the Appendix to the Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge its
assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the value
of its total assets in securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government and its
agencies or instrumentalities, and repurchase agreements collateralized by
such securities) or acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Class A Shares in the market value of
all securities and other assets of the Fund, subtracting the interest of Class A
Shares in the liabilities of the Fund and those attributable to Class A Shares,
and dividing the remainder by the total number of Class A Shares outstanding.
The net asset value for Class A Shares may differ from that of Class B Shares
and Class C Shares 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.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; or (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500. Additional investments can be made
for as little as $100. The minimum initial and subsequent investment for
retirement plans is only $50. (Financial institutions may impose different
minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Shares purchased through bank trust departments,
investment advisers registered under the Investment Advisers Act of 1940, as
amended, or retirement plans where the third party administrator has entered
into certain arrangements with Federated Securities Corp. or its affiliates, or
to shareholders designated as Liberty Life Members. However, investors who
purchase Shares through a trust department, investment adviser, or retirement
plan may be charged an additional service fee by the institution. Additionally,
no sales load is imposed for Shares purchased through "wrap accounts" or similar
programs, under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the applicable
sales load. Any portion of the sales load which is not paid to a dealer will be
retained by the distributor. However, the distributor may offer to pay dealers
up to 100% of the sales load retained by it. Such payments may take the form of
cash or promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. In some instances, these incentives will be made available only
to dealers whose employees have sold or may sell a significant amount of Shares.
On purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling 0.25%
of the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Shares made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it calculates
the sales load. In addition, the sales load, if applicable, is reduced for
purchases made at one time by a trustee or fiduciary for a single trust estate
or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $30,000 and he
purchases $20,000 more at the current public offering price, the sales load on
the additional purchase according to the schedule now in effect would be 4.50%,
not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will reduce the sales load after it confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Shares of any fund in the
Liberty Family of Funds, excluding money market accounts, will be aggregated to
provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the privilege,
within 120 days, to reinvest the redemption proceeds at the next-determined net
asset value without any sales load. Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales load. If the shareholder redeems his
Shares in the Fund, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES
Investors may purchase Shares at net asset value, without a sales load, with the
proceeds from the redemption of shares of an unaffiliated investment company
that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attn: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other funds for which
affiliates of Federated Investors serve as investment adviser or principal
underwriter ("Federated Funds") which are sold with a sales load different from
that of the Fund's or with no sales load, and which are advised by subsidiaries
or affiliates of Federated Investors. These exchanges are made at net asset
value plus the difference between the Fund's sales load already paid and any
sales load of the Federated Fund into which the Shares are to be exchanged, if
higher. Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class A
Shares.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company, a
member firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Shares are sold with a sales
load, it is not advisable for shareholders to continue to purchase Shares while
participating in this program.
CONTINGENT DEFERRED SALES CHARGE
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than one
full year from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than one full year from the
date of purchase; (3) Shares held for less than one full year from the date of
purchase on a first-in, first-out basis. A contingent deferred sales charge is
not assessed in connection with an exchange of Fund Shares for shares of other
funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had held
the shares from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated with
respect to certain redemptions (see "Elimination of Contingent Deferred Sales
Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that year's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of Shares.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for exercising
all the Corporation's powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's investment adviser,
Federated Global Research Corp. (the "Adviser"), subject to direction by the
Directors. The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund. The Adviser's
address is 175 Water Street, New York, New York 10038-4965.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by other mutual funds with similar objectives and policies. Under the investment
advisory contract, which provides for the voluntary waiver of the advisory fee
by the Adviser, the Adviser may voluntarily waive some or all of its fee. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The Adviser
can terminate this voluntary waiver at any time in its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995, is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the Trustees of which are
John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to a
number of investment companies. With over $72 billion invested across more than
260 funds under management and/or administration by its subsidiaries, as of
December 31, 1994, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Drew J. Collins has been the Fund's portfolio manager its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager its inception. Mr.
Frantzen joined Federated Investors in 1995 as an Executive Vice President of
the Fund's investment adviser. Mr. Frantzen served as Chief Investment Officer
of international equities at Brown Brothers Harriman & Co. from 1992 to 1995.
He was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991. Mr. Frantzen received his B.S. in
finance and marketing from the University of North Dakota.
Jolanta M. Wysocka has been the Fund's portfolio manager since its inception.
Ms. Wysocka joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Ms. Wysocka served as Senior Investment Officer and
Emerging Markets Portfolio Manager at PIMCO Advisers L.P./ Parametric Portfolio
Associates from 1993 to 1995. She served as President of Kinetic Capital
Management, Inc. from 1991 to 1995. Ms. Wysocka served as Vice President,
Research for Ko Securities, Inc. from 1990 to 1991. Ms. Wysocka received her
masters degree in computer science from the Institute of Technology, Zielona
Gora, Poland.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to .25 of l% of the average daily net assets of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The Fund does not currently
make payments to the distributor or charge a fee under the Distribution Plan for
Shares, and shareholders will be notified if the Fund intends to charge a fee
under the Distribution Plan. For Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Shares to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform Shareholder Services directly or will select financial institutions to
perform Shareholder Services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Directors will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under certain qualified retirement plans
as approved by Federated Securities Corp. (Such payments are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts 02266-
8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Corporation and portfolio
expenses.
The Corporation expenses for which holders of Class A Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Corporation
and continuing its existence; registering the Corporation with federal and state
securities authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares pay their allocable
portion include, but are not limited to: registering the portfolio and Class A
Shares of the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A Shares
as a class are expenses under the Corporation's Distribution Plan and fees for
Shareholder Services. However, the Directors reserve the right to allocate
certain other expenses to holders of Class A Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares; printing and postage expenses related
to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Class A Shares; legal fees relating solely to Class A Shares; and Directors'
fees incurred as a result of issues related solely to Class A Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
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 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. Furthermore,
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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class A
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class A Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per share of
each class on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Class A Shares and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares.
From time to time, advertisements for Class A Shares of the Fund may refer to
ratings, rankings, and other information in certain financial publications
and/or compare the performance of Class A Shares to certain indices.
OTHER CLASSES OF SHARES
As of the date of this prospectus, the Fund also offers two other classes of
shares called Class B Shares and Class C Shares. This prospectus relates only to
Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund has
also adopted a Distribution Plan whereby the distributor is paid a fee of up to
.75 of 1% and a Shareholder Services fee of up to .25 of 1% of the Class B
Shares' average daily net assets with respect to Class B Shares. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales load. Class C Shares are distributed pursuant
to a Distribution Plan adopted by the Fund whereby the distributor is paid a fee
of up to .75 of 1%, in addition to a Shareholder Services fee of .25 of 1% of
the Class C Shares' average daily net assets. In addition, Class C Shares may be
subject to certain contingent deferred sales charges. Investments in Class C
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain of the
same expenses. Expense differences, however, among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
To obtain more information and a prospectus for either Class B Shares or Class C
Shares, investors may call 1-800-235-4669 or contact their financial
institution.
FEDERATED EMERGING MARKETS FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
G01472-01 (11/95)
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED EMERGING MARKETS FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C
Shares, or the stand-alone prospectus for Class A Shares of Federated
Emerging Markets Fund (the "Fund") dated February 13, 1996. This Statement
is not a prospectus itself. To receive a copy of either prospectus, write
or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 13, 1996
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND1 ADVISORY FEES 42
OTHER RELATED SERVICES 43
INVESTMENT OBJECTIVE AND POLICIES1
ADMINISTRATIVE SERVICES 43
CONVERTIBLE SECURITIES 1
TRANSFER AGENT AND DIVIDEND
WARRANTS 2
DISBURSING AGENT 44
SOVEREIGN DEBT OBLIGATIONS 2
WHEN-ISSUED AND DELAYED DELIVERY BROKERAGE TRANSACTIONS 44
TRANSACTIONS 3
LENDING OF PORTFOLIO SECURITIES 3
REPURCHASE AGREEMENTS 4
REVERSE REPURCHASE AGREEMENTS 4
RESTRICTED AND ILLIQUID SECURITIES
5
FUTURES AND OPTIONS TRANSACTIONS6
RISKS 13
FOREIGN CURRENCY TRANSACTIONS 19
SPECIAL CONSIDERATIONS AFFECTING
EMERGING
MARKETS 23
ADDITIONAL RISK CONSIDERATIONS 25
PORTFOLIO TURNOVER 26
INVESTMENT LIMITATIONS 26
WORLD INVESTMENT SERIES, INC.
MANAGEMENT 32
FUND OWNERSHIP 40
DIRECTORS COMPENSATION 40
INVESTMENT ADVISORY SERVICES 42
ADVISER TO THE FUND 42
PURCHASING SHARES 45 BROKER/DEALERS AND BANK
BROKER/DEALER SUBSIDIARIES 56
DISTRIBUTION PLAN AND SHAREHOLDER
APPENDIX 56
SERVICES AGREEMENT 45
CONVERSION TO FEDERAL FUNDS 46
PURCHASES BY SALES REPRESENTATIVES,
DIRECTORS, AND EMPLOYEES OF THE
FUND 46
DETERMINING NET ASSET VALUE 47
DETERMINING MARKET VALUE OF
SECURITIES 47
TRADING IN FOREIGN SECURITIES 48
REDEEMING SHARES 48
REDEMPTION IN KIND 49
TAX STATUS 50
THE FUND'S TAX STATUS 50
FOREIGN TAXES 50
SHAREHOLDERS' TAX STATUS 50
TOTAL RETURN 51
YIELD 51
PERFORMANCE COMPARISONS 52
ABOUT FEDERATED INVESTORS 54
MUTUAL FUND MARKET 55
INSTITUTIONAL 55
TRUST ORGANIZATIONS 55
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of World Investment Series, Inc. (the "Corporation"),
which was established under the laws of the State of Maryland on January 25,
1994.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Combined Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in securities of issuers and
companies domiciled in or having primary operations in emerging markets. The
investment objective cannot be changed without approval of shareholders.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Fund may
invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The prices of fixed income securities fluctuate
inversely to the direction of interest rates. The holder is entitled to received
the fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full face
value, in lieu of cash to purchase the issuer's common stock.
Convertible securities are senior to equity securities, and therefore have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
nonconvertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stocks when, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving it investment objective. Otherwise, the Fund will hold or trade the
convertible securities.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may
have a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for
resale under the Rule. The Fund believes that the staff of the SEC has left the
question of determining the liquidity of all restricted securities to the
Directors. The Directors may consider the following criteria in determining the
liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and
the buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at which
the index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a
drop in rates generally means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e.,
agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates. The Fund may also invest
in securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the investment
adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the
Fund grants to the purchaser of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract, even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The Fund has no obligation to return premiums
paid to it whether or not the option is exercised. It will generally be
the policy of the Fund, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect of
canceling the Fund's position as a seller. The premium which the Fund will
pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge
its portfolio against an increase in market interest rates, a decrease in
stock prices, or when the investment adviser believes such investment is
more efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of
the option if the option is exercised. As stock prices fall or market
interest rates rise and cause the price of futures to decrease, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss
or minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio.
A put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer
of a put option, the Fund has the obligation to purchase a security from
the purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded
on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
RISKS
OPTIONS
Certain hedging vehicles have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the adviser's view as to certain market movements is incorrect,
the risk that the use of such hedging strategies could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may both be
liquid in all circumstances and certain over-the-counter options may have
not markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create
a greater ongoing potential financial risk than would purchase of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of hedging strategies would reduce net asset value,
and possibly income, and such losses can be greater than if the hedging
strategies had not been utilized.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rating payments of fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that specified index falls
below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors, and collars are entered into for good faith
hedging purposes, the investment adviser and the Fund believe such
obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal
acceptable rating for a swap, cap, floor, or collar to be purchased or held
in the Fund's portfolio. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid
than swaps.
RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S.,
(iv) the imposition of different exercise and settlement terms and
procedures and the margin requirements than in the U.S., and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging strategies, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of
the underlying security, financial instrument or currency. In general,
either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, a currency
contract which obligates the Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
hedging strategies. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets
if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other hedging strategies
may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation
is required, but if it terminates prior to such time, assets equal to any
remaining obligation would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price
at which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or
through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and a foreign currency involved
in an underlying transaction. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive
change in such currency relationships. The investment adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the Fund's
best interest to do so. The Fund will not speculate in foreign currency
exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
SPECIAL CONSIDERATIONS AFFECTING EMERGING MARKETS
Investing in equity securities of companies in emerging markets may entail
greater risks than investing in equity securities in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
the securities of companies in emerging markets, may entail special risks
relating to the potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, the Fund could lose its
entire investment in any such country.
Settlement mechanisms in emerging markets may be less efficient and reliable
than in more developed markets. In such emerging securities markets there may be
share registration and delivery delays or failures.
Most Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
any may continue to have negative effects on the economies and securities
markets of certain Latin American countries.
POLITICAL, SOCIAL AND ECONOMIC RISKS. Even though opportunities for investment
may exist in emerging markets, any change in the leadership or policies of the
governments of those countries or in the leadership or policies of any other
government which exercises a significant influence over those countries, may
halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and thereby eliminate any investment opportunities which
may currently exist.
Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of Latin American countries previously expropriated
large quantities of real and personal property similar to the property which
will be represented by the securities purchased by the Fund. The claims of
property owners against those governments were never finally settled. There can
be no assurance that any property represented by securities purchased by the
Fund will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, the Fund could lose its entire investment in
such countries. The Fund's investments would similarly be adversely affected by
exchange control regulation in any of those countries.
Certain countries in which the Fund may invest may have groups that advocate
radical religious or revolutionary philosophies or support ethnic independence.
Any disturbance on the part of such individuals could carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of the Fund's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extraconsititutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which the Fund
invests and adversely affect the value of the Fund's assets.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of
risk involved through the holding of portfolio securities in domestic and
foreign securities depositories. However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the investment
adviser, any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of shareholders. No assurance can be given that the Directors'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The investment adviser does not anticipate that portfolio turnover
will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined
by market conditions. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that the Fund will
bear directly.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially the
same investment objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, as amended, or assets exempted by the SEC) in an open-end
investment company with substantially the same investment objectives).
Shareholders will be notified before any material changes in these limitations
become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
invest no more than 5% of its total assets in any one investment company,
and invest no more than 10% of its total assets in investment companies in
general. The Fund will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets. It should
be noted that investment companies incur certain expenses such as
management fees, and, therefore, any investment by the Fund in shares of
another investment company would be subject to such duplicate expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities or futures contracts,
unless the securities or futures contracts are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities or
futures contracts are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants, including those acquired in units or attached to other
securities. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchanges. For purposes of
this investment restriction, warrants will be valued at the lower of cost
or market, except that warrants acquired by the Fund in units with or
attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund has no present intent to borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
in the coming fiscal year. In addition, the Fund expects to lend not more than
5% of its total assets in the coming fiscal year.
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
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 and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
WORLD INVESTMENT SERIES, INC. MANAGEMENT
OFFICERS AND DIRECTORS ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT
POSITIONS WITH WORLD INVESTMENT SERIES, INC., AND PRINCIPAL OCCUPATIONS.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated
Shareholder Services; Vice President, Federated Administrative Services;
Treasurer of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Corporation and
Chairman and Director 68 other investment companies in the Fund Complex
Thomas G. Bigley $ 0 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher $ 0 $0 for the Corporation and
President and Director 8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ 0 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0 $0 for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from January 26, 1994 (organization
date of the Corporation) to November 30, 1994.
#The aggregate compensation is provided for the Corporation which was comprised
of 1 portfolio, as of
November 30, 1994.
+The information is provided for the last calendar year end.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund 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
Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in each prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in each
prospectus. Dr. Henry J. Gailliot, an officer of Federated Global Research
Corp., the Adviser to the Fund, holds approximately 20% of the outstanding
common stock and serves as a director of Commercial Data Services, Inc., a
company which provides computer processing services to Federated Administrative
Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting 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 relation to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is
not obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
PURCHASING SHARES
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales load on Class A Shares only) on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES OF THE FUND
Directors, employees, and sales representatives of the Fund, Federated Global
Research Corp., and Federated Securities Corp. or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities Corp. and
their spouses and children under 21, may buy Class A Shares at net asset value
without a sales load. Shares may also be sold without a sales load to trusts or
pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the 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; and
o for all other securities, at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges unless the Directors determine in good faith that another method
of valuing such investments is necessary.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, 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 New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. 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
New York Stock Exchange. 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 Directors, although the actual calculation may
be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each prospectus under
"How To Redeem Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares and
applicable Class A Shares redeemed within one year of purchase may be subject to
a contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institution for services rendered,
and the length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount less than the administrative
fee that is stated in the prospectus for servicing a particular shareholder, the
contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges which
trade on Saturdays or on holidays on which the Fund will not make redemptions,
the net asset value of each class of Shares of the Fund may be significantly
affected on days when shareholders do not have an opportunity to redeem their
Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Corporation is obligated to
redeem Shares for any one shareholder in cash only up to the lesser of $250,000
or 1% of the respective class's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine 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 instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The average annual total return for each class of Shares of the Fund 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 net asset value 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
load, adjusted over the period by any additional Shares, assuming the annual
reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of Shares redeemed.
YIELD
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any 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:
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500), a
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 Standard &
Poor's figures.
o 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. From time to time, the Fund will quote its Lipper ranking
in the "emerging market region funds" category in advertising and sales
literature.
o MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o IBBOTSON ASSOCIATES INTERNATIONAL BOND INDEX, which provides a detailed
breakdown of local market and currency returns since 1960.
o BEAR STEARNS FOREIGN BOND INDEX, which provides simple average returns for
individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o MORNINGSTAR, INC. , an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values 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.
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of dollar-
cost averaging and may disclose the amount of dividends paid by the Fund over
certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs which
is reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, 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 advisors. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
*source: Investment Company Institute
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
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 Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's Ratings Group
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain indentifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
FEDERATED EUROPEAN GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated European Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The Fund
pursues its investment objective by investing primarily in the equity
securities of European companies.
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
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
dated February 13, 1996, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy
of the Combined Statement of Additional Information, which is in paper form
only, or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be
generated when document is
complete.
SUMMARY OF FUND EXPENSES
FEDERATED EUROPEAN GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED EUROPEAN GROWTH FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class B Shares Operating Expenses (3) (4).. %
(1)
The contingent deferred sales charge is 5.50% in the first year declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Contingent
Deferred Sales Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4)
The Total Class B Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class B Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class B Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED EUROPEAN GROWTH FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class C Shares Operating Expenses (3)...... %
(1)
The contingent deferred sales charge assessed is 1.00% of the lesser of
the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
The Total Class C Shares Operating Expenses are estimated to be %
-----
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class C Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class C Shares' fiscal year
ending November 30, 1996.
SYNOPSIS
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests
in separate portfolios of securities. As of the date of this prospectus,
the Board of Directors (the "Directors") has established three classes of
shares for the Fund, known as Class A Shares, Class B Shares, and Class C
Shares (individually and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in the equity securities
of European companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. The minimum initial investment for Class B Shares and Class C Shares
is $1500. However, the minimum initial investment for a retirement account
in any class is $50. Subsequent investments in any class must be in amounts
of at least $100, except for retirement plans which must be in amounts of
at least $50.
In general, Class A Shares are sold at net asset value plus an applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales
charge is imposed on certain Shares which are redeemed within six full
years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales
charge of 1.00% will be charged on assets redeemed within the first 12
months following purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with
respect to the Fund and certain other funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(the "Federated Funds") can be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser")
to the Fund and receives compensation for its services. The Adviser's
address is 175 Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, entering into repurchase
agreements, lending portfolio securities, investing in restricted and
illiquid securities, investing in securities on a when-issued and delayed
delivery basis, writing call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily
through Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of European companies.
Under normal market conditions, the Fund intends to invest at least 65% of
its total assets in equity securities of issuers and companies located in
Europe.
The Fund expects the majority of its equity assets to be invested in the
more established or liquid markets of Europe including Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway,
Spain, Sweden, Switzerland, and the United Kingdom. The Fund may invest in
countries other than those defined above, if, in the opinion of the Fund's
investment adviser, they are considered to be attractive or liquid. These
countries include Albania, Belarus, Bulgaria, Czech Republic, Estonia,
Greece, Hungary, Iceland, Latvia, Lithuania, Luxembourg, Poland, Portugal,
Romania, Russia, Slovakia, Turkey, Ukraine, and countries of the former
Yugoslavia.
While the investment adviser considers the above-mentioned countries
eligible for investment, the Fund will not be invested in all such markets
at all times. Furthermore, the Fund may not pursue investment in such
countries due to lack of adequate custody of the Fund's assets, overly
burdensome restrictions and repatriation, lack of an organized and liquid
market, or unacceptable political or other risks. The Fund intends to
allocate its investments among at least three countries at all times and
does not expect to concentrate investments in any particular industry.
European companies are defined as (i) those for which the principal
securities trading market is Europe, as described above; (ii) those which
are organized under the laws of, or with a principal office in, Europe; or
(iii) those, wherever organized or traded, which derive (directly or
indirectly through subsidiaries) at least 50% of their total assets,
capitalization, gross revenue or profit in their most current year from
goods produced, services performed, or sales made in Europe.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Directors without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become
effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the investment adviser typically evaluates
industry trends, a company's financial strength, its competitive position
in domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects, and prevailing and
prospective valuation levels. Other considerations generally include
quality and depth of management, government regulation, and availability
and cost of labor and raw materials. Investment decisions are made without
regard to arbitrary criteria as to minimum asset size, debt-equity ratios
or dividend history of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), International Depositary
Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts
("CDRs"), GDRs, GDCs, IDRs and RDCs are typically issued by foreign banks
or trust companies, although they also may be issued by United States banks
or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. ADRs, ADSs, CDRs,
EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as "Depositary
Receipts." Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt
and a depositary, whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored Depositary Receipt generally bear all
the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to
pass through to the holders of the receipts voting rights with respect to
the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
will be incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Samurai and
Yankee bonds, Eurobonds and depositary receipts. The issuers of such debt
securities may or may not be domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the investment adviser. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
investment adviser evaluates the investment characteristics of the
convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
foreign countries, investments in other investment companies may be the
most practical or only manner in which the Fund can participate in the
securities markets of such countries. The Fund may also invest in other
investment companies for the purpose of investing its short term cash on a
temporary basis. The Fund may invest up to 10% of its total assets in the
securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by
such companies, in addition to the fees and expenses payable directly by
the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
investment adviser will monitor the creditworthiness of the firms with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the value of
the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines
that market conditions warrant (up to 100% of total assets) and to maintain
liquidity (up to 20% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the investment adviser will consider the
likelihood of changes in currency values when making investment decisions,
the investment adviser believes that it is important to be able to enter
into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the value of
the Fund's assets denominated in that currency at the time the contract was
initiated, but as consistent with their other investment policies and as
not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the investment adviser's ability to predict
pertinent market movements; (2) there might be imperfect correlation, or
even no correlation, between the change in market value of the securities
held by the Fund and the prices of the futures and options thereon relating
to the securities purchased or sold by the Fund. The use of futures and
related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce
the opportunity for gain by offsetting the positive effect of favorable
price movements in positions. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign issuers;
credit risks associated with certain foreign governments;
the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
less readily available market quotations on foreign issues;
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
the likelihood that securities of foreign issuers may be less liquid or
more volatile;
foreign brokerage commissions may be higher;
unreliable mail service between countries;
political or financial changes which adversely affect investments in some
countries;
increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
certain markets may require payment for securities before delivery;
religious and ethnic instability; and
certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
RISK CONSIDERATIONS OF EUROPEAN COMPANIES
Greater Europe includes both the industrialized nations of Western Europe
and the less wealthy or developed countries in Southern and Eastern Europe.
Within this diverse area, the Fund seeks to benefit from accelerating
economic growth transformation and deregulation taking hold. These
developments involve, among other things, increased privatizations and
corporate restructurings, the reopening of equity markets and economies in
Eastern Europe, further broadening of the European Community, and the
implementation of economic policies to promote non-inflationary growth. The
Fund invests in companies it believes are well placed to benefit from these
and other structural and cyclical changes now underway in this region of
the world. The Fund will invest, under normal market conditions, at least
65% of its assets in the equity securities of European companies.
The securities markets of many European countries are relatively small,
with the majority of market capitalization and trading volume concentrated
in a limited number of companies representing a small number of industries.
Consequently, the Fund's investment portfolio may experience greater price
volatility and significantly lower liquidity than a portfolio invested in
equity securities of U.S. companies. These markets may be subject to
greater influence by adverse events generally affecting the market, and by
large investors trading significant blocks of securities, than is usual in
the U.S. Securities settlements may in some instances be subject to delays
and related administrative uncertainties.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of each class of Shares in the
market value of all securities and other assets of the Fund, subtracting
the interest of each class of Shares in the liabilities of the Fund and
those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value
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.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities
that its net asset value might be materially affected; (ii) days during
which no Shares are tendered for redemption and no orders to purchase
Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50%
at the time of purchase. As a result, Class A Shares are not subject to any
charges when they are redeemed (except for special programs offered under
"Purchases with Proceeds From Redemptions of Unaffiliated Investment
Companies"). Certain purchases of Class A Shares are not subject to a
sales load. See "Investing in Class A Shares." Certain purchases of Class
A Shares qualify for reduced sales loads. See "Reducing or Eliminating the
Sales Load." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than
Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of
the month eight full years after the purchase date. Class B Shares provide
an investor the benefit of putting all of the investor's dollars to work
from the time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A Shares due to the
higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first
12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee. Class C Shares
have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500 for Class A Shares and
$1,500 for Class B Shares and Class C Shares. Additional investments can be
made for as little as $100. The minimum initial and subsequent investment
for retirement plans is only $50. (Financial institutions may impose
different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an
order is received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Class A Shares purchased through "wrap accounts" or similar
programs, under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of
the applicable sales load. Any portion of the sales load which is not paid
to a dealer will be retained by the distributor. However, the distributor
may offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A
Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Class A Shares made on the same day by
the investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the
public offering price of $30,000 and he purchases $20,000 more at the
current public offering price, the sales load on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Class
A Shares of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Class A Shares in the Fund, there may
be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales
load, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an
order is received. While Class B Shares are sold without an initial sales
load, under certain circumstances described under "Contingent Deferred
Sales Charge--Class B Shares," a contingent deferred sales charge may be
applied by the distributor at the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around
the fifteenth of the month eight full years after the purchase date, except
as noted below, and may no longer be subject to a distribution services fee
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales
load, fee or other charge. Class B Shares acquired by exchange from Class B
Shares of another fund in the Liberty Family of Funds will convert into
Class A Shares based on the time of the initial purchase. For purposes of
conversion to Class A Shares, Shares purchased through the reinvestment of
dividends and distributions paid on Class B Shares will be considered to be
held in a separate sub-account. Each time any Class B Shares in the
shareholder's account (other than those in the sub-account) convert to
Class A Shares, an equal pro rata portion of the Class B Shares in the sub-
account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes.
There can be no assurance that such ruling or opinion will be available,
and the conversion of Class B Shares to Class A Shares will not occur if
such ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be
invested in Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales Charge-
-Class C Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
The financial institution which maintains investor accounts in Class B
Shares or Class C Shares with the Fund must do so on a fully disclosed
basis unless it accounts for share ownership periods used in calculating
the contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial institutions may
be subject to reclaim by the distributor for accounts transferred to
financial institutions which do not maintain investor accounts on a fully
disclosed basis and do not account for share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other
Federated Funds (as defined in the "Synopsis" of this prospectus) which are
sold with a sales load different from that of the Fund's or with no sales
load, and which are advised by subsidiaries or affiliates of Federated
Investors. These exchanges are made at net asset value plus the difference
between the Fund's sales load already paid and any sales load of the
Federated Fund into which the Shares are to be exchanged, if higher.
Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class
A Shares.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B
Shares of other funds in the Liberty Family of Funds. (Not all funds in the
Liberty Family of Funds currently offer Class B Shares. Contact your
financial institution regarding the availability of other Class B Shares in
the Liberty Family of Funds.) Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged Shares.
To the extent that a shareholder exchanges Shares for Class B Shares in
other funds in the Liberty Family of Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales
Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C
Shares in other funds in the Liberty Family of Funds at net asset value
without a contingent deferred sales charge. (Not all funds in the Liberty
Family of Funds currently offer Class C Shares. Contact your financial
institution regarding the availability of other Class C Shares in the
Liberty Family of Funds.) To the extent that a shareholder exchanges Shares
for Class C Shares in other funds in the Liberty Family of Funds, the time
for which the exchanged-for Shares are to be held will be added to the time
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred
Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds (where applicable) may be given in writing or by telephone.
Written instructions may require a signature guarantee. Shareholders of the
Fund may have difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's
address of record or by wire transfer to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that
method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Class A Shares are sold with a sales load, it is not advisable
for shareholders to continue to purchase Class A Shares while participating
in this program. A contingent deferred sales charge may be imposed on Class
B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six
full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption in accordance with
the following schedule:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one
full year of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of 1.00%. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to
a contingent deferred sales charge. In computing the amount of the
applicable contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than six full years from the date of purchase with respect to Class B
Shares and one full year from the date of purchase with respect to Class C
Shares and applicable Class A Shares; (3) Shares held for less than six
years with respect to Class B Shares and less than one full year from the
date of purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales charge
is not assessed in connection with an exchange of Fund Shares for shares of
other funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had
held the shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will
be eliminated with respect to certain redemptions (see "Elimination of
Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the Class A
Share required minimum value of $500 or the required minimum value of
$1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value
because of changes in the net asset value of the respective Share Class.
Before Shares are redeemed to close an account, the shareholder is notified
in writing and allowed 30 days to purchase additional Shares to meet the
minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research
Corp., the Fund's investment adviser, subject to direction by the
Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.00% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Drew J. Collins has been the Fund's portfolio manager its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager its inception. Mr.
Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from
1992 to 1995. He was the Executive Vice President and Director of Equities
at Oppenheimer Management Corporation from 1989 to 1991. Mr. Frantzen
received his B.S. in finance and marketing from the University of North
Dakota.
Frank Semack has been the Fund's portfolio manager since its inception. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. Semack served as an Investment Analyst at
Omega Advisers, Inc. from 1993 to 1994. He served as an Associate
Director/Portfolio Manager of Wardley Investment Services, Ltd. from 1980
to 1993. Mr. Semack received his M.Sc. in economics from the London School
of Economics.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to
1% of the net asset value of Class C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by
the distributor from its assets, and will not be made from assets of the
Fund. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset
value of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from the assets of the Fund. Dealers may voluntarily waive
receipt of all or any portion of these payments. The distributor may pay a
portion of the distribution fee discussed below to financial institutions
that waive all or any portion of the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of 1% for Class A Shares
and up to .75 of 1% for Class B Shares and Class C Shares of the average
daily net assets of each class of Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. The Fund does not currently make payments to the
distributor or charge a fee under the Distribution Plan for Class A Shares,
and shareholders of Class A Shares will be notified if the Fund intends to
charge a fee under the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75 of 1% of Class B Shares' average daily
net assets, it will take the distributor a number of years to recoup the
expenses it has incurred for its sales services and distribution-related
support services pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Class A Shares, Class B Shares, and Class C Shares
to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform Shareholder Services directly or will select financial institutions
to perform Shareholder Services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset
value of Class A Shares purchased by their clients or customers under
certain qualified retirement plans as approved by Federated Securities
Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C
Shares, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.
The Corporation expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion include, but are not
limited to: the cost of organizing the Corporation and continuing its
existence; registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues; and
such non-recurring and extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited
to: registering the portfolio and Class A Shares, Class B Shares, and Class
C Shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under
the Corporation's Distribution Plan and fees for Shareholder Services.
However, the Directors reserve the right to allocate certain other expenses
to holders of Class A Shares, Class B Shares and Class C Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares, Class B
Shares, and Class C Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to administrative personnel and services as required to
support holders of Class A Shares, Class B Shares, and Class C Shares;
legal fees relating solely to Class A Shares, Class B Shares, or Class C
Shares; and Directors' fees incurred as a result of issues related solely
to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election
of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each
class of Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all income
and capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per share of each class on the last day of the
period. This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by each class of
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares. Expense differences among Class A
Shares, Class B Shares, and Class C Shares may affect the performance of
each class.
From time to time, advertisements for Class A Shares, Class B Shares, and
Class C Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
FEDERATED EUROPEAN GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
An Open-End, Diversified
Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
Cusip #s
---------
G01469-02a(2/96)
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED EUROPEAN GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
The Class A Shares of Federated European Growth Fund (the "Fund") represent
interests in a diversified investment portfolio of World Investment Series,
Inc. (the "Corporation"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide long-term
growth of capital. Any income received from the portfolio is incidental.
The Fund pursues its investment objective by investing primarily in the
equity securities of European companies.
THE CLASS A 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Class A Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Combined Statement of Additional Information for
Class A Shares, Class B Shares, and Class C Shares dated February 13, 1996
with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined
Statement of Additional Information, which is in paper form only, or a
paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be
generated when document is
complete.
SUMMARY OF FUND EXPENSES
FEDERATED EUROPEAN GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "What Shares Cost" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
GENERAL INFORMATION
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Liberty Center, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of
Incorporation permit the Corporation to offer separate series of shares
representing interests in separate portfolios of securities. As of the date
of this prospectus, the Board of Directors (the "Directors") has
established three classes of shares for the Fund, known as Class A Shares,
Class B Shares, and Class C Shares. This prospectus relates only to Class
A Shares (the "Shares") of the Fund.
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in the equity securities
of European companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. However, the minimum initial investment for a retirement account is
$50. Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus the applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, entering into repurchase
agreements, lending portfolio securities, investing in restricted and
illiquid securities, investing in securities on a when-issued and delayed
delivery basis, writing call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily
through Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of European companies.
Under normal market conditions, the Fund intends to invest at least 65% of
its total assets in equity securities of issuers and companies located in
Europe.
The Fund expects the majority of its equity assets to be invested in the
more established or liquid markets of Europe including Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway,
Spain, Sweden, Switzerland, and the United Kingdom. The Fund may invest in
countries other than those defined above, if, in the opinion of the Fund's
investment adviser, they are considered to be attractive or liquid. These
countries include Albania, Belarus, Bulgaria, Czech Republic, Estonia,
Greece, Hungary, Iceland, Latvia, Lithuania, Luxembourg, Poland, Portugal,
Romania, Russia, Slovakia, Turkey, Ukraine, and countries of the former
Yugoslavia.
While the investment adviser considers the above-mentioned countries
eligible for investment, the Fund will not be invested in all such markets
at all times. Furthermore, the Fund may not pursue investment in such
countries due to lack of adequate custody of the Fund's assets, overly
burdensome restrictions and repatriation, lack of an organized and liquid
market, or unacceptable political or other risks. The Fund intends to
allocate its investments among at least three countries at all times and
does not expect to concentrate investments in any particular industry.
European companies are defined as (i) those for which the principal
securities trading market is Europe, as described above; (ii) those which
are organized under the laws of, or with a principal office in, Europe; or
(iii) those, wherever organized or traded, which derive (directly or
indirectly through subsidiaries) at least 50% of their total assets,
capitalization, gross revenue or profit in their most current year from
goods produced, services performed, or sales made in Europe.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Directors without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become
effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the investment adviser typically evaluates
industry trends, a company's financial strength, its competitive position
in domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects, and prevailing and
prospective valuation levels. Other considerations generally include
quality and depth of management, government regulation, and availability
and cost of labor and raw materials. Investment decisions are made without
regard to arbitrary criteria as to minimum asset size, debt-equity ratios
or dividend history of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), International Depositary
Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts
("CDRs"), GDRs, GDCs, IDRs and RDCs are typically issued by foreign banks
or trust companies, although they also may be issued by United States banks
or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. ADRs, ADSs, CDRs,
EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as "Depositary
Receipts." Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt
and a depositary, whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored Depositary Receipt generally bear all
the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to
pass through to the holders of the receipts voting rights with respect to
the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
will be incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Samurai and
Yankee bonds, Eurobonds and depositary receipts. The issuers of such debt
securities may or may not be domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the investment adviser. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
investment adviser evaluates the investment characteristics of the
convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
foreign countries, investments in other investment companies may be the
most practical or only manner in which the Fund can participate in the
securities markets of such countries. The Fund may also invest in other
investment companies for the purpose of investing its short term cash on a
temporary basis. The Fund may invest up to 10% of its total assets in the
securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by
such companies, in addition to the fees and expenses payable directly by
the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
investment adviser will monitor the creditworthiness of the firms with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the value of
the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines
that market conditions warrant (up to 100% of total assets) and to maintain
liquidity (up to 20% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the investment adviser will consider the
likelihood of changes in currency values when making investment decisions,
the investment adviser believes that it is important to be able to enter
into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the value of
the Fund's assets denominated in that currency at the time the contract was
initiated, but as consistent with their other investment policies and as
not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the investment adviser's ability to predict
pertinent market movements; (2) there might be imperfect correlation, or
even no correlation, between the change in market value of the securities
held by the Fund and the prices of the futures and options thereon relating
to the securities purchased or sold by the Fund. The use of futures and
related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce
the opportunity for gain by offsetting the positive effect of favorable
price movements in positions. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign issuers;
credit risks associated with certain foreign governments;
the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
less readily available market quotations on foreign issues;
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
the likelihood that securities of foreign issuers may be less liquid or
more volatile;
foreign brokerage commissions may be higher;
unreliable mail service between countries;
political or financial changes which adversely affect investments in some
countries;
increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
certain markets may require payment for securities before delivery;
religious and ethnic instability; and
certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
RISK CONSIDERATIONS OF EUROPEAN COMPANIES
Greater Europe includes both the industrialized nations of Western Europe
and the less wealthy or developed countries in Southern and Eastern Europe.
Within this diverse area, the Fund seeks to benefit from accelerating
economic growth transformation and deregulation taking hold. These
developments involve, among other things, increased privatizations and
corporate restructurings, the reopening of equity markets and economies in
Eastern Europe, further broadening of the European Community, and the
implementation of economic policies to promote non-inflationary growth. The
Fund invests in companies it believes are well placed to benefit from these
and other structural and cyclical changes now underway in this region of
the world. The Fund will invest, under normal market conditions, at least
65% of its assets in the equity securities of European companies.
The securities markets of many European countries are relatively small,
with the majority of market capitalization and trading volume concentrated
in a limited number of companies representing a small number of industries.
Consequently, the Fund's investment portfolio may experience greater price
volatility and significantly lower liquidity than a portfolio invested in
equity securities of U.S. companies. These markets may be subject to
greater influence by adverse events generally affecting the market, and by
large investors trading significant blocks of securities, than is usual in
the U.S. Securities settlements may in some instances be subject to delays
and related administrative uncertainties.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Class A Shares in the market
value of all securities and other assets of the Fund, subtracting the
interest of Class A Shares in the liabilities of the Fund and those
attributable to Class A Shares, and dividing the remainder by the total
number of Class A Shares outstanding. The net asset value for Class A
Shares may differ from that of Class B Shares and Class C Shares 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.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500. Additional investments
can be made for as little as $100. The minimum initial and subsequent
investment for retirement plans is only $50. (Financial institutions may
impose different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71%
4.00%
$100,000 but less than $250,000 3.75% 3.90%
3.25%
$250,000 but less than $500,000 2.50% 2.56%
2.25%
$500,000 but less than $1 million 2.00% 2.04%
1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Shares purchased through "wrap accounts" or similar programs,
under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may
offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21
when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $30,000 and he purchases $20,000 more at the current
public offering price, the sales load on the additional purchase according
to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Shares
of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other funds
for which affiliates of Federated Investors serve as investment adviser or
principal underwriter ("Federated Funds") which are sold with a sales load
different from that of the Fund's or with no sales load, and which are
advised by subsidiaries or affiliates of Federated Investors. These
exchanges are made at net asset value plus the difference between the
Fund's sales load already paid and any sales load of the Federated Fund
into which the Shares are to be exchanged, if higher. Neither the Fund nor
any of the funds in the Liberty Family of Funds imposes any additional fees
on exchanges. Shareholders in certain other Federated Funds may exchange
their shares in the Federated Funds for Class A Shares.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund
may have difficulty in making exchanges by telephone through brokers and
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds will be mailed in the form of a
check, to the shareholder's address of record or by wire transfer to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Shares are sold with a sales load, it is not advisable for
shareholders to continue to purchase Shares while participating in this
program.
CONTINGENT DEFERRED SALES CHARGE
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
one full year from the date of purchase. Redemptions will be processed in a
manner intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. In computing the amount of
the applicable contingent deferred sales charge, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than one full year from the date of purchase; (3) Shares held for less
than one full year from the date of purchase on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection
with an exchange of Fund Shares for shares of other funds in the Liberty
Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for
Shares are redeemed is calculated as if the shareholder had held the shares
from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated
with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the required
minimum value of $500. This requirement does not apply, however, if the
balance falls below the required minimum value because of changes in the
net asset value of Shares. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's investment
adviser, Federated Global Research Corp. (the "Adviser"), subject to
direction by the Directors. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Fund. The Adviser's address is 175 Water Street, New York, New York
10038-4965.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.00% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Drew J. Collins has been the Fund's portfolio manager since its inception.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager since its
inception. Mr. Frantzen joined Federated Investors in 1995 as an Executive
Vice President of the Fund's investment adviser. Mr. Frantzen served as
Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 to 1995. He was the Executive Vice President and
Director of Equities at Oppenheimer Management Corporation from 1989 to
1991. Mr. Frantzen received his B.S. in finance and marketing from the
University of North Dakota.
Frank Semack has been the Fund's portfolio manager since its inception. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. Semack served as an Investment Analyst at
Omega Advisers, Inc. from 1993 to 1994. He served as an Associate
Director/Portfolio Manager of Wardley Investment Services, Ltd. from 1980
to 1993. Mr. Semack received his M.Sc. in economics from the London School
of Economics.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of l% of the average
daily net assets of Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution Plan.
The Fund does not currently make payments to the distributor or charge a
fee under the Distribution Plan for Shares, and shareholders will be
notified if the Fund intends to charge a fee under the Distribution Plan.
For Shares, the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform Shareholder Services directly or will select
financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under certain qualified retirement
plans as approved by Federated Securities Corp. (Such payments are subject
to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10% of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Corporation and portfolio
expenses.
The Corporation expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: the cost of organizing
the Corporation and continuing its existence; registering the Corporation
with federal and state securities authorities; Directors' fees; auditors'
fees; the cost of meetings of Directors; legal fees of the Corporation;
association membership dues; and such non-recurring and extraordinary items
as may arise from time to time.
The portfolio expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: registering the
portfolio and Class A Shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; and such non-recurring and extraordinary items as may arise
from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares as a class are expenses under the Corporation's Distribution Plan
and fees for Shareholder Services. However, the Directors reserve the right
to allocate certain other expenses to holders of Class A Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to
state securities commissions; expenses related to administrative personnel
and services as required to support holders of Class A Shares; legal fees
relating solely to Class A Shares; and Directors' fees incurred as a result
of issues related solely to Class A Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland business corporation, the Corporation is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Corporation's or the Fund's operation and for the
election of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class
A Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in Class A Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by Class A Shares over a thirty-day period by the maximum offering
price per share of each class on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Class A Shares and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares.
From time to time, advertisements for Class A Shares of the Fund may refer
to ratings, rankings, and other information in certain financial
publications and/or compare the performance of Class A Shares to certain
indices.
OTHER CLASSES OF SHARES
As of the date of this prospectus, the Fund also offers two other classes
of shares called Class B Shares and Class C Shares. This prospectus relates
only to Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund
has also adopted a Distribution Plan whereby the distributor is paid a fee
of up to .75 of 1% and a Shareholder Services fee of up to .25 of 1% of the
Class B Shares' average daily net assets with respect to Class B Shares.
Investments in Class B Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions at
net asset value with no initial sales load. Class C Shares are distributed
pursuant to a Distribution Plan adopted by the Fund whereby the distributor
is paid a fee of up to .75 of 1%, in addition to a Shareholder Services fee
of .25 of 1% of the Class C Shares' average daily net assets. In addition,
Class C Shares may be subject to certain contingent deferred sales charges.
Investments in Class C Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain
of the same expenses. Expense differences, however, among Class A Shares,
Class B Shares, and Class C Shares may affect the performance of each
class.
To obtain more information and a prospectus for either Class B Shares or
Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.
FEDERATED EUROPEAN GROWTH FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
G01469-01a(11/95)
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED EUROPEAN GROWTH FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for
Class A Shares, Class B Shares, and Class C Shares, or the stand-alone
prospectus for Class A Shares of Federated European Growth Fund (the
"Fund") dated February 13, 1996. This Statement is not a prospectus itself.
To receive a copy of either prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 13, 1996
A subsidiary of FEDERATED INVESTORS CORP.
Distributor
GENERAL INFORMATION ABOUT THE Additional Risk Considerations
FUND 3 33
Special Considerations Affecting
INVESTMENT OBJECTIVE AND POLICIES
Europe 34
3
Portfolio Turnover 35
Convertible Securities 3 Investment Limitations 35
Warrants 4 WORLD INVESTMENT SERIES, INC.
Sovereign Debt Obligations5 MANAGEMENT 43
When-Issued and Delayed Delivery
Fund Ownership 54
Transactions 6
Directors Compensation 54
Lending of Portfolio Securities
INVESTMENT ADVISORY SERVICES
6
56
Repurchase Agreements 7
Reverse Repurchase Agreements Adviser to the Fund 56
8 Advisory Fees 57
Restricted and Illiquid Other Related Services 58
Securities 8 ADMINISTRATIVE SERVICES 58
Futures and Options Transactions
TRANSFER AGENT AND DIVIDEND
10
DISBURSING AGENT 59
Risks 19
Foreign Currency Transactions BROKERAGE TRANSACTIONS 59
27
PURCHASING SHARES 61 TOTAL RETURN 68
Distribution Plan and YIELD 69
Shareholder Services Agreement
PERFORMANCE COMPARISONS 70
61
Conversion to Federal Funds ABOUT FEDERATED INVESTORS 73
62
Mutual Fund Market 74
Purchases by Sales
Institutional 74
Representatives, Directors, and
Trust Organizations 75
Employees of the Fund 63
Broker/Dealers and Bank
DETERMINING NET ASSET VALUE63
Broker/Dealer Subsidiaries
Determining Market Value of 75
Securities 63 APPENDIX 75
Trading in Foreign Securities
64
REDEEMING SHARES 65
Redemption in Kind 66
TAX STATUS 67
The Fund's Tax Status 67
Foreign Taxes 68
Shareholders' Tax Status68
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of World Investment Series, Inc. (the
"Corporation"), which was established under the laws of the State of
Maryland on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as "Shares" as the context may require). This Combined Statement of
Additional Information relates to all three classes of the above-mentioned
Shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of
capital. Any income realized from the portfolio is incidental. The Fund
pursues its investment objective by investing primarily in equity
securities of European companies. The investment objective cannot be
changed without approval of shareholders.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Fund
may invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in
the underlying equity securities. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. The holder is
entitled to receive the fixed income of a bond or the dividend preference
of a preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock.
Convertible securities are senior to equity securities, and therefore have
a claim to assets of the corporation prior to the holders of common stock
in the case of liquidation. However, convertible securities are generally
subordinated to similar nonconvertible securities of the same company. The
interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The
Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stocks when, in the
investment adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving it investment
objective. Otherwise, the Fund will hold or trade the convertible
securities.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common
stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or
may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of countries with
emerging markets or developing countries. Sovereign debt may be in the form
of conventional securities or other types of debt instruments, such as
loans or loan participations. Sovereign debt of emerging market or
developing countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors. The Fund may also
invest in debt obligations of supranational entities, which include
international organizations designed or supported by governmental entities
to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these
include, but are not limited to, the International Bank for Reconstruction
and Development (World Bank), European Investment Bank and Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Corporation's Board
of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future, the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund will be able to
avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933, as amended (the "Rule"). The
Rule is a non-exclusive safe-harbor for certain secondary market
transactions involving registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of
the SEC has left the question of determining the liquidity of all
restricted securities to the Directors. The Directors may consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona
fide market does not exist at the time of purchase or subsequent
transaction shall be treated as illiquid securities by the Directors.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and
the buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at which
the index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a
drop in rates generally means a rise in price. In order to hedge its
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e.,
agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates. The Fund may also invest
in securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the investment
adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the
Fund grants to the purchaser of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract, even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The Fund has no obligation to return premiums
paid to it whether or not the option is exercised. It will generally be
the policy of the Fund, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect of
canceling the Fund's position as a seller. The premium which the Fund will
pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge
its portfolio against an increase in market interest rates, a decrease in
stock prices, or when the investment adviser believes such investment is
more efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of
the option if the option is exercised. As stock prices fall or market
interest rates rise and cause the price of futures to decrease, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss
or minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio.
A put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer
of a put option, the Fund has the obligation to purchase a security from
the purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded
on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
RISKS
OPTIONS
Certain hedging vehicles have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the adviser's view as to certain market movements is incorrect,
the risk that the use of such hedging strategies could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may both be
liquid in all circumstances and certain over-the-counter options may have
not markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create
a greater ongoing potential financial risk than would purchase of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of hedging strategies would reduce net asset value,
and possibly income, and such losses can be greater than if the hedging
strategies had not been utilized.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rating payments of fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that specified index falls
below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors, and collars are entered into for good faith
hedging purposes, the investment adviser and the Fund believe such
obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal aceptable
rating for a swap, cap, floor, or collar to be purchased or held in the
Fund's portfolio. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid
than swaps.
RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S.,
(iv) the imposition of different exercise and settlement terms and
procedures and the margin requirements than in the U.S., and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging strategies, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of
the underlying security, financial instrument or currency. In general,
either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, a currency
contract which obligates the Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
hedging strategies. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets
if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other hedging strategies
may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation
is required, but if it terminates prior to such time, assets equal to any
remaining obligation would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price
at which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or
through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and a foreign currency involved
in an underlying transaction. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive
change in such currency relationships. The investment adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the Fund's
best interest to do so. The Fund will not speculate in foreign currency
exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Directors
also consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in
the absence of willful misfeasance, bad faith or gross negligence on the
part of the investment adviser, any losses resulting from the holding of
the Fund's portfolio securities in foreign countries and/or with securities
depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or
that such exchange control restrictions or political acts of foreign
governments might not occur.
SPECIAL CONSIDERATIONS AFFECTING EUROPE
The countries that are members of the European Union (Belgium, Denmark,
France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
Spain, Austria, Sweden, Finland, and the United Kingdom) eliminated certain
import tariffs and quotas, and other trade barriers with respect to one
another over the past several years. The adviser believes that this
deregulation should improve the prospects for economic growth in many
European countries. Among other things, the deregulation could enable
companies domiciled in one country to avail themselves of lower labor costs
existing in other countries. In addition, this deregulation could benefit
companies domiciled on one country by opening additional markets for their
goods and services in other countries. Since, however, it is not clear at
this time what the exact form or effect of these European Union reforms
will be on business in Western Europe or the emerging European markets, it
is impossible to predict the long-term impact of the implementation of
these programs on the securities owned by the Fund.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that portfolio turnover will result in adverse tax consequences.
It is not anticipated that the portfolio trading engaged in by the Fund
will result in its annual rate of portfolio turnover exceeding 100%;
however, the relative performance of the Fund's investments may make a
realignment of the Fund's portfolio desirable from time to time. The
frequency of such portfolio realignments will be determined by market
conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no
investment limitation of the Fund shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered
"investment securities" under the Investment Company Act of 1940, as
amended, or assets exempted by the SEC) in an open-end investment company
with substantially the same investment objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially
all of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially
the same investment objectives). Shareholders will be notified before any
material changes in these limitations become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
will invest no more than 5% of its total assets in any one investment
company, and will invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain expenses
such as management fees, and, therefore, any investment by the Fund in
shares of another investment company would be subject to such duplicate
expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities or futures contracts,
unless the securities or futures contracts are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities or
futures contracts are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants, including those acquired in units or attached to other
securities. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchanges. For purposes of
this investment restriction, warrants will be valued at the lower of cost
or market, except that warrants acquired by the Fund in units with or
attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities, or
invest in reverse repurchase agreements in excess of 5% of the value of its
total assets in the coming fiscal year. In addition, the Fund expects to
lend not more than 5% of its total assets in the coming fiscal year.
To comply with registration requirements in certain states, the Fund
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund
to 5% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
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 and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
WORLD INVESTMENT SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with World Investment Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing
General Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; founding Chairman,
National Advisory Council for Environmental Policy and Technology and
Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Administrative Services, Federated
Services Company, and Federated Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or Managing General Partner of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management, and
Federated Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Services Company; Executive Vice
President, Secretary, and Trustee, Federated Administrative Services;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Senior Vice
President, Federated Shareholder Services; Vice President, Federated
Administrative Services; Treasurer of some of the Funds.
*
This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@
Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for
U.S. Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; and
World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Corporation and
Chairman and Director 68 other investment companies in the Fund Complex
Thomas G. Bigley $ 0 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 0
$106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher $ 0 $0 for the Corporation and
President and Director
8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 0
$117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ 0 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0 $0 for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from January 26, 1994
(organization date of the Corporation) to November 30, 1994.
#The aggregate compensation is provided for the Corporation which was
comprised of 1 portfolio, as of
November 30, 1994.
+The information is provided for the last calendar year end.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any
shareholder of the Fund 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 Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in each prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities
Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in each prospectus. Dr. Henry J. Gailliot, an officer of
Federated Global Research Corp., the Adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director
of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's average
net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting 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 relation to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent
that receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser
is not obligated to obtain any material non-public ("inside") information
about any securities issuer, or to base purchase or sale recommendations on
such information.
PURCHASING SHARES
Except under certain circumstances described in each prospectus, Shares are
sold at their net asset value (plus a sales load on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in each prospectus under "How To Purchase
Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services as appropriate, to
stimulate distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A
Shares, Class B Shares, and Class C Shares of the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES OF THE FUND
Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. or their affiliates,
or any investment dealer who has a sales agreement with Federated
Securities Corp. and their spouses and children under 21, may buy Class A
Shares at net asset value without a sales load. Shares may also be sold
without a sales load to trusts or pension or profit-sharing plans for these
people.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities
exchange or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the 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; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of
trading on such exchanges unless the Directors determine in good faith that
another method of valuing such investments is necessary.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
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
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. 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 New York Stock Exchange. 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 Directors,
although the actual calculation may be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each prospectus
under "How To Redeem Shares." Although the transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares and
applicable Class A Shares redeemed within one year of purchase may be
subject to a contingent deferred sales charge. The amount of the contingent
deferred sales charge is based upon the amount of the administrative fee
paid at the time of purchase by the distributor to the financial
institution for services rendered, and the length of time the investor
remains a shareholder in the Fund. Should financial institutions elect to
receive an amount less than the administrative fee that is stated in the
prospectus for servicing a particular shareholder, the contingent deferred
sales charge and/or holding period for that particular shareholder will be
reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges
which trade on Saturdays or on holidays on which the Fund will not make
redemptions, the net asset value of each class of Shares of the Fund may be
significantly affected on days when shareholders do not have an opportunity
to redeem their Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole or
in part by a distribution of securities from the respective Fund's
portfolio. To the extent available, such securities will be readily
marketable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Corporation is obligated
to redeem Shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective class's net asset value during any 90-day
period.
Any redemption beyond this amount will also be in cash unless the Directors
determine 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
instruments, valued in the same way as the Fund determines net asset value.
The portfolio instruments will be selected in a manner that the Directors
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations
which would constitute a Passive Foreign Investment Company ("PFIC").
Federal income taxes may be imposed on the Fund upon disposition of PFIC
investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The average annual total return for each class of Shares of the Fund 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 net asset value 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 load, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of Shares redeemed.
YIELD
The yield for each class of Shares of the Fund is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per share of the respective class on the last
day of the period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P
500), a 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 Standard & Poor's figures.
o 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. From time to time, the Fund will quote
its Lipper ranking in the "European region funds" category in
advertising and sales literature.
o MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of
more than 1,000 companies of Europe, Australia, and the Far East.
o IBBOTSON ASSOCIATES INTERNATIONAL BOND INDEX, which provides a detailed
breakdown of local market and currency returns since 1960.
o BEAR STEARNS FOREIGN BOND INDEX, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
o MORNINGSTAR, INC. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values 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.
From time to time, the Fund may quote information including but not limited
to data regarding: individual countries, regions, world stock exchanges,
and economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on annual reinvestment of
dividends over a specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of
deposit and time deposits and to money market funds using the Lipper
Analytical Services money market instruments average. In addition,
advertising and sales literature for the Fund may use charts and graphs to
illustrate the principles of dollar-cost averaging and may disclose the
amount of dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs
which is reflected in its investment decision making-structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment products
that have gained the confidence of thousands of clients and their
customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, 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 advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
Ratings Group believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA--Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain indentifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated International Small Company Fund (the "Fund")
represent interests in a diversified portfolio of World Investment Series,
Inc. (the "Corporation"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide long-term
growth of capital. Any income received from the portfolio is incidental.
The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of equity securities of small foreign
companies.
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
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
dated February 13, 1996, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy
of the Combined Statement of Additional Information, which is in paper form
only, or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be
generated when document is
complete.
SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)..... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................. $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ............... $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class B Shares Operating Expenses (3) (4).. %
(1)
The contingent deferred sales charge is 5.50% in the first year declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Contingent
Deferred Sales Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4)
The Total Class B Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class B Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................. $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ............... $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class B Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class C Shares Operating Expenses (3)...... %
(1)
The contingent deferred sales charge assessed is 1.00% of the lesser of
the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
The Total Class C Shares Operating Expenses are estimated to be %
-----
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class C Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................. $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ............... $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class C Shares' fiscal year
ending November 30, 1996.
SYNOPSIS
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests
in separate portfolios of securities. As of the date of this prospectus,
the Board of Directors (the "Directors") has established three classes of
shares for the Fund, known as Class A Shares, Class B Shares, and Class C
Shares (individually and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in a portfolio of equity
securities of small foreign companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. The minimum initial investment for Class B Shares and Class C Shares
is $1500. However, the minimum initial investment for a retirement account
in any class is $50. Subsequent investments in any class must be in amounts
of at least $100, except for retirement plans which must be in amounts of
at least $50.
In general, Class A Shares are sold at net asset value plus an applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales
charge is imposed on certain Shares which are redeemed within six full
years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales
charge of 1.00% will be charged on assets redeemed within the first 12
months following purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with
respect to the Fund and certain other funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(the "Federated Funds") can be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser")
to the Fund and receives compensation for its services. The Adviser's
address is 175 Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, entering into repurchase
agreements, lending portfolio securities, investing in restricted and
illiquid securities, investing in securities on a when-issued and delayed
delivery basis, writing call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily
through Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of equity securities of
small foreign companies. Under normal market conditions, the Fund intends
to invest at least 65% of its total assets in equity securities of
companies that have a market capitalization at the time of purchase of $1.5
billion or less, where market capitalization is calculated by multiplying
the total number of outstanding shares of common stock of the company by
the market price of the stock. The Fund applies a U.S. size standard on an
international basis. Therefore, a small company investment outside the
U.S. might rank above the lowest 20% by market capitalization in local
markets and, in fact, might in some countries rank among the largest
companies in terms of capitalization. These companies will be located in
at least three foreign countries.
The Fund expects to diversify investments in markets outside of the United
States, including markets in Asia, Europe, Latin America, the Indian sub-
continent, the Middle East and Africa. The Fund may invest in countries
other than those defined above if, in the opinion of the Fund's investment
adviser, they offer opportunities to pursue the Fund's investment
objective.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Directors without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become
effective.
SMALL CAPITALIZATION COMPANIES
Small capitalization companies are those companies that have a market
capitalization of $1.5 billion or less at the time of purchase. Small
capitalization companies are positioned for rapid growth in revenues or
earnings and assets, characteristics which may provide for significant
capital appreciation. Small companies often pay no dividends and current
income is not a factor in the selection of stocks. Smaller companies often
have limited product lines, markets, or financial resources, and they may
be dependent upon one or a few key people for management. (See "Risk
Considerations of Small Capitalization Companies").
The Fund has the flexibility to invest in any region of the world. It can
invest in companies based in emerging markets, typically in the Far East,
Latin America and Eastern Europe, as well as in firms operating in
developed economies, such as those of Canada, Japan and Western Europe.
The Fund applies a U.S. size standard on a global basis. Therefore, a
small company investment outside the U.S. might rank above the lowest 20%
by market capitalization in local markets and, in fact, might in some
countries rank among the largest companies in terms of capitalization.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the investment adviser typically evaluates
industry trends, a company's financial strength, its competitive position
in domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects. Other
considerations generally include quality and depth of management,
government regulation, and availability and cost of labor and raw
materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history
of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), International Depositary
Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts
("CDRs"), GDRs, GDCs, IDRs and RDCs are typically issued by foreign banks
or trust companies, although they also may be issued by United States banks
or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. ADRs, ADSs, CDRs,
EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as "Depositary
Receipts." Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt
and a depositary, whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored Depositary Receipt generally bear all
the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to
pass through to the holders of the receipts voting rights with respect to
the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
will be incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Samurai and
Yankee bonds, Eurobonds and depositary receipts. The issuers of such debt
securities may or may not be domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the investment adviser. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the investment adviser.
(If a security's rating is reduced below the required minimum after the
Fund has purchased it, the Fund is not required to sell the security, but
may consider doing so.)
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
investment adviser evaluates the investment characteristics of the
convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
foreign countries, investments in other investment companies may be the
most practical or only manner in which the Fund can participate in the
securities markets of such countries. The Fund may also invest in other
investment companies for the purpose of investing its short term cash on a
temporary basis. The Fund may invest up to 10% of its total assets in the
securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by
such companies, in addition to the fees and expenses payable directly by
the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
investment adviser will monitor the creditworthiness of the firms with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the value of
the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines
that market conditions warrant (up to 100% of total assets) and to maintain
liquidity (up to 20% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the investment adviser will consider the
likelihood of changes in currency values when making investment decisions,
the investment adviser believes that it is important to be able to enter
into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the value of
the Fund's assets denominated in that currency at the time the contract was
initiated, but as consistent with their other investment policies and as
not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the investment adviser's ability to predict
pertinent market movements; (2) there might be imperfect correlation, or
even no correlation, between the change in market value of the securities
held by the Fund and the prices of the futures and options thereon relating
to the securities purchased or sold by the Fund. The use of futures and
related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce
the opportunity for gain by offsetting the positive effect of favorable
price movements in positions. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
RISK CONSIDERATIONS OF SMALL CAPITALIZATION COMPANIES
There is typically less publicly available information concerning foreign
and smaller companies than for domestic and larger, more established
companies. Some small companies have limited product lines, distribution
channels and financial and managerial resources. Also, because smaller
companies normally have fewer shares outstanding than larger companies and
trade less frequently, it may be more difficult for the Fund to buy and
sell significant amounts of such shares without an unfavorable impact on
prevailing market prices. Some of the companies in which the Fund may
invest may distribute, sell or produce products which have recently been
brought to market and may be dependent on key personnel with varying
degrees of experience.
As with other mutual funds that invest primarily in equity securities, the
Fund is subject to market risks. That is, the possibility exists that
common stocks will decline over short or even extended periods of time.
However, because the Fund invests primarily in small capitalization stocks,
there are some additional risks factors associated with investments in the
Fund. In particular, stocks in the small capitalization sector may be more
volatile in price than larger capitalization stocks. This is because, among
other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market;
and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of
large companies. That is, the stocks of small companies may decline in
price as the prices of large company stocks rise or vice versa. Therefore,
investors should expect that the Fund will be more volatile than, and may
fluctuate independently of broad stock market indices.
RISK CONSIDERATIONS IN EMERGING MARKETS
Investing in securities of issuers in emerging market countries involves
exposure to significantly higher risk than investing in countries with
developed markets. Emerging market countries may have economic structures
that are generally less diverse and mature and political systems that can
be expected to be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties
of investing in lesser developed markets and economies. In particular,
emerging market countries may have relatively unstable governments, and may
present the risk of nationalization of businesses, expropriation,
confiscatory taxation or, in certain instances, reversion to closed market,
centrally planned economies. Such countries may also have restrictions on
foreign ownership or prohibitions on the repatriation of assets, and may
have less protection of property rights than developed countries.
The economies of emerging market countries may be predominantly based on
only a few industries or dependent on revenues from particular commodities
or on international aid or development assistance, may be highly vulnerable
to changes in local or global trade conditions, and may suffer from extreme
and volatile debt burdens or inflation rates. In addition, securities
markets in emerging market countries may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially resulting in a lack of liquidity and in volatility in the price
of securities traded on those markets. Also, securities markets in emerging
market countries typically offer less regulatory protection for investors.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of each class of Shares in the
market value of all securities and other assets of the Fund, subtracting
the interest of each class of Shares in the liabilities of the Fund and
those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value
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.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities
that its net asset value might be materially affected; (ii) days during
which no Shares are tendered for redemption and no orders to purchase
Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50%
at the time of purchase. As a result, Class A Shares are not subject to any
charges when they are redeemed (except for special programs offered under
"Purchases with Proceeds From Redemptions of Unaffiliated Investment
Companies"). Certain purchases of Class A Shares are not subject to a sales
load. See "Investing in Class A Shares." Certain purchases of Class A
Shares qualify for reduced sales loads. See "Reducing or Eliminating the
Sales Load." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than
Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of
the month eight full years after the purchase date. Class B Shares provide
an investor the benefit of putting all of the investor's dollars to work
from the time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A Shares due to the
higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first
12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee. Class C Shares
have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500 for Class A Shares and
$1,500 for Class B Shares and Class C Shares. Additional investments can be
made for as little as $100. The minimum initial and subsequent investment
for retirement plans is only $50. (Financial institutions may impose
different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an
order is received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Class A Shares purchased through "wrap accounts" or similar
programs, under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of
the applicable sales load. Any portion of the sales load which is not paid
to a dealer will be retained by the distributor. However, the distributor
may offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A
Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Class A Shares made on the same day by
the investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the
public offering price of $30,000 and he purchases $20,000 more at the
current public offering price, the sales load on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Class
A Shares of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Class A Shares in the Fund, there may
be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales
load, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an
order is received. While Class B Shares are sold without an initial sales
load, under certain circumstances described under "Contingent Deferred
Sales Charge--Class B Shares," a contingent deferred sales charge may be
applied by the distributor at the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around
the fifteenth of the month eight full years after the purchase date, except
as noted below, and may no longer be subject to a distribution services fee
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales
load, fee or other charge. Class B Shares acquired by exchange from Class B
Shares of another fund in the Liberty Family of Funds will convert into
Class A Shares based on the time of the initial purchase. For purposes of
conversion to Class A Shares, Shares purchased through the reinvestment of
dividends and distributions paid on Class B Shares will be considered to be
held in a separate sub-account. Each time any Class B Shares in the
shareholder's account (other than those in the sub-account) convert to
Class A Shares, an equal pro rata portion of the Class B Shares in the sub-
account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes.
There can be no assurance that such ruling or opinion will be available,
and the conversion of Class B Shares to Class A Shares will not occur if
such ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be
invested in Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales Charge-
-Class C Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
The financial institution which maintains investor accounts in Class B
Shares or Class C Shares with the Fund must do so on a fully disclosed
basis unless it accounts for share ownership periods used in calculating
the contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial institutions may
be subject to reclaim by the distributor for accounts transferred to
financial institutions which do not maintain investor accounts on a fully
disclosed basis and do not account for share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other
Federated Funds (as defined in the "Synopsis" of this prospectus) which are
sold with a sales load different from that of the Fund's or with no sales
load, and which are advised by subsidiaries or affiliates of Federated
Investors. These exchanges are made at net asset value plus the difference
between the Fund's sales load already paid and any sales load of the
Federated Fund into which the Shares are to be exchanged, if higher.
Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class
A Shares.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B
Shares of other funds in the Liberty Family of Funds. (Not all funds in the
Liberty Family of Funds currently offer Class B Shares. Contact your
financial institution regarding the availability of other Class B Shares in
the Liberty Family of Funds.) Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged Shares.
To the extent that a shareholder exchanges Shares for Class B Shares in
other funds in the Liberty Family of Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales
Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C
Shares in other funds in the Liberty Family of Funds at net asset value
without a contingent deferred sales charge. (Not all funds in the Liberty
Family of Funds currently offer Class C Shares. Contact your financial
institution regarding the availability of other Class C Shares in the
Liberty Family of Funds.) To the extent that a shareholder exchanges Shares
for Class C Shares in other funds in the Liberty Family of Funds, the time
for which the exchanged-for Shares are to be held will be added to the time
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred
Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds (where applicable) may be given in writing or by telephone.
Written instructions may require a signature guarantee. Shareholders of the
Fund may have difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's
address of record or by wire transfer to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that
method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Class A Shares are sold with a sales load, it is not advisable
for shareholders to continue to purchase Class A Shares while participating
in this program. A contingent deferred sales charge may be imposed on Class
B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six
full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption in accordance with
the following schedule:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one
full year of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of 1.00%. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to
a contingent deferred sales charge. In computing the amount of the
applicable contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than six full years from the date of purchase with respect to Class B
Shares and one full year from the date of purchase with respect to Class C
Shares and applicable Class A Shares; (3) Shares held for less than six
years with respect to Class B Shares and less than one full year from the
date of purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales charge
is not assessed in connection with an exchange of Fund Shares for shares of
other funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had
held the shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will
be eliminated with respect to certain redemptions (see "Elimination of
Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the Class A
Share required minimum value of $500 or the required minimum value of
$1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value
because of changes in the net asset value of the respective Share Class.
Before Shares are redeemed to close an account, the shareholder is notified
in writing and allowed 30 days to purchase additional Shares to meet the
minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research
Corp., the Fund's investment adviser, subject to direction by the
Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Drew J. Collins has been the Fund's portfolio manager its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager its inception. Mr.
Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from
1992 to 1995. He was the Executive Vice President and Director of Equities
at Oppenheimer Management Corporation from 1989 to 1991. Mr. Frantzen
received his B.S. in finance and marketing from the University of North
Dakota.
Tracy P. Stouffer has been the Fund's portfolio manager since its
inception. Ms. Stouffer joined Federated Investors in 1995 as a Vice
President of the Fund's investment adviser. Ms. Stouffer served as Vice
President/Portfolio Manager of international equity funds at Clariden Asset
Managemnet (NY) Inc. from 1988 to 1995. Ms. Stouffer is a Chartered
Financial Analyst and received her M.B.A. in marketing from the University
of Western Ontario, Canada.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to
1% of the net asset value of Class C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by
the distributor from its assets, and will not be made from assets of the
Fund. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset
value of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from the assets of the Fund. Dealers may voluntarily waive
receipt of all or any portion of these payments. The distributor may pay a
portion of the distribution fee discussed below to financial institutions
that waive all or any portion of the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of 1% for Class A Shares
and up to .75 of 1% for Class B Shares and Class C Shares of the average
daily net assets of each class of Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. The Fund does not currently make payments to the
distributor or charge a fee under the Distribution Plan for Class A Shares,
and shareholders of Class A Shares will be notified if the Fund intends to
charge a fee under the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75 of 1% of Class B Shares' average daily
net assets, it will take the distributor a number of years to recoup the
expenses it has incurred for its sales services and distribution-related
support services pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Class A Shares, Class B Shares, and Class C Shares
to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform Shareholder Services directly or will select financial institutions
to perform Shareholder Services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset
value of Class A Shares purchased by their clients or customers under
certain qualified retirement plans as approved by Federated Securities
Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C
Shares, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.
The Corporation expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion include, but are not
limited to: the cost of organizing the Corporation and continuing its
existence; registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues; and
such non-recurring and extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited
to: registering the portfolio and Class A Shares, Class B Shares, and Class
C Shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under
the Corporation's Distribution Plan and fees for Shareholder Services.
However, the Directors reserve the right to allocate certain other expenses
to holders of Class A Shares, Class B Shares and Class C Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares, Class B
Shares, and Class C Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to administrative personnel and services as required to
support holders of Class A Shares, Class B Shares, and Class C Shares;
legal fees relating solely to Class A Shares, Class B Shares, or Class C
Shares; and Directors' fees incurred as a result of issues related solely
to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election
of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each
class of Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all income
and capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per share of each class on the last day of the
period. This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by each class of
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares. Expense differences among Class A
Shares, Class B Shares, and Class C Shares may affect the performance of
each class.
From time to time, advertisements for Class A Shares, Class B Shares, and
Class C Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
An Open-End, Diversified
Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
Cusip #s
---------
G01473-02a(2/96)
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
The Class A Shares of Federated International Small Company Fund (the
"Fund") represent interests in a diversified portfolio of World Investment
Series, Inc. (the "Corporation"), an open-end management investment company
(a mutual fund). The investment objective of the Fund is to provide long-
term growth of capital. Any income received from the portfolio is
incidental. The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of equity securities of
small foreign companies.
THE CLASS A 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Class A Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Combined Statement of Additional Information for
Class A Shares, Class B Shares, and Class C Shares dated February 13, 1996,
with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined
Statement of Additional Information, which is in paper form only, or a
paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
SUMMARY OF FUND EXPENSES
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee .................... %
Total Class A Shares Operating Expenses (4)...... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "What Shares Cost" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
GENERAL INFORMATION
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests
in separate portfolios of securities. As of the date of this prospectus,
the Board of Directors (the "Directors") has established three classes of
shares for the Fund, known as Class A Shares, Class B Shares, and Class C
Shares. This prospectus relates only to Class A Shares (the "Shares") of
the Fund.
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in a portfolio of equity
securities of small foreign companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. However, the minimum initial investment for a retirement account is
$50. Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus the applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, entering into repurchase
agreements, lending portfolio securities, investing in restricted and
illiquid securities, investing in securities on a when-issued and delayed
delivery basis, writing call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated Latin American Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Latin
America;
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through
municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily
through Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of equity securities of
small foreign companies. Under normal market conditions, the Fund intends
to invest at least 65% of its total assets in equity securities of
companies that have a market capitalization at the time of purchase of $1.5
billion or less, where market capitalization is calculated by multiplying
the total number of outstanding shares of common stock of the company by
the market price of the stock. The Fund applies a U.S. size standard on an
international basis. Therefore, a small company investment outside the
U.S. might rank above the lowest 20% by market capitalization in local
markets and, in fact, might in some countries rank among the largest
companies in terms of capitalization. These companies will be located in
at least three foreign countries.
The Fund expects to diversify investments in markets outside of the United
States, including markets in Asia, Europe, Latin America, the Indian sub-
continent, the Middle East and Africa. The Fund may invest in countries
other than those defined above if, in the opinion of the Fund's investment
adviser, they offer opportunities to pursue the Fund's investment
objective.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Directors without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become
effective.
SMALL CAPITALIZATION COMPANIES
Small capitalization companies are those companies that have a market
capitalization of $1.5 billion or less at the time of purchase. Small
capitalization companies are positioned for rapid growth in revenues or
earnings and assets, characteristics which may provide for significant
capital appreciation. Small companies often pay no dividends and current
income is not a factor in the selection of stocks. Smaller companies often
have limited product lines, markets, or financial resources, and they may
be dependent upon one or a few key people for management. (See "Risk
Considerations of Small Capitalization Companies").
The Fund has the flexibility to invest in any region of the world. It can
invest in companies based in emerging markets, typically in the Far East,
Latin America and Eastern Europe, as well as in firms operating in
developed economies, such as those of Canada, Japan and Western Europe.
The Fund applies a U.S. size standard on a global basis. Therefore, a
small company investment outside the U.S. might rank above the lowest 20%
by market capitalization in local markets and, in fact, might in some
countries rank among the largest companies in terms of capitalization.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the investment adviser typically evaluates
industry trends, a company's financial strength, its competitive position
in domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects. Other
considerations generally include quality and depth of management,
government regulation, and availability and cost of labor and raw
materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history
of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), International Depositary
Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs
typically are issued by a United States bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts
("CDRs"), GDRs, GDCs, IDRs and RDCs are typically issued by foreign banks
or trust companies, although they also may be issued by United States banks
or trust companies, and evidence ownership of underlying securities issued
by either a foreign or a United States corporation. ADRs, ADSs, CDRs,
EDRs, GDRs, GDCs, IDRs, and RDCs are collectively known as "Depositary
Receipts." Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt
and a depositary, whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored Depositary Receipt generally bear all
the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to
pass through to the holders of the receipts voting rights with respect to
the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
will be incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Samurai and
Yankee bonds, Eurobonds and depositary receipts. The issuers of such debt
securities may or may not be domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the investment adviser. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the investment adviser.
(If a security's rating is reduced below the required minimum after the
Fund has purchased it, the Fund is not required to sell the security, but
may consider doing so.)
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
investment adviser evaluates the investment characteristics of the
convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
foreign countries, investments in other investment companies may be the
most practical or only manner in which the Fund can participate in the
securities markets of such countries. The Fund may also invest in other
investment companies for the purpose of investing its short term cash on a
temporary basis. The Fund may invest up to 10% of its total assets in the
securities of other investment companies. To the extent that the Fund
invests in securities issued by other investment companies, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by
such companies, in addition to the fees and expenses payable directly by
the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
investment adviser will monitor the creditworthiness of the firms with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the value of
the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines
that market conditions warrant (up to 100% of total assets) and to maintain
liquidity (up to 20% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the investment adviser will consider the
likelihood of changes in currency values when making investment decisions,
the investment adviser believes that it is important to be able to enter
into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the value of
the Fund's assets denominated in that currency at the time the contract was
initiated, but as consistent with their other investment policies and as
not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the investment adviser's ability to predict
pertinent market movements; (2) there might be imperfect correlation, or
even no correlation, between the change in market value of the securities
held by the Fund and the prices of the futures and options thereon relating
to the securities purchased or sold by the Fund. The use of futures and
related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce
the opportunity for gain by offsetting the positive effect of favorable
price movements in positions. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of securities purchased by the Fund
are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
RISK CONSIDERATIONS OF SMALL CAPITALIZATION COMPANIES
There is typically less publicly available information concerning foreign
and smaller companies than for domestic and larger, more established
companies. Some small companies have limited product lines, distribution
channels and financial and managerial resources. Also, because smaller
companies normally have fewer shares outstanding than larger companies and
trade less frequently, it may be more difficult for the Fund to buy and
sell significant amounts of such shares without an unfavorable impact on
prevailing market prices. Some of the companies in which the Fund may
invest may distribute, sell or produce products which have recently been
brought to market and may be dependent on key personnel with varying
degrees of experience.
As with other mutual funds that invest primarily in equity securities, the
Fund is subject to market risks. That is, the possibility exists that
common stocks will decline over short or even extended periods of time.
However, because the Fund invests primarily in small capitalization stocks,
there are some additional risks factors associated with investments in the
Fund. In particular, stocks in the small capitalization sector may be more
volatile in price than larger capitalization stocks. This is because, among
other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market;
and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of
large companies. That is, the stocks of small companies may decline in
price as the prices of large company stocks rise or vice versa. Therefore,
investors should expect that the Fund will be more volatile than, and may
fluctuate independently of broad stock market indices.
RISK CONSIDERATIONS IN EMERGING MARKETS
Investing in securities of issuers in emerging market countries involves
exposure to significantly higher risk than investing in countries with
developed markets. Emerging market countries may have economic structures
that are generally less diverse and mature and political systems that can
be expected to be less stable than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties
of investing in lesser developed markets and economies. In particular,
emerging market countries may have relatively unstable governments, and may
present the risk of nationalization of businesses, expropriation,
confiscatory taxation or, in certain instances, reversion to closed market,
centrally planned economies. Such countries may also have restrictions on
foreign ownership or prohibitions on the repatriation of assets, and may
have less protection of property rights than developed countries.
The economies of emerging market countries may be predominantly based on
only a few industries or dependent on revenues from particular commodities
or on international aid or development assistance, may be highly vulnerable
to changes in local or global trade conditions, and may suffer from extreme
and volatile debt burdens or inflation rates. In addition, securities
markets in emerging market countries may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially resulting in a lack of liquidity and in volatility in the price
of securities traded on those markets. Also, securities markets in emerging
market countries typically offer less regulatory protection for investors.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Class A Shares in the market
value of all securities and other assets of the Fund, subtracting the
interest of Class A Shares in the liabilities of the Fund and those
attributable to Class A Shares, and dividing the remainder by the total
number of Class A Shares outstanding. The net asset value for Class A
Shares may differ from that of Class B Shares and Class C Shares 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.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500. Additional investments
can be made for as little as $100. The minimum initial and subsequent
investment for retirement plans is only $50. (Financial institutions may
impose different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Shares purchased through "wrap accounts" or similar programs,
under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may
offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21
when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $30,000 and he purchases $20,000 more at the current
public offering price, the sales load on the additional purchase according
to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Shares
of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other funds
for which affiliates of Federated Investors serve as investment adviser or
principal underwriter ("Federated Funds") which are sold with a sales load
different from that of the Fund's or with no sales load, and which are
advised by subsidiaries or affiliates of Federated Investors. These
exchanges are made at net asset value plus the difference between the
Fund's sales load already paid and any sales load of the Federated Fund
into which the Shares are to be exchanged, if higher. Neither the Fund nor
any of the funds in the Liberty Family of Funds imposes any additional fees
on exchanges. Shareholders in certain other Federated Funds may exchange
their shares in the Federated Funds for Class A Shares.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund
may have difficulty in making exchanges by telephone through brokers and
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds will be mailed in the form of a
check, to the shareholder's address of record or by wire transfer to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Shares are sold with a sales load, it is not advisable for
shareholders to continue to purchase Shares while participating in this
program.
CONTINGENT DEFERRED SALES CHARGE
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
one full year from the date of purchase. Redemptions will be processed in a
manner intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. In computing the amount of
the applicable contingent deferred sales charge, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than one full year from the date of purchase; (3) Shares held for less
than one full year from the date of purchase on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection
with an exchange of Fund Shares for shares of other funds in the Liberty
Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for
Shares are redeemed is calculated as if the shareholder had held the shares
from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated
with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the required
minimum value of $500. This requirement does not apply, however, if the
balance falls below the required minimum value because of changes in the
net asset value of Shares. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's investment
adviser, Federated Global Research Corp. (the "Adviser"), subject to
direction by the Directors. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Fund. The Adviser's address is 175 Water Street, New York, New York
10038-4965.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Drew J. Collins has been the Fund's portfolio manager since its inception.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Henry A. Frantzen has been the Fund's portfolio manager since its
inception. Mr. Frantzen joined Federated Investors in 1995 as an Executive
Vice President of the Fund's investment adviser. Mr. Frantzen served as
Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 to 1995. He was the Executive Vice President and
Director of Equities at Oppenheimer Management Corporation from 1989 to
1991. Mr. Frantzen received his B.S. in finance and marketing from the
University of North Dakota.
Tracy P. Stouffer has been the Fund's portfolio manager since its
inception. Ms. Stouffer joined Federated Investors in 1995 as a Vice
President of the Fund's investment adviser. Ms. Stouffer served as Vice
President/Portfolio Manager of international equity funds at Clariden Asset
Managemnet (NY) Inc. from 1988 to 1995. Ms. Stouffer is a Chartered
Financial Analyst and received her M.B.A. in marketing from the University
of Western Ontario, Canada.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of l% of the average
daily net assets of Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution Plan.
The Fund does not currently make payments to the distributor or charge a
fee under the Distribution Plan for Shares, and shareholders will be
notified if the Fund intends to charge a fee under the Distribution Plan.
For Shares, the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform Shareholder Services directly or will select
financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under certain qualified retirement
plans as approved by Federated Securities Corp. (Such payments are subject
to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Corporation and portfolio
expenses.
The Corporation expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: the cost of organizing
the Corporation and continuing its existence; registering the Corporation
with federal and state securities authorities; Directors' fees; auditors'
fees; the cost of meetings of Directors; legal fees of the Corporation;
association membership dues; and such non-recurring and extraordinary items
as may arise from time to time.
The portfolio expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: registering the
portfolio and Class A Shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; and such non-recurring and extraordinary items as may arise
from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares as a class are expenses under the Corporation's Distribution Plan
and fees for Shareholder Services. However, the Directors reserve the right
to allocate certain other expenses to holders of Class A Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to
state securities commissions; expenses related to administrative personnel
and services as required to support holders of Class A Shares; legal fees
relating solely to Class A Shares; and Directors' fees incurred as a result
of issues related solely to Class A Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election
of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class
A Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in Class A Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by Class A Shares over a thirty-day period by the maximum offering
price per share of each class on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Class A Shares and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares.
From time to time, advertisements for Class A Shares of the Fund may refer
to ratings, rankings, and other information in certain financial
publications and/or compare the performance of Class A Shares to certain
indices.
OTHER CLASSES OF SHARES
As of the date of this prospectus, the Fund also offers two other classes
of shares called Class B Shares and Class C Shares. This prospectus relates
only to Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund
has also adopted a Distribution Plan whereby the distributor is paid a fee
of up to .75 of 1% and a Shareholder Services fee of up to .25 of 1% of the
Class B Shares' average daily net assets with respect to Class B Shares.
Investments in Class B Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions at
net asset value with no initial sales load. Class C Shares are distributed
pursuant to a Distribution Plan adopted by the Fund whereby the distributor
is paid a fee of up to .75 of 1%, in addition to a Shareholder Services fee
of .25 of 1% of the Class C Shares' average daily net assets. In addition,
Class C Shares may be subject to certain contingent deferred sales charges.
Investments in Class C Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain
of the same expenses. Expense differences, however, among Class A Shares,
Class B Shares, and Class C Shares may affect the performance of each
class.
To obtain more information and a prospectus for either Class B Shares or
Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(A portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
G01473-01a(11/95)
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C
Shares, or the stand-alone prospectus for Class A Shares of Federated
International Small Company Fund (the "Fund") dated February 13, 1996. This
Statement is not a prospectus itself. To receive a copy of either
prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 13, 1996
FEDERATED SECURITIES CORP.
FEDERATED INVESTORS
Distributor
GENERAL INFORMATION ABOUT THE Special Considerations Affecting
FUND 3 Emerging
Markets 33
INVESTMENT OBJECTIVE AND POLICIES
Additional Risk Considerations
3
34
Convertible Securities 3 Portfolio Turnover 35
Warrants 4 Investment Limitations 36
Sovereign Debt Obligations5 WORLD INVESTMENT SERIES, INC.
When-Issued and Delayed Delivery MANAGEMENT 43
Transactions 6
Fund Ownership 54
Lending of Portfolio Securities
Directors Compensation 54
6
INVESTMENT ADVISORY SERVICES
Repurchase Agreements 7
57
Reverse Repurchase Agreements
8 Adviser to the Fund 57
Restricted and Illiquid Advisory Fees 58
Securities 8 Other Related Services 59
Futures and Options Transactions ADMINISTRATIVE SERVICES 59
10
TRANSFER AGENT AND DIVIDEND
Risks 19
DISBURSING AGENT 59
Foreign Currency Transactions
27 BROKERAGE TRANSACTIONS 60
PURCHASING SHARES 61 TOTAL RETURN 69
Distribution Plan and YIELD 70
Shareholder Services Agreement
PERFORMANCE COMPARISONS 71
62
Conversion to Federal Funds ABOUT FEDERATED INVESTORS 74
63
Mutual Fund Market 75
Purchases by Sales
Institutional 75
Representatives, Directors, and
Trust Organizations 76
Employees of the Fund 63
Broker/Dealers and Bank
DETERMINING NET ASSET VALUE64
Broker/Dealer Subsidiaries
Determining Market Value of 76
Securities 64 APPENDIX 76
Trading in Foreign Securities
65
REDEEMING SHARES 66
Redemption in Kind 67
TAX STATUS 68
The Fund's Tax Status 68
Foreign Taxes 69
Shareholders' Tax Status69
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of World Investment Series, Inc. (the
"Corporation"), which was established under the laws of the State of
Maryland on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as "Shares" as the context may require). This Combined Statement of
Additional Information relates to all three classes of the above-mentioned
Shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of
capital. Any income realized from the portfolio is incidental. The Fund
pursues its investment objective by investing primarily in a portfolio of
equity securities of small foreign companies. The investment objective
cannot be changed without approval of shareholders.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Fund
may invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in
the underlying equity securities. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. The holder is
entitled to received the fixed income of a bond or the dividend preference
of a preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock.
Convertible securities are senior to equity securities, and therefore have
a claim to assets of the corporation prior to the holders of common stock
in the case of liquidation. However, convertible securities are generally
subordinated to similar nonconvertible securities of the same company. The
interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The
Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stocks when, in the
investment adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving it investment
objective. Otherwise, the Fund will hold or trade the convertible
securities.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common
stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or
may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of countries with
emerging markets or developing countries. Sovereign debt may be in the form
of conventional securities or other types of debt instruments, such as
loans or loan participations. Sovereign debt of emerging market or
developing countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors. The Fund may also
invest in debt obligations of supranational entities, which include
international organizations designed or supported by governmental entities
to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these
include, but are not limited to, the International Bank for Reconstruction
and Development (World Bank), European Investment Bank and Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Corporation's Board
of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future, the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund will be able to
avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933, as amended (the "Rule"). The
Rule is a non-exclusive safe-harbor for certain secondary market
transactions involving registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of
the SEC has left the question of determining the liquidity of all
restricted securities to the Directors. The Directors may consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona
fide market does not exist at the time of purchase or subsequent
transaction shall be treated as illiquid securities by the Directors.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and
the buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at which
the index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a
drop in rates generally means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e.,
agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates. The Fund may also invest
in securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the investment
adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the
Fund grants to the purchaser of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract, even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The Fund has no obligation to return premiums
paid to it whether or not the option is exercised. It will generally be
the policy of the Fund, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect of
canceling the Fund's position as a seller. The premium which the Fund will
pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge
its portfolio against an increase in market interest rates, a decrease in
stock prices, or when the investment adviser believes such investment is
more efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of
the option if the option is exercised. As stock prices fall or market
interest rates rise and cause the price of futures to decrease, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss
or minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio.
A put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer
of a put option, the Fund has the obligation to purchase a security from
the purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded
on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
RISKS
OPTIONS
Certain hedging vehicles have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the adviser's view as to certain market movements is incorrect,
the risk that the use of such hedging strategies could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may both be
liquid in all circumstances and certain over-the-counter options may have
not markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create
a greater ongoing potential financial risk than would purchase of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of hedging strategies would reduce net asset value,
and possibly income, and such losses can be greater than if the hedging
strategies had not been utilized.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rating payments of fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that specified index falls
below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors, and collars are entered into for good faith
hedging purposes, the investment adviser and the Fund believe such
obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal
acceptable rating for a swap, cap, floor, or collar to be purchased or held
in the Fund's portfolio. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid
than swaps.
RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S.,
(iv) the imposition of different exercise and settlement terms and
procedures and the margin requirements than in the U.S., and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging strategies, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of
the underlying security, financial instrument or currency. In general,
either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, a currency
contract which obligates the Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
hedging strategies. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets
if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other hedging strategies
may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation
is required, but if it terminates prior to such time, assets equal to any
remaining obligation would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price
at which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or
through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and a foreign currency involved
in an underlying transaction. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive
change in such currency relationships. The investment adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the Fund's
best interest to do so. The Fund will not speculate in foreign currency
exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
SPECIAL CONSIDERATIONS AFFECTING EMERGING MARKETS
Investing in the securities of issuers domiciled in emerging markets may
entail special risks relating to the potential political and economic
instability and the risks of expropriation, nationalization, confiscation
or the imposition of restrictions on foreign investment, convertibility of
currencies into U.S. dollars and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by
any country, the Fund could lost its entire investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited
size of emerging securities markets and limited trading volume in issuers
compared to the volume of trading in U.S. securities could cause prices to
be erratic for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perception, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities in these markets.
In addition, securities traded in certain emerging markets may be subject
to risks due to the inexperience of financial intermediaries, a lack of
modern technology, the lack of a sufficient capital base to expand business
operations, and the possibility of permanent or temporary termination of
trading.
Settlement mechanisms in emerging securities markets may be less efficient
and less reliable than in more developed markets. In such emerging
securities markets there may be share registration and delivery delays or
failures.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Directors
also consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in
the absence of willful misfeasance, bad faith or gross negligence on the
part of the investment adviser, any losses resulting from the holding of
the Fund's portfolio securities in foreign countries and/or with securities
depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or
that such exchange control restrictions or political acts of foreign
governments might not occur.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that portfolio turnover will result in adverse tax consequences.
It is not anticipated that the portfolio trading engaged in by the Fund
will result in its annual rate of portfolio turnover exceeding 100%;
however, the relative performance of the Fund's investments may make a
realignment of the Fund's portfolio desirable from time to time. The
frequency of such portfolio realignments will be determined by market
conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no
investment limitation of the Fund shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered
"investment securities" under the Investment Company Act of 1940, as
amended, or assets exempted by the Securities and Exchange Commission) in
an open-end investment company with substantially the same investment
objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: margin
deposits for the purchase and sale of financial futures contracts and
related options, and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a when-
issued basis.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions
where permitted by the Fund's investment objective, policies, and
limitations or the Corporation's Articles of Incorporation.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially
all of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or
exempted by the Securities and Exchange Commission) in an open-end
investment company with substantially the same investment objectives).
Shareholders will be notified before any material changes in these
limitations become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
invest no more than 5% of its total assets in any one investment company,
and invest no more than 10% of its total assets in investment companies in
general. The Fund will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets. It should
be noted that investment companies incur certain expenses such as
management fees, and, therefore, any investment by the Fund in shares of
another investment company would be subject to such duplicate expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not purchase put or call options on securities or futures
contracts, if more than 5% of the value of the Fund's total assets would be
invested in premiums on open option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants, including those acquired in units or attached to other
securities. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchanges. For purposes of
this investment restriction, warrants will be valued at the lower of cost
or market, except that warrants acquired by the Fund in units with or
attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities, or
invest in reverse repurchase agreements in excess of 5% of the value of its
total assets in the coming fiscal year. In addition, the Fund expects to
lend not more than 5% of its total assets in the coming fiscal year.
To comply with registration requirements in certain states, the Fund
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund
to 5% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
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 and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
WORLD INVESTMENT SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with World Investment Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing
General Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; founding Chairman,
National Advisory Council for Environmental Policy and Technology and
Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Administrative Services, Federated
Services Company, and Federated Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or Managing General Partner of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management, and
Federated Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Services Company; Executive Vice
President, Secretary, and Trustee, Federated Administrative Services;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Senior Vice
President, Federated Shareholder Services; Vice President, Federated
Administrative Services; Treasurer of some of the Funds.
*
This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@
Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for
U.S. Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; and
World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Corporation and
Chairman and Director 68 other investment companies in the Fund Complex
Thomas G. Bigley $ 0 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher $ 0 $0 for the Corporation and
President and Director 8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ 0 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0 $0 for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from January 26, 1994
(organization date of the Corporation) to November 30, 1994.
#The aggregate compensation is provided for the Corporation which was
comprised of 1 portfolio, as of
November 30, 1994.
+The information is provided for the last calendar year end.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any
shareholder of the Fund 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 Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in each prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities
Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in each prospectus. Dr. Henry J. Gailliot, an officer of
Federated Global Research Corp., the Adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director
of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's average
net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting 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 relation to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent
that receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser
is not obligated to obtain any material non-public ("inside") information
about any securities issuer, or to base purchase or sale recommendations on
such information.
PURCHASING SHARES
Except under certain circumstances described in each prospectus, Shares are
sold at their net asset value (plus a sales load on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in each prospectus under "How To Purchase
Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services as appropriate, to
stimulate distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A
Shares, Class B Shares, and Class C Shares of the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES OF THE FUND
Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. or their affiliates,
or any investment dealer who has a sales agreement with Federated
Securities Corp. and their spouses and children under 21, may buy Class A
Shares at net asset value without a sales load. Shares may also be sold
without a sales load to trusts or pension or profit-sharing plans for these
people.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities
exchange or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the 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; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of
trading on such exchanges unless the Directors determine in good faith that
another method of valuing such investments is necessary.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
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
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. 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 New York Stock Exchange. 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 Directors,
although the actual calculation may be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each prospectus
under "How To Redeem Shares." Although the transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares and
applicable Class A Shares redeemed within one year of purchase may be
subject to a contingent deferred sales charge. The amount of the contingent
deferred sales charge is based upon the amount of the administrative fee
paid at the time of purchase by the distributor to the financial
institution for services rendered, and the length of time the investor
remains a shareholder in the Fund. Should financial institutions elect to
receive an amount less than the administrative fee that is stated in the
prospectus for servicing a particular shareholder, the contingent deferred
sales charge and/or holding period for that particular shareholder will be
reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges
which trade on Saturdays or on holidays on which the Fund will not make
redemptions, the net asset value of each class of Shares of the Fund may be
significantly affected on days when shareholders do not have an opportunity
to redeem their Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole or
in part by a distribution of securities from the respective Fund's
portfolio. To the extent available, such securities will be readily
marketable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Corporation is obligated
to redeem Shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective class's net asset value during any 90-day
period.
Any redemption beyond this amount will also be in cash unless the Directors
determine 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
instruments, valued in the same way as the Fund determines net asset value.
The portfolio instruments will be selected in a manner that the Directors
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations
which would constitute a Passive Foreign Investment Company ("PFIC").
Federal income taxes may be imposed on the Fund upon disposition of PFIC
investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The average annual total return for each class of Shares of the Fund 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 net asset value 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 load, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of Shares redeemed.
YIELD
The yield for each class of Shares of the Fund is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per share of the respective class on the last
day of the period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P
500), a 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 Standard & Poor's figures.
o 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. From time to time, the Fund will quote
its Lipper ranking in the "international small company funds" category
in advertising and sales literature.
o MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of
more than 1,000 companies of Europe, Australia, and the Far East.
o IBBOTSON ASSOCIATES INTERNATIONAL BOND INDEX, which provides a detailed
breakdown of local market and currency returns since 1960.
o BEAR STEARNS FOREIGN BOND INDEX, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
o FINANCIAL TIMES ACTUARIES INDICES, including the FTA-Mid/Small Cap
Index (and components thereof), which is based on stocks in the major
world equity markets.
o MORNINGSTAR, INC. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values 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.
From time to time, the Fund may quote information including but not limited
to data regarding: individual countries, regions, world stock exchanges,
and economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on annual reinvestment of
dividends over a specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of
deposit and time deposits and to money market funds using the Lipper
Analytical Services money market instruments average. In addition,
advertising and sales literature for the Fund may use charts and graphs to
illustrate the principles of dollar-cost averaging and may disclose the
amount of dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs
which is reflected in its investment decision making-structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment products
that have gained the confidence of thousands of clients and their
customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, 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 advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
Ratings Group believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA--Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain indentifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
FEDERATED LATIN AMERICAN GROWTH FUND
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated Latin American Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to provide long-term growth of
capital. Any income received from the portfolio is incidental. The Fund
pursues its investment objective by investing primarily in equity
securities of Latin American companies.
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
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
dated February 13, 1996, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy
of the Combined Statement of Additional Information, which is in paper form
only, or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be
generated when document is
complete.
SUMMARY OF FUND EXPENSES
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class B Shares Operating Expenses (3) (4).. %
(1)
The contingent deferred sales charge is 5.50% in the first year declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Contingent
Deferred Sales Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4)
The Total Class B Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class B Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class B Shares' fiscal year
ending November 30, 1996.
SUMMARY OF FUND EXPENSES
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee ............................................. %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class C Shares Operating Expenses (3)...... %
(1)
The contingent deferred sales charge assessed is 1.00% of the lesser of
the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
The Total Class C Shares Operating Expenses are estimated to be %
-----
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class C Shares" and
"Corporation Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class C Shares' fiscal year
ending November 30, 1996.
SYNOPSIS
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests
in separate portfolios of securities. As of the date of this prospectus,
the Board of Directors (the "Directors") has established three classes of
shares for the Fund, known as Class A Shares, Class B Shares, and Class C
Shares (individually and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in equity securities of
Latin American companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. The minimum initial investment for Class B Shares and Class C Shares
is $1500. However, the minimum initial investment for a retirement account
in any class is $50. Subsequent investments in any class must be in amounts
of at least $100, except for retirement plans which must be in amounts of
at least $50.
In general, Class A Shares are sold at net asset value plus an applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales
charge is imposed on certain Shares which are redeemed within six full
years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales
charge of 1.00% will be charged on assets redeemed within the first 12
months following purchase. See "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual
rate not to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with
respect to the Fund and certain other funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(the "Federated Funds") can be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser")
to the Fund and receives compensation for its services. The Adviser's
address is 175 Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, investing in non-U.S.
issuers, entering into repurchase agreements, investing in when-issued
securities, lending portfolio securities, and entering into futures
contracts and related options. These risks are described under "Investment
Policies."
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital. Any income received
from the portfolio is incidental. The investment objective of the Fund
cannot be changed without the approval of the shareholders. While there is
no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in equity
securities of Latin American companies. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities
of Latin American companies. For purposes of this prospectus, Latin
America is defined as Mexico, Central America, South America, and the
Spanish-speaking islands of the Caribbean.
Latin American companies are defined as (i) those organized under the laws
of, or with a principal office located in, a Latin American country or (ii)
those for which the principal securities trading market is in Latin America
or (iii) those, wherever organized or traded, which derived (directly or
indirectly through subsidiaries) at least 50% of their total assets,
capitalization, gross revenue or profit in their most current fiscal year
from goods produced, services performed, or sales made in Latin America.
Although the Fund may invest in securities of issuers located in any
country in Latin America, the Fund expects to focus its investments in the
most developed capital markets of Latin America, which currently include:
Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, and
Venezuela. The Fund may invest in other countries of Latin America when
their markets become sufficiently developed, in the opinion of the Adviser.
The Fund intends to allocate its investments among at least three countries
at all times and does not expect to concentrate investments in any
particular industry.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Directors (the "Directors") without the approval of
the shareholders of the Fund. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the Adviser typically evaluates industry trends, a
company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together
with overall growth prospects. Other considerations generally include
quality and depth of management, government regulation, and availability
and cost of labor and raw materials. Investment decisions are made without
regard to arbitrary criteria as to minimum asset size, debt-equity ratios
or dividend history of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), and International
Depositary Receipts ("IDRs") or securities convertible into foreign equity
securities. ADRs and ADSs typically are issued by a United States bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), GDRs, GDCs, and IDRs are typically issued by
foreign banks or trust companies, although they also may be issued by
United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States
corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, and IDRs are collectively
known as "Depositary Receipts." Depositary Receipts may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying
the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holders of an unsponsored Depositary
Receipt generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the
deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
is incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Yankee bonds,
Eurobonds and depositary receipts. The issuers of such debt securities may
or may not be domiciled in Latin America.
The Fund may also invest in certain debt obligations customarily referred
to as "Brady Bonds," that have been created through the exchange of
existing commercial bank loans to Latin American public and private
entities for new bonds in connection with debt restructurings under a debt
restructuring plan announced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently and for that reason do not have a long payment history. Brady
Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are actively traded in the over-
the-counter secondary market for Latin American debt instruments. Brady
Bonds are neither issued nor guaranteed by the U.S. government.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service, Inc. ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the Adviser. The prices of fixed income securities generally
fluctuate inversely to the direction of interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the Adviser.
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
Adviser evaluates the investment characteristics of the convertible
security as a fixed income investment, and the investment potential of the
underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
Latin American markets, investments in other investment companies may be
the most practical or only manner in which the Fund can participate in the
securities markets of certain countries in Latin America. The Fund may
also invest in other investment companies for the purpose of investing its
short-term cash on a temporary basis. The Fund may invest up to 10% of its
total assets in the securities of other investment companies. To the
extent that the Fund invests in securities issued by other investment
companies, the Fund will indirectly bear its proportionate share of any
fees and expenses paid by such companies, in addition to the fees and
expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
Adviser will monitor the creditworthiness of the firms with which the Fund
enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the Adviser has determined are creditworthy under guidelines established by
the Directors and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant (up to 100% of total assets) and to maintain liquidity
(up to 20% of total assets), the Fund may invest in U.S. and foreign debt
instruments as well as cash or cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the Adviser will consider the likelihood of
changes in currency values when making investment decisions, the Adviser
believes that it is important to be able to enter into forward contracts
when it believes the interests of the Fund will be served. The Fund will
not enter into forward contracts for hedging purposes in a particular
currency in an amount in excess of the value of the Fund's assets
denominated in that currency at the time the contract was initiated, but as
consistent with their other investment policies and as not otherwise
limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
Adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the Adviser believes such
investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the Adviser believes such investment is more efficient, liquid or cost-
effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the Adviser's ability to predict pertinent
market movements; (2) there might be imperfect correlation, or even no
correlation, between the change in market value of the securities held by
the Fund and the prices of the futures and options thereon relating to the
securities purchased or sold by the Fund. The use of futures and related
options may reduce risk of loss by wholly or partially offsetting the
negative effect of unfavorable price movements but they can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in positions. No assurance can be given that the Adviser's
judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Adviser
will consider liquidity before entering into these transactions, there is
no assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any particular
time. The Fund's ability to establish and close out futures and options
positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased by the
Fund are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
INVESTING IN LATIN AMERICA
The Adviser believes that investment opportunities may result from recent
trends in Latin America encouraging greater market orientation and less
governmental intervention in economic affairs. Investors, however, should
be aware that the Latin American economies have experienced considerable
difficulties in the past decade. Although there have been significant
improvements in recent years, the Latin American economies continue to
experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by
world prices for oil and other commodities. There is no assurance that
recent economic initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar,
and major adjustments have been made in certain of these currencies
periodically. In addition, although there is a trend toward less
government involvement in commerce, governments of many Latin American
countries have exercised and continue to exercise substantial influence
over many aspects of the private sector. In certain cases, the government
still owns or controls many companies, including some of the largest in the
country. Accordingly, government actions in the future could have a
significant effect on economic conditions in Latin American countries,
which could affect private sector companies and the Fund, as well as the
value of securities in the Fund's portfolio.
Most Latin American countries have experienced substantial, and in some
periods, extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain Latin
American countries.
Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. Some of these countries have in
the past defaulted on their sovereign debt. Holders of sovereign debt
(including the Fund) may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is
no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part.
The limited size of many Latin American securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors
that affect the quality of securities.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as
well as by monitoring broad economic trends and corporate and legislative
developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of each class of Shares in the
market value of all securities and other assets of the Fund, subtracting
the interest of each class of Shares in the liabilities of the Fund and
those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value
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.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities
that its net asset value might be materially affected; (ii) days during
which no Shares are tendered for redemption and no orders to purchase
Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50%
at the time of purchase. As a result, Class A Shares are not subject to any
charges when they are redeemed (except for special programs offered under
"Purchases with Proceeds From Redemptions of Unaffiliated Investment
Companies"). Certain purchases of Class A Shares are not subject to a sales
load. See "Investing in Class A Shares." Certain purchases of Class A
Shares qualify for reduced sales loads. See "Reducing or Eliminating the
Sales Load." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than
Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of
the month eight full years after the purchase date. Class B Shares provide
an investor the benefit of putting all of the investor's dollars to work
from the time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A Shares due to the
higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first
12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee. Class C Shares
have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500 for Class A Shares and
$1,500 for Class B Shares and Class C Shares. Additional investments can be
made for as little as $100. The minimum initial and subsequent investment
for retirement plans is only $50. (Financial institutions may impose
different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an
order is received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71%
4.00%
$100,000 but less than $250,000 3.75% 3.90%
3.25%
$250,000 but less than $500,000 2.50% 2.56%
2.25%
$500,000 but less than $1 million 2.00% 2.04%
1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Class A Shares purchased through "wrap accounts" or similar
programs, under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of
the applicable sales load. Any portion of the sales load which is not paid
to a dealer will be retained by the distributor. However, the distributor
may offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A
Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Class A Shares made on the same day by
the investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the
public offering price of $30,000 and he purchases $20,000 more at the
current public offering price, the sales load on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Class
A Shares of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Class A Shares in the Fund, there may
be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales
load, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an
order is received. While Class B Shares are sold without an initial sales
load, under certain circumstances described under "Contingent Deferred
Sales Charge--Class B Shares," a contingent deferred sales charge may be
applied by the distributor at the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around
the fifteenth of the month eight full years after the purchase date, except
as noted below, and may no longer be subject to a distribution services fee
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales
load, fee or other charge. Class B Shares acquired by exchange from Class B
Shares of another fund in the Liberty Family of Funds will convert into
Class A Shares based on the time of the initial purchase. For purposes of
conversion to Class A Shares, Shares purchased through the reinvestment of
dividends and distributions paid on Class B Shares will be considered to be
held in a separate sub-account. Each time any Class B Shares in the
shareholder's account (other than those in the sub-account) convert to
Class A Shares, an equal pro rata portion of the Class B Shares in the sub-
account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes.
There can be no assurance that such ruling or opinion will be available,
and the conversion of Class B Shares to Class A Shares will not occur if
such ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be
invested in Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales Charge-
-Class C Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
The financial institution which maintains investor accounts in Class B
Shares or Class C Shares with the Fund must do so on a fully disclosed
basis unless it accounts for share ownership periods used in calculating
the contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial institutions may
be subject to reclaim by the distributor for accounts transferred to
financial institutions which do not maintain investor accounts on a fully
disclosed basis and do not account for share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other
Federated Funds (as defined in the "Synopsis" of this prospectus) which are
sold with a sales load different from that of the Fund's or with no sales
load, and which are advised by subsidiaries or affiliates of Federated
Investors. These exchanges are made at net asset value plus the difference
between the Fund's sales load already paid and any sales load of the
Federated Fund into which the Shares are to be exchanged, if higher.
Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class
A Shares.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B
Shares of other funds in the Liberty Family of Funds. (Not all funds in the
Liberty Family of Funds currently offer Class B Shares. Contact your
financial institution regarding the availability of other Class B Shares in
the Liberty Family of Funds.) Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged Shares.
To the extent that a shareholder exchanges Shares for Class B Shares in
other funds in the Liberty Family of Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales
Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C
Shares in other funds in the Liberty Family of Funds at net asset value
without a contingent deferred sales charge. (Not all funds in the Liberty
Family of Funds currently offer Class C Shares. Contact your financial
institution regarding the availability of other Class C Shares in the
Liberty Family of Funds.) To the extent that a shareholder exchanges Shares
for Class C Shares in other funds in the Liberty Family of Funds, the time
for which the exchanged-for Shares are to be held will be added to the time
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred
Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds (where applicable) may be given in writing or by telephone.
Written instructions may require a signature guarantee. Shareholders of the
Fund may have difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's
address of record or by wire transfer to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that
method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Class A Shares are sold with a sales load, it is not advisable
for shareholders to continue to purchase Class A Shares while participating
in this program. A contingent deferred sales charge may be imposed on Class
B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six
full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption in accordance with
the following schedule:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one
full year of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of 1.00%. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to
a contingent deferred sales charge. In computing the amount of the
applicable contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than six full years from the date of purchase with respect to Class B
Shares and one full year from the date of purchase with respect to Class C
Shares and applicable Class A Shares; (3) Shares held for less than six
years with respect to Class B Shares and less than one full year from the
date of purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales charge
is not assessed in connection with an exchange of Fund Shares for shares of
other funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had
held the shares from the date on which he became a shareholder of the
exchanged-from Shares. Moreover, the contingent deferred sales charge will
be eliminated with respect to certain redemptions (see "Elimination of
Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the Class A
Share required minimum value of $500 or the required minimum value of
$1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value
because of changes in the net asset value of the respective Share Class.
Before Shares are redeemed to close an account, the shareholder is notified
in writing and allowed 30 days to purchase additional Shares to meet the
minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Global Research
Corp., the Fund's investment adviser, subject to direction by the
Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Henry A. Frantzen has been the Fund's portfolio manager since its
inception. Mr. Frantzen joined Federated Investors in 1995 as an Executive
Vice President of the Fund's investment adviser. Mr. Frantzen served as
Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 to 1995. He was the Executive Vice President and
Director of Equities at Oppenheimer Management Corporation from 1989 to
1991. Mr. Frantzen received his B.S. in finance and marketing from the
University of North Dakota.
Drew J. Collins has been the Fund's portfolio manager since its inception.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Alexandre de Bethmann has been the Fund's portfolio manager since its
inception. Mr. de Bethmann joined Federated Investors in 1995 as a Vice
President of the Fund's investment adviser. Mr. de Bethmann served as
Assistant Vice President/Portfolio Manager for Japanese and Korean equities
at the College Retirement Equities Fund from 1994 to 1995. He served as an
International Equities Analyst and then as an Assistant Portfolio Manager
at the College Retirement Equities Fund between 1987 and 1994. Mr. de
Bethmann received his M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to
1% of the net asset value of Class C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by
the distributor from its assets, and will not be made from assets of the
Fund. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset
value of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from the assets of the Fund. Dealers may voluntarily waive
receipt of all or any portion of these payments. The distributor may pay a
portion of the distribution fee discussed below to financial institutions
that waive all or any portion of the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of 1% for Class A Shares
and up to .75 of 1% for Class B Shares and Class C Shares of the average
daily net assets of each class of Shares to finance any activity which is
principally intended to result in the sale of Shares subject to the
Distribution Plan. The Fund does not currently make payments to the
distributor or charge a fee under the Distribution Plan for Class A Shares,
and shareholders of Class A Shares will be notified if the Fund intends to
charge a fee under the Distribution Plan. For Class A Shares and Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75 of 1% of Class B Shares' average daily
net assets, it will take the distributor a number of years to recoup the
expenses it has incurred for its sales services and distribution-related
support services pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Class A Shares, Class B Shares, and Class C Shares
to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform Shareholder Services directly or will select financial institutions
to perform Shareholder Services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset
value of Class A Shares purchased by their clients or customers under
certain qualified retirement plans as approved by Federated Securities
Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C
Shares, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Corporation and portfolio expenses.
The Corporation expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion include, but are not
limited to: the cost of organizing the Corporation and continuing its
existence; registering the Corporation with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues; and
such non-recurring and extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Class A Shares, Class B Shares,
and Class C Shares pay their allocable portion include, but are not limited
to: registering the portfolio and Class A Shares, Class B Shares, and Class
C Shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under
the Corporation's Distribution Plan and fees for Shareholder Services.
However, the Directors reserve the right to allocate certain other expenses
to holders of Class A Shares, Class B Shares and Class C Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares, Class B
Shares, and Class C Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to administrative personnel and services as required to
support holders of Class A Shares, Class B Shares, and Class C Shares;
legal fees relating solely to Class A Shares, Class B Shares, or Class C
Shares; and Directors' fees incurred as a result of issues related solely
to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election
of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code, applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each
class of Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all income
and capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per share of each class on the last day of the
period. This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by each class of
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares. Expense differences among Class A
Shares, Class B Shares, and Class C Shares may affect the performance of
each class.
From time to time, advertisements for Class A Shares, Class B Shares, and
Class C Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
FEDERATED LATIN AMERICAN GROWTH FUND
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
An Open-End, Diversified
Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
Cusip #s
---------
G01471-02a(2/96)
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED LATIN AMERICAN GROWTH FUND
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
The Class A Shares of Federated Latin American Growth Fund (the "Fund")
represent interests in a diversified portfolio of World Investment Series,
Inc. (the "Corporation"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide long-term
growth of capital. Any income received from the portfolio is incidental.
The Fund pursues its investment objective by investing primarily in equity
securities of Latin American companies.
THE CLASS A 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Class A Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Combined Statement of Additional Information for
Class A Shares, Class B Shares, and Class C Shares dated February 13, 1996,
with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined
Statement of Additional Information, which is in paper form only, or a
paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated February 13, 1996
Table of Contents will be
generated when document is
complete.
SUMMARY OF FUND EXPENSES
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
....................................................5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) ..................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)
0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)
....................................................None
Exchange Fee .......................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2) ...................... %
12b-1 Fee (3) ......................................... %
Total Other Expenses .................................. %
Shareholder Services Fee ................... %
Total Class A Shares Operating Expenses (4)...... %
(1)
Class A Shares purchased with the proceeds of a redemption of shares of
an unaffiliated investment company purchased or redeemed with a sales
load and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales
Charge.")
(2)
The estimated Management Fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is %.
-----
(3)
Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending November 30, 1996. If Class A Shares
were paying or accruing the 12b-1 fee, Class A Shares would be able to
pay up to 0.25% of its average daily net assets for the 12b-1 fee. See
"Corporation Information."
(4)
The Total Class A Shares Operating Expenses are estimated to be %
------
absent the anticipated voluntary waiver of a portion of the Management
Fee.
* Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30,
1996. During the course of this period, expenses may be more or less
than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will
bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "What Shares Cost" and "Corporation
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period .................... $ $
-- --
You would pay the following expenses on the same investment,
assuming no redemption ................. $ $
-- --
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
This example is based on estimated data for the Class A Shares' fiscal year
ending November 30, 1996.
GENERAL INFORMATION
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Corporation to offer separate series of shares representing interests
in separate portfolios of securities. As of the date of this prospectus,
the Board of Directors (the "Directors") has established three classes of
shares for the Fund, known as Class A Shares, Class B Shares, and Class C
Shares. This prospectus relates only to the Class A Shares (the "Shares")
of the Fund.
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in equity securities of
Latin American companies.
For information on how to purchase Shares of the Fund, please refer to "How
to Purchase Shares." The minimum initial investment for Class A Shares is
$500. However, the minimum initial investment for a retirement account is
$50. Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable
sales load and are redeemed at net asset value. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual
rate not to exceed 0.25% of average daily net assets.
Investors should be aware of the following general observations. The Fund
may make certain investments and employ certain investment techniques that
involve risks, including, but not limited to, investing in non-U.S.
issuers, entering into repurchase agreements, investing in when-issued
securities, lending portfolio securities, and entering into futures
contracts and related options. These risks are described under "Investment
Policies."
The Fund's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as
the Liberty Family of Funds. The other funds in the Liberty Family of Funds
are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Asia Pacific Growth Fund, providing long-term growth of
capital by investing in equity securities of companies located in Asia
and the Pacific Rim;
o Federated Bond Fund, providing current income through high-quality
corporate debt;
o Federated Emerging Markets Fund, providing long-term growth of capital
by investing in equity securities of large and small companies
domiciled in or having primary operations in emerging markets;
o Federated European Growth Fund, providing long-term growth of capital
through investments primarily in the equity securities of European
companies;
o Federated Growth Strategies Fund, providing appreciation of capital
primarily through equity securities of companies with prospects for
above-average growth in earnings and dividends;
o Federated International Equity Fund, providing long-term capital growth
and income through international securities;
o Federated International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-quality
debt securities denominated primarily in foreign currencies;
o Federated International Small Company Fund, providing long-term growth
of capital by investing in equity securities of small foreign companies
in developed and emerging markets.
o Federated Small Cap Strategies Fund, providing capital appreciation
through common stocks of small capitalization companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed
by the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet
the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment
advisers.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales loads on future purchases in and exchanges
between the Class A Shares of any funds in the Liberty Family of Funds, as
long as they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital. Any income received
from the portfolio is incidental. The investment objective of the Fund
cannot be changed without the approval of the shareholders. While there is
no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in equity
securities of Latin American companies. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities
of Latin American companies. For purposes of this prospectus, Latin
America is defined as Mexico, Central America, South America, and the
Spanish-speaking islands of the Caribbean.
Latin American companies are defined as (i) those organized under the laws
of, or with a principal office located in, a Latin American country or (ii)
those for which the principal securities trading market is in Latin America
or (iii) those, wherever organized or traded, which derived (directly or
indirectly through subsidiaries) at least 50% of their total assets,
capitalization, gross revenue or profit in their most current fiscal year
from goods produced, services performed, or sales made in Latin America.
Although the Fund may invest in securities of issuers located in any
country in Latin America, the Fund expects to focus its investments in the
most developed capital markets of Latin America, which currently include:
Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, and
Venezuela. The Fund may invest in other countries of Latin America when
their markets become sufficiently developed, in the opinion of the
investment adviser. The Fund intends to allocate its investments among at
least three countries at all times and does not expect to concentrate
investments in any particular industry.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Directors (the "Directors") without the approval of
the shareholders of the Fund. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The equity securities in which the Fund may invest include common stock,
preferred stock (either convertible or non-convertible), sponsored or
unsponsored depositary receipts or shares, and warrants, including other
substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities
may be purchased on securities exchanges, traded over-the-counter, or have
no organized market. The Fund may also purchase corporate and government
fixed income securities denominated in currencies other than U.S. dollars;
enter into forward commitments, repurchase agreements and foreign currency
transactions; maintain reserves in foreign or U.S. money market
instruments; and purchase options and financial futures contracts.
COMMON AND PREFERRED STOCK
Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common
stocks in its claim on income for dividend payments and on assets should
the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's
stock price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred
stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential.
In selecting securities, the investment adviser typically evaluates
industry trends, a company's financial strength, its competitive position
in domestic and export markets, technology, recent developments and
profitability, together with overall growth prospects. Other
considerations generally include quality and depth of management,
government regulation, and availability and cost of labor and raw
materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history
of portfolio companies.
DEPOSITARY RECEIPTS
The Fund may invest in foreign issuers by purchasing sponsored or
unsponsored securities representing underlying international securities
such as American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs"), Global Depositary Certificates ("GDCs"), and International
Depositary Receipts ("IDRs") or securities convertible into foreign equity
securities. ADRs and ADSs typically are issued by a United States bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), GDRs, GDCs, and IDRs are typically issued by
foreign banks or trust companies, although they also may be issued by
United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States
corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, and IDRs are collectively
known as "Depositary Receipts." Depositary Receipts may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying
the receipt and a depositary, whereas an unsponsored facility may be
established by a depositary without participation by the issuer of the
receipt's underlying security. Holders of an unsponsored Depositary
Receipt generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the
deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities.
DEBT SECURITIES
In pursuit of the Fund's objective of long-term growth of capital, the Fund
may invest up to 35% of its total assets in debt securities. Capital
appreciation in debt securities may arise as a result of favorable changes
in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities
is incidental to the Fund's objective of long-term growth of capital.
These debt obligations consist of U.S. and foreign government securities
and corporate debt securities, including, but not limited to, Yankee bonds,
Eurobonds and depositary receipts. The issuers of such debt securities may
or may not be domiciled in Latin America.
The Fund may also invest in certain debt obligations customarily referred
to as "Brady Bonds," that have been created through the exchange of
existing commercial bank loans to Latin American public and private
entities for new bonds in connection with debt restructurings under a debt
restructuring plan announced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently and for that reason do not have a long payment history. Brady
Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are actively traded in the over-
the-counter secondary market for Latin American debt instruments. Brady
Bonds are neither issued nor guaranteed by the U.S. government.
The debt securities in which the Fund may invest may be rated, at the time
of purchase, BB or lower by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service, Inc. ("Fitch") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), or, if unrated, are of comparable quality as
determined by the investment adviser. The prices of fixed income
securities generally fluctuate inversely to the direction of interest
rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of
purchase, BB or lower by S&P or Fitch or Ba or lower by Moody's, or, if
unrated, are of comparable quality as determined by the investment adviser.
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
different investment strategies. In selecting a convertible security, the
investment adviser evaluates the investment characteristics of the
convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain
Latin American markets, investments in other investment companies may be
the most practical or only manner in which the Fund can participate in the
securities markets of certain countries in Latin America. The Fund may
also invest in other investment companies for the purpose of investing its
short-term cash on a temporary basis. The Fund may invest up to 10% of its
total assets in the securities of other investment companies. To the
extent that the Fund invests in securities issued by other investment
companies, the Fund will indirectly bear its proportionate share of any
fees and expenses paid by such companies, in addition to the fees and
expenses payable directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. Restricted securities may be issued
by new and early stage companies which may include a high degree of
business and financial risk that can result in substantial losses. As a
result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Fund, or less than what may be considered the fair value of such
securities. Further, companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly
traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the expense of registration. The Fund will limit
investments in illiquid securities, including certain restricted securities
not determined by the Directors to be liquid, over-the counter options,
swap agreements not determined to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
its net assets.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
arrangements by which the Fund purchases a security for cash and obtains a
simultaneous commitment from the seller (usually a bank or broker/dealer)
to repurchase the security at an agreed-upon price and specified future
date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the
seller to pay the agreed-upon price on the delivery date. However, this
risk is tempered by the ability of the Fund to sell the security in the
open market in the case of a default. In such a case, the Fund may incur
costs in disposing of the security which would increase Fund expenses. The
investment adviser will monitor the creditworthiness of the firms with
which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for different times in the
future. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement
dates may be a month or more after entering into these transactions, and
the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more or less than the market value of
the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the value of
the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the investment adviser determines
that market conditions warrant (up to 100% of total assets) and to maintain
liquidity (up to 20% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. The Fund may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase
price are segregated on the Fund's records at the trade date and maintained
until the transaction has been settled. Risk is involved if the value of
the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit
or loss.
FOREIGN CURRENCY TRANSACTIONS
The Fund will enter into foreign currency transactions to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot (i.e., cash) basis at
prevailing rates or through forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations. Cross-hedging transactions by
the Fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability that is the subject
of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated and are
maintained until the contract has been settled. The Fund will not enter
into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the investment adviser will consider the
likelihood of changes in currency values when making investment decisions,
the investment adviser believes that it is important to be able to enter
into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the value of
the Fund's assets denominated in that currency at the time the contract was
initiated, but as consistent with their other investment policies and as
not otherwise limited in their ability to use this strategy.
OPTIONS
The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange
or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5%
of the fair market value of its net assets may be invested in premiums on
such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
currency, security or other asset at the exercise price during the option
period. The writer of a covered call owns assets that are acceptable for
escrow, and the writer of a secured put invests an amount not less than the
exercise price in eligible assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
asset over the exercise price plus the premium received. In writing puts,
there is the risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and
not with a clearing corporation, and there is a risk of nonperformance by
the dealer as a result of the insolvency of such dealer or otherwise, in
which event the Fund may experience material losses. However, in writing
options, the premium is paid in advance by the dealer. OTC options, which
may not be continuously liquid, are available for a greater variety of
assets, and with a wider range of expiration dates and exercise prices,
than are exchange traded options.
It is not certain that a secondary market for positions in options, or
futures contracts (see below), will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
FUTURES AND OPTIONS ON FUTURES
The Fund may enter into futures contracts involving foreign currency,
securities, and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or
related options for purposes other than bona fide hedging if the aggregate
amount of initial margin deposits exclusive of the margin needed for
foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's
assets, provided further that in the case of an option that is in-the-money
at the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. In addition, the Fund may not sell futures
contracts if the value of such futures contracts exceeds the total market
value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodities Futures Trading
Commission ("CFTC") or the Securities and Exchange Commission ("SEC"), with
the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an
ongoing basis with its custodian cash, U.S. government securities, or other
liquid high grade debt obligations in an amount at least equal to the
Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are
traded on regulated exchanges, including non-U.S. exchanges, to the extent
permitted by the CFTC. Securities index futures contracts are based on
indexes that reflect the market value of securities of the firms included
in the indexes. An index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal
to the differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
The Fund may enter into securities index futures contracts to sell a
securities index in anticipation of or during a market decline to attempt
to offset the decrease in market value of securities in its portfolio that
might otherwise result. When the Fund is not fully invested and
anticipates a significant market advance, it may enter into futures
contracts to purchase the index in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that it
intends to purchase. In many of these transactions, the Fund will purchase
such securities upon termination of the futures position but, depending on
market conditions, a futures position may be terminated without the
corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. The Fund may purchase and write put and call
options on securities index futures contracts in order to hedge all or a
portion of its investment and may enter into closing purchase transactions
with respect to written options in order to terminate existing positions.
There is no guarantee that such closing transactions can be effected. The
Fund may also invest in options on securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures contract or in the
securities underlying the index, or when the futures contract or underlying
securities are not available for investment upon favorable terms.
The use of futures and related options involves special consideration and
risks, for example, (1) the ability of the Fund to utilize futures
successfully will depend on the investment adviser's ability to predict
pertinent market movements; (2) there might be imperfect correlation, or
even no correlation, between the change in market value of the securities
held by the Fund and the prices of the futures and options thereon relating
to the securities purchased or sold by the Fund. The use of futures and
related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce
the opportunity for gain by offsetting the positive effect of favorable
price movements in positions. No assurance can be given that the
investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
New futures contracts, options thereon, and other financial products and
risk management techniques continue to be developed. The Fund may use
these investments and techniques to the extent consistent with its
investment objectives and regulatory and federal tax considerations.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. Depending on how they
are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
RISK CHARACTERISTICS OF FOREIGN SECURITIES
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some
of these risks, the Fund diversifies its investments broadly among foreign
countries which may include both developed and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated
with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures such as
requiring payment for securities before delivery. In certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased by the
Fund are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value; the
value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of Fund assets
denominated in the currency will increase; correspondingly, if the value of
a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses,
which will usually be viewed under the Code as items of ordinary and
distributable income or loss, thus affecting the Fund's distributable
income. (See "Federal Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund will not convert its
holdings of foreign currencies to U.S. dollars daily. When the Fund
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between the
price at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign issuers;
. credit risks associated with certain foreign governments;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign issues;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that securities of foreign issuers may be less liquid or
more volatile;
. foreign brokerage commissions may be higher;
. unreliable mail service between countries;
. political or financial changes which adversely affect investments in some
countries;
. increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
. certain markets may require payment for securities before delivery;
. religious and ethnic instability; and
. certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
INVESTING IN LATIN AMERICA
The investment adviser believes that investment opportunities may result
from recent trends in Latin America encouraging greater market orientation
and less governmental intervention in economic affairs. Investors,
however, should be aware that the Latin American economies have experienced
considerable difficulties in the past decade. Although there have been
significant improvements in recent years, the Latin American economies
continue to experience challenging problems, including high inflation rates
and high interest rates relative to the U.S. The emergence of the Latin
American economies and securities markets will require continued economic
and fiscal discipline which has been lacking at times in the past, as well
as stable political and social conditions. Recovery may also be influenced
by international economic conditions, particularly those in the U.S., and
by world prices for oil and other commodities. There is no assurance that
recent economic initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar,
and major adjustments have been made in certain of these currencies
periodically. In addition, although there is a trend toward less
government involvement in commerce, governments of many Latin American
countries have exercised and continue to exercise substantial influence
over many aspects of the private sector. In certain cases, the government
still owns or controls many companies, including some of the largest in the
country. Accordingly, government actions in the future could have a
significant effect on economic conditions in Latin American countries,
which could affect private sector companies and the Fund, as well as the
value of securities in the Fund's portfolio.
Most Latin American countries have experienced substantial, and in some
periods, extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain Latin
American countries.
Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. Some of these countries have in
the past defaulted on their sovereign debt. Holders of sovereign debt
(including the Fund) may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is
no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part.
The limited size of many Latin American securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors
that affect the quality of securities.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES
The debt securities in which the Fund invests are usually not in the three
highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for S&P or Fitch and Aaa, Aa, or A for
Moody's), but are in the lower rating categories or are unrated, but are of
comparable quality and have speculative characteristics or are speculative.
Lower-rated bonds or unrated bonds are commonly referred to as "junk
bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to
time, purchase or hold debt securities rated in the lowest rating category.
A description of the rating categories is contained in the Appendix to the
Combined Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and
pledge its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Class A Shares in the market
value of all securities and other assets of the Fund, subtracting the
interest of Class A Shares in the liabilities of the Fund and those
attributable to Class A Shares, and dividing the remainder by the total
number of Class A Shares outstanding. The net asset value for Class A
Shares may differ from that of Class B Shares and Class C Shares 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.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has
a sales agreement with the distributor) or by wire or by check directly to
the Fund, with a minimum initial investment of $500. Additional investments
can be made for as little as $100. The minimum initial and subsequent
investment for retirement plans is only $50. (Financial institutions may
impose different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71%
4.00%
$100,000 but less than $250,000 3.75% 3.90%
3.25%
$250,000 but less than $500,000 2.50% 2.56%
2.25%
$500,000 but less than $1 million 2.00% 2.04%
1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales load is imposed for Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers
Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or to shareholders designated as
Liberty Life Members. However, investors who purchase Shares through a
trust department, investment adviser, or retirement plan may be charged an
additional service fee by the institution. Additionally, no sales load is
imposed for Shares purchased through "wrap accounts" or similar programs,
under which clients pay a fee or fees for services.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may
offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Shares. On
purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling
0.25% of the public offering price over the first year following the
purchase. Such payments are based on the original purchase price of Shares
outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp.
may pay fees to banks out of the sales load in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid.
The Fund will combine purchases of Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21
when it calculates the sales load. In addition, the sales load, if
applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having a current value at the public
offering price of $30,000 and he purchases $20,000 more at the current
public offering price, the sales load on the additional purchase according
to the schedule now in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Shares are already owned or that
purchases are being combined. The Fund will reduce the sales load after it
confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has
the privilege of combining concurrent purchases of two or more funds in the
Liberty Family of Funds, the purchase price of which includes a sales load.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
load after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the
funds in the Liberty Family of Funds (excluding money market funds) over
the next 13 months, the sales load may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a
sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of
the total amount intended to be purchased in escrow (in Shares) until such
purchase is completed.
The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Shares
of any fund in the Liberty Family of Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE
If Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES
Investors may purchase Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales load or
commission and were not distributed by Federated Securities Corp. The
purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an
investment dealer) to place an order to purchase Shares. Orders placed
through a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received
by the broker before 4:00 p.m. (Eastern time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by
calling the Fund. All information needed will be taken over the telephone,
and the order is considered received immediately. Payment for purchases
which are subject to a sales load must be received within three business
days following the order. Payment for purchases on which no sales load is
imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE;
For Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number;
Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a
check made payable to the name of the Fund (designate class of Shares and
account number) to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in the Fund at the net asset value next determined
after an order is received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A
Shares of other funds in the Liberty Family of Funds at net asset value.
Shareholders of Class A Shares may also exchange into certain other funds
for which affiliates of Federated Investors serve as investment adviser or
principal underwriter ("Federated Funds") which are sold with a sales load
different from that of the Fund's or with no sales load, and which are
advised by subsidiaries or affiliates of Federated Investors. These
exchanges are made at net asset value plus the difference between the
Fund's sales load already paid and any sales load of the Federated Fund
into which the Shares are to be exchanged, if higher. Neither the Fund nor
any of the funds in the Liberty Family of Funds imposes any additional fees
on exchanges. Shareholders in certain other Federated Funds may exchange
their shares in the Federated Funds for Class A Shares.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the
Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain
Federated Funds may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund
may have difficulty in making exchanges by telephone through brokers and
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be
made in writing and sent by overnight mail to Federated Services Company,
500 Victory Road--2nd Floor, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Fund. If the instructions are given by a broker, a telephone authorization
form completed by the broker must be on file with the Fund. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Eastern time) and must be received by the Fund before that time
for Shares to be exchanged the same day. Shareholders exchanging into a
fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value,
less any applicable contingent deferred sales charge next determined after
the Fund receives the redemption request from the financial institution.
Redemption requests through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to
be redeemed at that day's net asset value. Redemption requests through
other financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary
fees and commissions may be charged by the financial institution for this
service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds will be mailed in the form of a
check, to the shareholder's address of record or by wire transfer to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
It is recommended that any share certificates be sent by insured mail with
the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a
trust company, a member firm of a domestic stock exchange, or any other
"eligible guarantor institution," as defined by the Securities and Exchange
Act of 1934, as amended. The Fund does not accept signatures guaranteed by
a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in the
Fund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Shares are sold with a sales load, it is not advisable for
shareholders to continue to purchase Shares while participating in this
program.
CONTINGENT DEFERRED SALES CHARGE
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50
of 1.00% for redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
one full year from the date of purchase. Redemptions will be processed in a
manner intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. In computing the amount of
the applicable contingent deferred sales charge, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than one full year from the date of purchase; (3) Shares held for less
than one full year from the date of purchase on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection
with an exchange of Fund Shares for shares of other funds in the Liberty
Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for
Shares are redeemed is calculated as if the shareholder had held the shares
from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated
with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as
amended, of a shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; and (3)
involuntary redemptions by the Fund of Shares in shareholder accounts that
do not comply with the minimum balance requirements. No contingent deferred
sales charge will be imposed on redemptions of Shares held by Directors,
employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement
with the distributor; and spouses and children under the age of 21 of the
aforementioned persons. Finally, no contingent deferred sales charge will
be imposed on the redemption of Shares originally purchased through a bank
trust department, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of such
elimination. Any Shares purchased prior to the termination of such waiver
would have the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the Shares. If a
shareholder making a redemption qualifies for an elimination of the
contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a
Share account for each shareholder. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales load, unless shareholders
request cash payments on the new account form or by contacting the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that year's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the required
minimum value of $500. This requirement does not apply, however, if the
balance falls below the required minimum value because of changes in the
net asset value of Shares. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
CORPORATION INFORMATION
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS
The Corporation is managed by a Board of Directors. The Directors are
responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's investment
adviser, Federated Global Research Corp. (the "Adviser"), subject to
direction by the Directors. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Fund. The Adviser's address is 175 Water Street, New York, New York
10038-4965.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 1.25% of
the Fund's average daily net assets. The fee paid by the Fund, while higher
than the advisory fee paid by other mutual funds in general, is comparable
to fees paid by other mutual funds with similar objectives and policies.
Under the investment advisory contract, which provides for the voluntary
waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the
Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver
at any time in its sole discretion. The Adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND
Federated Global Research Corp., incorporated in Delaware on May 12, 1995,
is a registered investment adviser under the Investment Advisers Act of
1940, as amended. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Global Research Corp. and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over $72
billion invested across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide.
More than 100,000 investment professionals have selected Federated funds
for their clients.
Henry A. Frantzen has been the Fund's portfolio manager since its
inception. Mr. Frantzen joined Federated Investors in 1995 as an Executive
Vice President of the Fund's investment adviser. Mr. Frantzen served as
Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 to 1995. He was the Executive Vice President and
Director of Equities at Oppenheimer Management Corporation from 1989 to
1991. Mr. Frantzen received his B.S. in finance and marketing from the
University of North Dakota.
Drew J. Collins has been the Fund's portfolio manager since its inception.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnold
and S. Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the University of
Pennsylvania.
Alexandre de Bethmann has been the Fund's portfolio manager since its
inception. Mr. de Bethmann joined Federated Investors in 1995 as a Vice
President of the Fund's investment adviser. Mr. de Bethmann served as
Assistant Vice President/Portfolio Manager for Japanese and Korean equities
at the College Retirement Equities Fund from 1994 to 1995. He served as an
International Equities Analyst and then as an Assistant Portfolio Manager
at the College Retirement Equities Fund between 1987 and 1994. Mr. de
Bethmann received his M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board of Directors, and could result in
severe penalties.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the distributor may be paid a fee in
an amount computed at an annual rate of up to .25 of 1% of the average
daily net assets of Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution Plan.
The Fund does not currently make payments to the distributor or charge a
fee under the Distribution Plan for Shares, and shareholders will be
notified if the Fund intends to charge a fee under the Distribution Plan.
For Shares, the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform Shareholder Services directly or will select
financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-
related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Directors will consider appropriate changes in the
services.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under certain qualified retirement
plans as approved by Federated Securities Corp. (Such payments are subject
to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Administrative Services provides these at an annual rate which relates to
the average aggregate daily net assets of all Federated Funds as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, 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, P.O. Box 8600, Boston, Massachusetts 02266-
8600, is transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Corporation and portfolio
expenses.
The Corporation expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: the cost of organizing
the Corporation and continuing its existence; registering the Corporation
with federal and state securities authorities; Directors' fees; auditors'
fees; the cost of meetings of Directors; legal fees of the Corporation;
association membership dues; and such non-recurring and extraordinary items
as may arise from time to time.
The portfolio expenses for which holders of Class A Shares pay their
allocable portion include, but are not limited to: registering the
portfolio and Class A Shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; and such non-recurring and extraordinary items as may arise
from time to time.
At present, the only expenses which are allocated specifically to Class A
Shares as a class are expenses under the Corporation's Distribution Plan
and fees for Shareholder Services. However, the Directors reserve the right
to allocate certain other expenses to holders of Class A Shares as they
deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Class A Shares; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to
state securities commissions; expenses related to administrative personnel
and services as required to support holders of Class A Shares; legal fees
relating solely to Class A Shares; and Directors' fees incurred as a result
of issues related solely to Class A Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling Shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
Fund or class in the Corporation have equal voting rights, except that in
matters affecting only a particular Fund or class, only Shares of that Fund
or class are entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election
of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Code, applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies. However,
the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal
income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries
that entitle the Fund to reduced tax rates or exemptions on this income.
The effective rate of foreign tax cannot be predicted since the amount of
Fund assets to be invested within various countries is unknown. However,
the Fund intends to operate so as to qualify for treaty-reduced tax rates
where applicable.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
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 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. Furthermore, 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.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class
A Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in Class A Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by Class A Shares over a thirty-day period by the maximum offering
price per share of each class on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Class A Shares and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
The performance information reflects the effect of non-recurring charges,
such as the maximum sales load or contingent deferred sales charges, which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, and Class C Shares.
From time to time, advertisements for Class A Shares of the Fund may refer
to ratings, rankings, and other information in certain financial
publications and/or compare the performance of Class A Shares to certain
indices.
OTHER CLASSES OF SHARES
As of the date of this prospectus, the Fund also offers two other classes
of shares called Class B Shares and Class C Shares. This prospectus relates
only to Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund
has also adopted a Distribution Plan whereby the distributor is paid a fee
of up to .75 of 1% and a Shareholder Services fee of up to .25 of 1% of the
Class B Shares' average daily net assets with respect to Class B Shares.
Investments in Class B Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions at
net asset value with no initial sales load. Class C Shares are distributed
pursuant to a Distribution Plan adopted by the Fund whereby the distributor
is paid a fee of up to .75 of 1%, in addition to a Shareholder Services fee
of .25 of 1% of the Class C Shares' average daily net assets. In addition,
Class C Shares may be subject to certain contingent deferred sales charges.
Investments in Class C Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain
of the same expenses. Expense differences, however, among Class A Shares,
Class B Shares, and Class C Shares may affect the performance of each
class.
To obtain more information and a prospectus for either Class B Shares or
Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.
FEDERATED LATIN AMERICAN GROWTH FUND
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Prospectus
An Open-End, Diversified Management
Investment Company
February 13, 1996
FEDERATED SECURITIES CORP.
Distributor
G01471-01 (11/95)
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED LATIN AMERICAN GROWTH FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C
Shares, or the stand-alone prospectus for Class A Shares of Federated Latin
American Growth Fund (the "Fund") dated February 13, 1996. This Statement
is not a prospectus itself. To receive a copy of either prospectus, write
or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated February 13, 1996
A subsidiary of FEDERATED INVESTORS CORP.
Distributor
GENERAL INFORMATION ABOUT THE Additional Risk Considerations
FUND 4 40
Portfolio Turnover 40
INVESTMENT OBJECTIVE AND POLICIES
Investment Limitations 41
4
WORLD INVESTMENT SERIES, INC.
Convertible Securities 4 MANAGEMENT 48
Warrants 5
Fund Ownership 60
Sovereign Debt Obligations6
Directors Compensation 60
When-Issued and Delayed Delivery
INVESTMENT ADVISORY SERVICES
Transactions 7
63
Lending of Portfolio Securities
7 Adviser to the Fund 63
Repurchase Agreements 8 Advisory Fees 63
Reverse Repurchase Agreements Other Related Services 64
9 ADMINISTRATIVE SERVICES 64
Restricted and Illiquid
TRANSFER AGENT AND DIVIDEND
Securities 10
DISBURSING AGENT 65
Futures and Options 11
Foreign Currency Transactions BROKERAGE TRANSACTIONS 65
29
PURCHASING SHARES 67
Special Considerations Affecting
Latin America 35
Distribution Plan and DETERMINING NET ASSET VALUE69
Shareholder Services Agreement
Determining Market Value of
67
Securities 69
Conversion to Federal Funds
Trading in Foreign Securities
68
70
Purchases by Sales
REDEEMING SHARES 71
Representatives, Directors, and
Employees of the Fund 69 Redemption in Kind 72
TAX STATUS 73
The Fund's Tax Status 73
Foreign Taxes 74
Shareholders' Tax Status 74
TOTAL RETURN 74
YIELD 75
PERFORMANCE COMPARISONS 76
ABOUT FEDERATED INVESTORS 79
Mutual Fund Market 80
Institutional 81
Trust Organizations 81
Broker/Dealers and Bank
Broker/Dealer Subsidiaries
81
APPENDIX 82
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of World Investment Series, Inc. (the
"Corporation"), which was established as a corporation under the laws of
the state of Maryland on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as "Shares" as the context may require). This Combined Statement of
Additional Information relates to all three classes of the above-mentioned
Shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of
capital. Any income realized from the portfolio is incidental. The Fund
pursues its investment objective by investing primarily in equity
securities of Latin American companies. The investment objective cannot be
changed without the approval of shareholders.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Fund
may invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in
the underlying equity securities. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. The holder is
entitled to receive the fixed income of a bond or the dividend preference
of a preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock.
Convertible securities are senior to equity securities, and therefore have
a claim to assets of the corporation prior to the holders of common stock
in the case of liquidation. However, convertible securities are generally
subordinated to similar nonconvertible securities of the same company. The
interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The
Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stocks when, in the
investment adviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving it investment
objective. Otherwise, the Fund will hold or trade the convertible
securities.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common
stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or
may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of countries with
emerging markets or developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt instruments, such as
loans or loan participations. Sovereign debt of emerging market or
developing countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors. The Fund may also
invest in debt obligations of supranational entities, which include
international organizations designed or supported by governmental entities
to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these
include, but are not limited to, the International Bank for Reconstruction
and Development (World Bank), European Investment Bank and Inter-American
Development Bank.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Corporation's Board
of Directors (the "Directors").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future, the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund will be able to
avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933, as amended (the "Rule"). The
Rule is a non-exclusive safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration
for resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under the Rule.
The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Directors.
The Directors may consider the following criteria in determining the
liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona
fide market does not exist at the time of purchase or subsequent
transaction shall be treated as illiquid securities by the Directors.
FUTURES AND OPTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and
the buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at which
the index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest
rates. A rise in rates generally means a drop in price. Conversely, a
drop in rates generally means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the anticipated holding period. The Fund would "go long" (i.e.,
agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates. The Fund may also invest
in securities index futures contracts when the investment adviser believes
such investment is more efficient, liquid, or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the investment
adviser to predict correctly movements in the direction of the stock market
generally or of a particular industry.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the
Fund grants to the purchaser of the put the right to receive from the Fund,
at the strike price, a short position in such futures contract, even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The Fund has no obligation to return premiums
paid to it whether or not the option is exercised. It will generally be
the policy of the Fund, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing
purchase transaction, if available, unless it is determined to be in the
Fund's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Fund of an option
having the same term as the option sold by the Fund, and has the effect of
canceling the Fund's position as a seller. The premium which the Fund will
pay in executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part upon the
relative price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge
its portfolio against an increase in market interest rates, a decrease in
stock prices, or when the investment adviser believes such investment is
more efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of
the option if the option is exercised. As stock prices fall or market
interest rates rise and cause the price of futures to decrease, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss
or minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio.
A put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer
of a put option, the Fund has the obligation to purchase a security from
the purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded
on an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
RISKS
OPTIONS
Certain hedging vehicles have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the adviser's view as to certain market movements is incorrect,
the risk that the use of such hedging strategies could result in losses
greater than if they had not been used. Use of put and call options may
result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of
put options) or lower than (in the case of call options) current market
values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell.
The use of currency transactions can result in the Fund incurring losses as
a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive
a specified currency. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the
Fund's position. In addition, futures and options markets may both be
liquid in all circumstances and certain over-the-counter options may have
not markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally,
the daily variation margin requirements for futures contracts would create
a greater ongoing potential financial risk than would purchase of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of hedging strategies would reduce net asset value,
and possibly income, and such losses can be greater than if the hedging
strategies had not been utilized.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rating payments of fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that specified index falls
below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors, and collars are entered into for good faith
hedging purposes, the investment adviser and the Fund believe such
obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal
acceptable rating for a swap, cap, floor, or collar to be purchased or held
in the Fund's portfolio. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid
than swaps.
RISKS OF HEDGING STRATEGIES OUTSIDE THE U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the U.S. of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S.,
(iv) the imposition of different exercise and settlement terms and
procedures and the margin requirements than in the U.S., and (v) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging strategies, in addition to other requirements, require that
the Fund segregate liquid high grade assets with its custodian to the
extent Fund obligations are not otherwise "covered" through ownership of
the underlying security, financial instrument or currency. In general,
either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call
option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, a currency
contract which obligates the Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possibly daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
hedging strategies. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets
if the Fund held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. Other hedging strategies
may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation
is required, but if it terminates prior to such time, assets equal to any
remaining obligation would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price
at which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or
through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and a foreign currency involved
in an underlying transaction. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive
change in such currency relationships. The investment adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the Fund's
best interest to do so. The Fund will not speculate in foreign currency
exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with
that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However, there
may be circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICA
Investing in securities of Latin American issuers may entail risks relating
to the potential political and economic instability of certain Latin
American countries and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment and on
repatriation of capital invested. In the event of expropriation,
nationalization or other confiscation by any country, the Fund could lose
its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the U.S. Disclosure and regulatory standards are in
many respects less stringent than U.S. standards. Furthermore, there is a
lower level of monitoring and regulation of the markets and the activities
of investors in such markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to
volume of trading in the securities of U.S. issuers could cause prices to
be erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market
size may cause prices to be unduly influenced by traders who control large
positions. Adverse publicity and investors' perceptions, whether or not
based on in-depth fundamental analysis, may decrease the value and
liquidity of portfolio securities.
The Fund invests in securities denominated in currencies of Latin American
countries. Accordingly, changes in the value of these currencies against
the U.S. dollar will result in corresponding changes in the U.S. dollar
value of the Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American
currencies may not be internationally traded. Certain of these currencies
have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Fund's portfolio securities are
denominated may have a detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth
of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have
a debilitating effect on an economy. Furthermore, certain Latin American
countries may impose withholding taxes on dividends payable to the Fund at
a higher rate than those imposed by other foreign countries. This may
reduce the Fund's investment income available for distribution to
shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared
moratoria on the payment of principal and/or interest on outstanding debt.
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not
be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's
willingness or ability to repay principal and interest due in a timely
manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure
to implement such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the cancellation of such
third parties' commitments to lend funds to the governmental entity, which
may further impair such debtor's ability or willingness to service its
debts in a timely manner. Consequently, governmental entities may default
on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which
defaulted sovereign debt may be collected in whole or in part.
Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result
of poor economic policies, higher international interest rates, and the
denial of access to new foreign capital. Although a number of Latin
American countries are currently experiencing lower rates of inflation and
higher rates of real growth in gross domestic product than they have in the
past, other Latin American countries continue to experience significant
problems, including high inflation rates and high interest rates. Capital
flight has proven a persistent problem and external debt has been forcibly
rescheduled. Political turmoil, high inflation, capital repatriation
restrictions, and nationalization have further exacerbated conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future
could have a significant effect on economic conditions which may adversely
affect prices of certain portfolio securities. Expropriation, confiscatory
taxation, nationalization, political, economic or social instability or
other similar developments, such as military coups, have occurred in the
past and could also adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as the North American Free Trade Agreement
("NAFTA"), privatization, trade reform and fiscal and monetary reform are
among the recent steps taken to renew economic growth. External debt is
being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Latin American equity markets can be extremely volatile and
in the past have shown little correlation with the U.S. market. Currencies
are typically weak, but most are now relatively free floating, and it is
not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.
ADDITIONAL RISK CONSIDERATIONS
The Directors consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Directors
also consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in
the absence of willful misfeasance, bad faith or gross negligence on the
part of the investment adviser, any losses resulting from the holding of
the Fund's portfolio securities in foreign countries and/or with securities
depositories will be at the risk of shareholders. No assurance can be
given that the Directors' appraisal of the risks will always be correct or
that such exchange control restrictions or political acts of foreign
governments might not occur.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that portfolio turnover will result in adverse tax consequences.
It is not anticipated that the portfolio trading engaged in by the Fund
will result in its annual rate of portfolio turnover exceeding 100%;
however, the relative performance of the Fund's investments may make a
realignment of the Fund's portfolio desirable from time to time. The
frequency of such portfolio realignments will be determined by market
conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no
investment limitation of the Fund shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered
"investment securities" under the Investment Company Act of 1940, as
amended, or assets exempted by the SEC) in an open-end investment company
with substantially the same investment objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially
all of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially
the same investment objectives). Shareholders will be notified before any
material changes in these limitations become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,
will invest no more than 5% of its total assets in any one investment
company, and will invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain
expenses such as management fees, and, therefore, any investment by the
Fund in shares of another investment company would be subject to such
duplicate expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, over-the-counter options, swap
agreements not determined to be liquid, and certain restricted securities
not determined by the Directors to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Corporation or the Fund's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities or futures contracts,
unless the securities or futures contracts are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities or
futures contracts are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants, including those acquired in units or attached to other
securities. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchanges. For purposes of
this investment restriction, warrants will be valued at the lower of cost
or market, except that warrants acquired by the Fund in units with or
attached to securities may be deemed to be without value.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund has no present intent to borrow money, pledge securities, or
invest in reverse repurchase agreements in excess of 5% of the value of its
total assets in the coming fiscal year. In addition, the Fund expects to
lend not more than 5% of its total assets in the coming fiscal year.
To comply with registration requirements in certain states, the Fund
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund
to 5% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
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 and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
WORLD INVESTMENT SERIES, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with World Investment Series, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director, Trustee, or Managing
General Partner of the Funds. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; founding Chairman,
National Advisory Council for Environmental Policy and Technology and
Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Administrative Services, Federated
Services Company, and Federated Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or Managing General Partner of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management, and
Federated Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Services Company; Executive Vice
President, Secretary, and Trustee, Federated Administrative Services;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Senior Vice
President, Federated Shareholder Services; Vice President, Federated
Administrative Services; Treasurer of some of the Funds.
*
This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@
Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for
U.S. Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus Funds; and
World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Corporation and
Chairman and Director
68 other investment companies in the Fund Complex
Thomas G. Bigley $ 0 $20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 0
$117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ 0
$117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
James E. Dowd $ 0 $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 0
$106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Richard B. Fisher$ 0 $0 for the Corporation and
President and Director
8 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 0
$117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ 0 $90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0
$0 for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts$ 0 $106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from January 26, 1994
(organization date of the Corporation) to November 30, 1994.
#The aggregate compensation is provided for the Corporation which was
comprised of 1 portfolio, as of
November 30, 1994.
+The information is provided for the last calendar year end.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any
shareholder of the Fund 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 Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in each prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities
Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in each prospectus. Dr. Henry J. Gailliot, an officer of
Federated Global Research Corp., the Adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director
of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's average
net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting 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 relation to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent
that receipt of these services may supplant services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser
is not obligated to obtain any material non-public ("inside") information
about any securities issuer, or to base purchase or sale recommendations on
such information.
PURCHASING SHARES
Except under certain circumstances described in each prospectus, Shares are
sold at their net asset value (plus a sales load on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in each prospectus under "How To Purchase
Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services as appropriate, to
stimulate distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A
Shares, Class B Shares, and Class C Shares of the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS, AND EMPLOYEES OF THE FUND
Directors, employees, and sales representatives of the Fund, Federated
Global Research Corp., and Federated Securities Corp. or their affiliates,
or any investment dealer who has a sales agreement with Federated
Securities Corp. and their spouses and children under 21, may buy Class A
Shares at net asset value without a sales load. Shares may also be sold
without a sales load to trusts or pension or profit-sharing plans for these
people.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities
exchange or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the 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; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of
trading on such exchanges unless the Directors determine in good faith that
another method of valuing such investments is necessary.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
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
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. 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 New York Stock Exchange. 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 Directors,
although the actual calculation may be done by others.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each prospectus
under "How To Redeem Shares." Although the transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and Class C Shares and
applicable Class A Shares redeemed within one year of purchase may be
subject to a contingent deferred sales charge. The amount of the contingent
deferred sales charge is based upon the amount of the administrative fee
paid at the time of purchase by the distributor to the financial
institution for services rendered, and the length of time the investor
remains a shareholder in the Fund. Should financial institutions elect to
receive an amount less than the administrative fee that is stated in the
prospectus for servicing a particular shareholder, the contingent deferred
sales charge and/or holding period for that particular shareholder will be
reduced accordingly.
Since portfolio securities of the Fund may be traded on foreign exchanges
which trade on Saturdays or on holidays on which the Fund will not make
redemptions, the net asset value of each class of Shares of the Fund may be
significantly affected on days when shareholders do not have an opportunity
to redeem their Shares.
REDEMPTION IN KIND
Although the Corporation intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole or
in part by a distribution of securities from the respective Fund's
portfolio. To the extent available, such securities will be readily
marketable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Corporation is obligated
to redeem Shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective class's net asset value during any 90-day
period.
Any redemption beyond this amount will also be in cash unless the Directors
determine 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
instruments, valued in the same way as the Fund determines net asset value.
The portfolio instruments will be selected in a manner that the Directors
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations
which would constitute a Passive Foreign Investment Company ("PFIC").
Federal income taxes may be imposed on the Fund upon disposition of PFIC
investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest 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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The average annual total return for each class of Shares of the Fund 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 net asset value 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 load, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the ending
value of the investment based on the lesser of the original purchase price
or the net asset value of Shares redeemed.
YIELD
The yield for each class of Shares of the Fund is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per share of the respective class on the last
day of the period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P
500), a 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 Standard & Poor's figures.
o 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. From time to time, the Fund will quote
its Lipper ranking in the "latin american region funds" category in
advertising and sales literature.
o MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDICES, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of
more than 1,000 companies of Europe, Australia, and the Far East.
o MORGAN STANLEY CAPITAL INTERNATIONAL LATIN AMERICA EMERGING MARKET
INDICES, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley
Emerging Markets Global Latin America Index. Both indices include 60%
of the market capitalization of the following countries: Argentina,
Brazil, Chile, and Mexico. The indices are weighted by market
capitalization and are calculated without dividends reinvested.
o IBBOTSON ASSOCIATES INTERNATIONAL BOND INDEX, which provides a detailed
breakdown of local market and currency returns since 1960.
o BEAR STEARNS FOREIGN BOND INDEX, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
o MORNINGSTAR, INC. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values 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.
From time to time, the Fund may quote information including but not limited
to data regarding: individual countries, regions, world stock exchanges,
and economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on annual reinvestment of
dividends over a specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of
deposit and time deposits and to money market funds using the Lipper
Analytical Services money market instruments average. In addition,
advertising and sales literature for the Fund may use charts and graphs to
illustrate the principles of dollar-cost averaging and may disclose the
amount of dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs
which is reflected in its investment decision making-structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment products
that have gained the confidence of thousands of clients and their
customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive
Vice President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, 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 advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
*source: Investment Company Institute
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
Ratings Group believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA--Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain indentifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
G01471-03 (11/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (World Utility Fund--Filed in Part A
for Fortress Shares, Part B for A, B & C
Shares)
(b) Exhibits:
(1) Conformed Copy of Articles of Incorporation of the
Registrant; (1)
(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of World Utility Fund; Federated Asia Pacific
Growth Fund, Federated Emerging Markets Fund, Federated
European Growth Fund, Federated International Small
Company Fund, and Federated Latin American Growth Fund;+
(5) (i) Conformed Copy of Investment Advisory Contract of
the Registrant; +
(ii) Assignment of Investment Advisory Contract; +
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant; +
(ii) The Registrant hereby incorporates the conformed
copy of the Specimen Mutual Funds Sales and
Service Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds Service
Agreement from Item 24(b)6 of the Cash Trust
Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File
Nos. 33-38550 and 811-6269)
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the
Registrant; (3)
+All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Intitial
Registration Statement on Form N-1A filed February 4, 1994. (File Nos.
33-52149 and 811-7141).
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No.1 on Form N-1A filed March 24, 1994. (File Nos. 33-52149
and 811-7141).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 25, 1994 (File Nos. 33-52149
and 811-7141).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed January 27, 1995 (File Nos. 33-52149
and 811-7141).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 11, 1995 (File Nos. 33-52149
and 811-7141).
(9) (i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement
Agreement of the Registrant; (4)
(ii) Conformed copy of Administratrive Services
Agreement; (3)
(iii) Conformed copy of Shareholder Services Agreement;
(3)
(v) The responses described in Item 24(b)6 are hereby
incorporated by reference.
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (2)
(11) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) Conformed Copy of Rule 12b-1 Distribution
Plan; +
(16) Copy of Schedule for Computation of Fund Performance
Data; (3)
(17) Not applicable;
(18) Conformed copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of November 20, 1995
Shares of capital stock
($0.001 per Share par value)
World Utility Fund
a) Class A Shares 980
b) Class B Shares 376
c) Class C Shares 327
d) Fortress Shares 330
Federated Asia Pacific Growth Fund
a) Class A Shares not currently effective
b) Class B Shares not currently effective
c) Class C Shares not currently effective
Item 27. Indemnification (1).
+All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No.1 on Form N-1A filed March 24, 1994. (File Nos. 33-52149
and 811-7141).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 25, 1994 (File Nos. 33-52149
and 811-7141).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed January 27, 1995 (File Nos. 33-52149
and 811-7141).
Federated Emerging Markets Fund
a) Class A Shares not currently effective
b) Class B Shares not currently effective
c) Class C Shares not currently effective
Federated European Growth Fund
a) Class A Shares not currently effective
b) Class B Shares not currently effective
c) Class C Shares not currently effective
Federated International Small Company Fund
a) Class A Shares not currently effective
b) Class B Shares not currently effective
c) Class C Shares not currently effective
Federated Latin American Growth Fund
a) Class A Shares not currently effective
b) Class B Shares not currently effective
c) Class C Shares not currently effective
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the Investment
Adviser, see the section entitled "Corporation Information -
Management of the Corporation" in Part A. The affiliations with
the Registrant of three of the Directors and two of the Officers
of the Investment Adviser are included in Part B of the
Registration Statement under "World Investment Series, Inc.
Management."
The remaining Officers of the Investment Adviser are: William D.
Dawson, III, Henry A. Frantzen, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins, Jonathan
C. Conley and J. Alan Minteer, Senior Vice Presidents; J. Scott
Albrecht, Joseph M. Balestrino, Randall S. Bauer, David A.
Briggs, Kenneth J. Cody, Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Duessel, Mark E. Durbiano, Kathleen M. Foody-
Malus, Thomas M. Franks, Edward C. Gonzales, Timothy E. Keefe,
Stephen A. Keen, Mark S. Kopinski, Jeff A. Kozemchak, Marian R.
Marinack, Susan M. Nason, Mary Jo Ochson, Robert J. Ostrowski,
Frederick L. Plautz, Jr., Charles A. Ritter, James D. Roberge,
Frank Semack, William F. Stotz, Sandra L. Weber, and Christopher
H. Wiles, Vice Presidents; Thomas R. Donahue, Treasurer, and
Stephen A. Keen, Secretary. The business address of each of the
Officers of the Federated Research Division of Federated Global
Research Corp. is Federated Investors Tower, Pittsburgh, PA
15222-3779 or 175 Water Street, New York, New York 10038-4965, as
applicable. These individuals are also officers of a majority of
the investment advisers to the Funds listed in Part B of this
Registration Statement.
Item 29. Principal Underwriters:
(a)Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: American Leaders
Fund, Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series, Inc.; Cash Trust Series
II; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Equity Funds;
Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Master Trust; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund:
3-5 Years;First Priority Funds; First Union Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fountain Square Funds; Fund for
U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Independence One
Mutual Funds; Insurance Management Series; Intermediate
Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal Securities
Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; The Virtus Funds; Vision Fiduciary
Funds, Inc.; and Vision Group of Funds, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief
Director
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director and Executive Vice Executive Vice
Federated Investors Tower President, Federated President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
John B. Fisher President-Institutional Sales,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President and Secretary,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities
Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities
Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
--
Federated Investors Tower Federated Securities
Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities
Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter
With Registrant
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President,
--
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company
Federated Investors Tower
(Transfer Agent, Dividend
Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper)
Federated Administrative Services
Federated Investors Tower
(Administrator)
Pittsburgh, PA 15222-3779
Federated Global Research Corp.
175 Water Street
(Adviser)
New York, NY 10038-4965
State Street Bank and Trust Company
P.O. Box 8600
(Custodian)
Boston, MA 02266-8600
Item 31. Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to file a post-effective amendment
on behalf of Federated Asia Pacific Growth Fund, Federated
Emerging Markets Fund, Federated European Growth Fund, Federated
International Small Company Fund, and Federated Latin American
Growth Fund, using financial statements for Federated Asia
Pacific Growth Fund, Federated Emerging Markets Fund, Federated
European Growth Fund, Federated International Small Company Fund,
and Federated Latin American Growth Fund, respectively, which
need not be certified, within four to six months from the
effective date of this Post-Effective Amendment No. 4.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, WORLD INVESTMENT
SERIES, INC. has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 30th day of November, 1995.
WORLD INVESTMENT SERIES, INC.
BY: /s/ J.Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
November 30, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME
TITLE
DATE
By: /s/ J.Crilley Kelly Attorney In Fact
November 30, 1995
J. Crilley Kelly
For the Persons
ASSISTANT SECRETARY
Listed Below
NAME
TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley * Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.*
Director
Edward L. Flaherty, Jr.*
Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
EXHIBIT 4 UNDER FORM N-1A
EXHIBIT 3(C) UNDER ITEM 601/REG. S-K
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP 981487 10 1
Fully Paid and Non-Assessable Shares of Common Stock of WORLD UTILITY FUND
(CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC. hereafter called the
"Company," transferable on the books of the Company by the owner, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP 981487 30 9
Fully Paid and Non-Assessable Shares of Common Stock of WORLD UTILITY FUND
(CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC. hereafter called the
"Company," transferable on the books of the Company by the owner, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP 981487 40 8
Fully Paid and Non-Assessable Shares of Common Stock of WORLD UTILITY FUND
(CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC. hereafter called the
"Company," transferable on the books of the Company by the owner, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
(FORTRESS SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP 981487 20 0
Fully Paid and Non-Assessable Shares of Common Stock of WORLD UTILITY FUND
(FORTRESS SHARES) Portfolio of WORLD INVESTMENT SERIES, INC. hereafter called
the "Company," transferable on the books of the Company by the owner, in person
or by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED ASIA PACIFIC
GROWTH FUND (CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED ASIA PACIFIC
GROWTH FUND (CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED ASIA PACIFIC
GROWTH FUND (CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EMERGING
MARKETS FUND (CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EMERGING
MARKETS FUND (CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EMERGING
MARKETS FUND (CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EUROPEAN
GROWTH FUND (CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EUROPEAN
GROWTH FUND (CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EUROPEAN
GROWTH FUND (CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED INTERNATIONAL
SMALL COMPANY FUND (CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED INTERNATIONAL
SMALL COMPANY FUND (CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED INTERNATIONAL
SMALL COMPANY FUND (CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
(CLASS A SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED LATIN AMERICAN
GROWTH FUND (CLASS A SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
(CLASS B SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED LATIN AMERICAN
GROWTH FUND (CLASS B SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
(CLASS C SHARES)
Number Shares
Account No. Alpha Code Incorporated UnderSee Reverse Side For
the Laws of the Certain Definitions
State of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED LATIN AMERICAN
GROWTH FUND (CLASS C SHARES) Portfolio of WORLD INVESTMENT SERIES, INC.
hereafter called the "Company," transferable on the books of the Company by the
owner, in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: WORLD INVESTMENT SERIES, INC.
Corporate Seal
(1994)
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Services
Company
(Pittsburgh) Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
The Company will furnish to any stockholder, on request and without charge, a
full statement of designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
corporation is authorized to issue.
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
------------------------------------------
Attorney
- -------------------------------------------------------------------
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
EXHIBIT 5 (I) UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K
WORLD INVESTMENT SERIES, INC.
INVESTMENT ADVISORY CONTRACT
This Contract is made this 1st day of March, 1994, between FEDERATED
MANAGEMENT, a Delaware business trust having its principal place of business in
Pittsburgh, Pennsylvania (the "Adviser"), and WORLD INVESTMENT SERIES, INC., a
Maryland corporation having its principal place of business in Pittsburgh,
Pennsylvania (the "Corporation").
WHEREAS the Corporation is an open-end management investment company as
that term is defined in the Investment Company Act of 1940, as amended, and
is registered as such with the Securities and Exchange Commission; and
WHEREAS Adviser is engaged in the business of rendering investment advisory
and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. The Corporation hereby appoints Adviser as Investment Adviser for each
of the portfolios ("Funds") of the Corporation which executes an exhibit to this
Contract, and Adviser accepts the appointments. Subject to the direction of the
Directors of the Corporation, Adviser shall provide investment research and
supervision of the investments of the Funds and conduct a continuous program of
investment evaluation and of appropriate sale or other disposition and
reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds
will be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Articles of Incorporation and
Bylaws of the Corporation and as set forth in the Registration Statements and
exhibits as may be on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and
its allocable share of Corporation expenses, including, without limitation, the
expenses of organizing the Corporation and continuing its existence; fees and
expenses of Directors and officers of the Corporation; fees for investment
advisory services and administrative personnel and services; expenses incurred
in the distribution of its shares ("Shares"), including expenses of
administrative support services; fees and expenses of preparing and printing its
Registration Statements under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, and any amendments thereto; expenses of
registering and qualifying the Corporation, the Funds, and Shares of the Funds
under federal and state laws and regulations; expenses of preparing, printing,
and distributing prospectuses (and any amendments thereto) to shareholders;
interest expense, taxes, fees, and commissions of every kind; expenses of issue
(including cost of Share certificates), purchase, repurchase, and redemption of
Shares, including expenses attributable to a program of periodic issue; charges
and expenses of custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing and mailing costs,
auditing, accounting, and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of Directors and
shareholders and proxy solicitations therefor; insurance expenses; association
membership dues and such nonrecurring items as may arise, including all losses
and liabilities incurred in administering the Corporation and the Funds. Each
Fund will also pay its allocable share of such extraordinary expenses as may
arise including expenses incurred in connection with litigation, proceedings,
and claims and the legal obligations of the Corporation to indemnify its
officers and Directors and agents with respect thereto.
4. Each of the Funds shall pay to Adviser, for all services rendered to
each Fund by Adviser hereunder, the fees set forth in the exhibits attached
hereto.
5. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
6. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective.
7. This Contract shall begin for each Fund as of the date of execution of
the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit during the initial term of this Contract) for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject to the provisions for termination and all of the other terms and
conditions hereof if: (a) such continuation shall be specifically approved at
least annually by the vote of a majority of the Directors of the Corporation,
including a majority of the Directors who are not parties to this Contract or
interested persons of any such party cast in person at a meeting called for that
purpose; and (b) Adviser shall not have notified a Fund in writing at least
sixty (60) days prior to the anniversary date of this Contract in any year
thereafter that it does not desire such continuation with respect to that Fund.
If a Fund is added after the first approval by the Directors as described above,
this Contract will be effective as to that Fund upon execution of the applicable
exhibit and will continue in effect until the next annual approval of this
Contract by the Directors and thereafter for successive periods of one year,
subject to approval as described above.
8. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by the
Directors of the Corporation or by a vote of the shareholders of that Fund on
sixty (60) days' written notice to Adviser.
9. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. Adviser may employ or contract with
such other person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out this
Contract.
10. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties under this Contract on the part
of Adviser, Adviser shall not be liable to the Corporation or to any of the
Funds or to any shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding, or sale of any security.
11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority of
the Directors of the Corporation, including a majority of the Directors who are
not parties to this Contract or interested persons of any such party to this
Contract (other than as Directors of the Corporation) cast in person at a
meeting called for that purpose, and on behalf of a Fund by a majority of the
outstanding voting securities of such Fund.
12. The Corporation and the Funds are hereby expressly put on notice of
the limitation of liability as set forth in the Articles of Incorporation of the
Adviser and agree that the obligations assumed by the Adviser pursuant to this
Contract shall be limited in any case to the Adviser and its assets and, except
to the extent expressly permitted by the Investment Company Act of 1940, as
amended, the Corporation and the Funds shall not seek satisfaction of any such
obligation from the shareholders of the Adviser, the Directors, officers,
employees, or agents of the Adviser, or any of them.
13. The parties hereto acknowledge that Federated Investors, has reserved
the right to grant the non-exclusive use of the name "Federated" or any
derivative thereof to any other investment company, investment company
portfolio, investment adviser, distributor or other business enterprise, and to
withdraw from the Corporation and one or more of the Funds the use of the name
"Federated". The name "Federated" will continue to be used by the Corporation
and each Fund so long as such use is mutually agreeable to Federated Investors
and the Corporation.
14. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
15. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
EXHIBIT A
to the
Investment Advisory Contract
World Investment Series, Inc.
World Utility Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.00 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.00 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of March, 1994.
Attest: FEDERATED MANAGEMENT
/s/ John W. McGonigle By:/s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ Byron F. Bowman By:/s/ J. Christopher Donahue
Assistant Secretary Vice President
EXHIBIT B
to the
Investment Advisory Contract
World Investment Series, Inc.
Federated Asia Pacific Growth Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.10 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.10 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1995.
Attest: FEDERATED GLOBAL RESEARCH CORP.
/s/ Stephen A. Keen By: /s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By/s/ Edward C. Gonzales
Assistant Secretary Vice President
EXHIBIT C
to the
Investment Advisory Contract
World Investment Series, Inc.
Federated Emerging Markets Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.25 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.25 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1995.
/s/ Stephen A. Keen By: /s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By/s/ Edward C. Gonzales
Assistant Secretary Vice President
EXHIBIT D
to the
Investment Advisory Contract
World Investment Series, Inc.
Federated European Growth Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.00 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.00 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1995.
/s/ Stephen A. Keen By: /s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By/s/ Edward C. Gonzales
Assistant Secretary Vice President
EXHIBIT E
to the
Investment Advisory Contract
World Investment Series, Inc.
Federated International Small Company Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.25 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.25 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1995.
/s/ Stephen A. Keen By: /s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By/s/ Edward C. Gonzales
Assistant Secretary Vice President
EXHIBIT F
to the
Investment Advisory Contract
World Investment Series, Inc.
Federated Latin American Growth Fund
For all services rendered by Adviser hereunder, the above-named Fund of the
Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1.25 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.25 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of December, 1995.
/s/ Stephen A. Keen By: /s/ J. Thomas Madden
Secretary Executive Vice President
Attest: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By/s/ Edward C. Gonzales
EXHIBIT 5 (II) UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K
ASSIGNMENT OF INVESTMENT ADVISORY CONTRACT
KNOW ALL MEN BY THESE PRESENTS,
That FEDERATED MANAGEMENT, a Delaware business trust ("Assignor"), in
consideration of good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, does hereby sell, assign, transfer and set over
unto FEDERATED GLOBAL RESEARCH CORP., a Delaware corporation ("Assignee") all
of its rights under an Investment Advisory Contract made by it with WORLD
INVESTMENT SERIES, INC. dated the 1st day of March, 1994 (the "Contract");
That the Board of Directors of World Investment Series, Inc. has approved
such assignment based on its determination that this assignment will not result
in the automatic termination of the Contract;
TO HAVE AND TO HOLD the same to the Assignee absolutely, and Assignee does
hereby assume all obligations of Assignor under or in connection with the
Contract.
Assignor represents and warrants to Assignee as follows:
1. A true and complete copy of the Contract and all amendments and
supplements thereto is attached to this Assignment as Exhibit A;
2. The Contract is valid and enforceable in accordance with its terms
except as such enforceability may be limited by laws relating to
insolvency of a party or principles of equity;
3. No party to the Contract is in default of any of its terms or
conditions. Without limiting the generality of the foregoing,
Assignor has duly performed all obligations required to be performed
by it prior to the date hereof.
Assignee agrees to indemnify and hold Assignor harmless from and against
any obligations arising under the Contract which by the terms of the Contract
are required to be performed by it from and after the date hereof.
IN WITNESS WHEREOF, the parties have executed this Assignment on the 20th
day of November, 1995.
Attest: FEDERATED MANAGEMENT
/s/ Stephen A. Keen /s/ J. Thomas Madden
----------
FEDERATED GLOBAL RESEARCH CORP.
EXHIBIT 6 (I) UNDER FORM N-1A
EXHIBIT 1 UNDER ITEM 601/REG. S-K
WORLD INVESTMENT SERIES, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 1st day of March, 1994, by and between WORLD INVESTMENT
SERIES, INC. (the "Corporation"), a Maryland Corporation, and FEDERATED
SECURITIES CORP. ("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Corporation hereby appoints FSC as its agent to sell and
distribute shares of the Corporation which may be offered in one or more series
(the "Funds") consisting of one or more classes (the "Classes") of shares (the
"Shares"), as described and set forth on one or more exhibits to this Agreement,
at the current offering price thereof as described and set forth in the current
Prospectuses of the Corporation. FSC hereby accepts such appointment and agrees
to provide such other services for the Corporation, if any, and accept such
compensation from the Corporation, if any, as set forth in the applicable
exhibit to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever
in the judgment of the Corporation it is in its best interest to do so.
3. Neither FSC nor any other person is authorized by the Corporation to
give any information or to make any representation relative to any Shares other
than those contained in the Registration Statement, Prospectuses, or Statements
of Additional Information ("SAIs") filed with the Securities and Exchange
Commission, as the same may be amended from time to time, or in any supplemental
information to said Prospectuses or SAIs approved by the Corporation. FSC
agrees that any other information or representations other than those specified
above which it or any dealer or other person who purchases Shares through FSC
may make in connection with the offer or sale of Shares, shall be made entirely
without liability on the part of the Corporation. No person or dealer, other
than FSC, is authorized to act as agent for the Corporation for any purpose.
FSC agrees that in offering or selling Shares as agent of the Corporation, it
will, in all respects, duly conform to all applicable state and federal laws and
the rules and regulations of the National Association of Securities Dealers,
Inc., including its Rules of Fair Practice. FSC will submit to the Corporation
copies of all sales literature before using the same and will not use such sales
literature if disapproved by the Corporation.
4. This Agreement is effective with respect to each Class as of the date
of execution of the applicable exhibit and shall continue in effect with respect
to each Class presently set forth on an exhibit and any subsequent Classes added
pursuant to an exhibit during the initial term of this Agreement for one year
from the date set forth above, and thereafter for successive periods of one year
if such continuance is approved at least annually by the Directors of the
Corporation including a majority of the members of the Board of Directors of the
Corporation who are not interested persons of the Corporation and have no direct
or indirect financial interest in the operation of any Distribution Plan
relating to the Corporation or in any related documents to such Plan (Directors)
cast in person at a meeting called for that purpose. If a Class is added after
the first annual approval by the Directors as described above, this Agreement
will be effective as to that Class upon execution of the applicable exhibit and
will continue in effect until the next annual approval of this Agreement by the
Directors and thereafter for successive periods of one year, subject to approval
as described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a majority
of the Disinterested Directors or by a majority of the outstanding voting
securities of the particular Fund or Class on not more than sixty (60) days'
written notice to any other party to this Agreement. This Agreement may be
terminated with regard to a particular Fund or Class by FSC on sixty (60) days'
written notice to the Corporation.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, as amended, provided, however, that FSC may employ such
other person, persons, corporation or corporations as it shall determine in
order to assist it in carrying out its duties under this Agreement.
7. FSC shall not be liable to the Corporation 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 by this
Agreement.
8. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is approved by
the Directors of the Corporation including a majority of the Disinterested
Directors of the Corporation cast in person at a meeting called for that
purpose.
9. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Corporation agrees
to indemnify and hold harmless FSC and each person, if any, who controls FSC
within the meaning of Section 15 of the Securities Act of 1933 and Section 20 of
the Securities Act of 1934, as amended, against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any Prospectuses or
SAIs (as from time to time amended and supplemented) or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Corporation about FSC by or on behalf of FSC expressly for use in the
Registration Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.
If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against the Corporation
pursuant to the foregoing paragraph, FSC shall promptly notify the Corporation
in writing of the institution of such action and the Corporation shall assume
the defense of such action, including the employment of counsel selected by the
Corporation and payment of expenses. FSC or any such controlling person thereof
shall have the right to employ separate counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of FSC or such controlling
person unless the employment of such counsel shall have been authorized in
writing by the Corporation in connection with the defense of such action or the
Corporation shall not have employed counsel to have charge of the defense of
such action, in any of which events such fees and expenses shall be borne by the
Corporation. Anything in this paragraph to the contrary notwithstanding, the
Corporation shall not be liable for any settlement of any such claim of action
effected without its written consent. The Corporation agrees promptly to notify
FSC of the commencement of any litigation or proceedings against the Corporation
or any of its officers or Directors or controlling persons in connection with
the issue and sale of Shares or in connection with the Registration Statement,
Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the Corporation, each
of its Directors, each of its officers who have signed the Registration
Statement and each other person, if any, who controls the Corporation within the
meaning of Section 15 of the Securities Act of 1933, but only with respect to
statements or omissions, if any, made in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Corporation about FSC by or on
behalf of FSC expressly for use in the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof. In case any action shall be
brought against the Corporation or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or supplement
thereof, and with respect to which indemnity may be sought against FSC, FSC
shall have the rights and duties given to the Corporation, and the Corporation
and each other person so indemnified shall have the rights and duties given to
FSC by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any
person against liability to the Corporation or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of such person or by reason of
the reckless disregard by such person of the obligations and duties of such
person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940, as amended, for
Directors, officers, FSC and controlling persons of the Corporation by the
Corporation pursuant to this Agreement, the Corporation is aware of the position
of the Securities and Exchange Commission as set forth in the Investment Company
Act Release No. IC-11330. Therefore, the Corporation undertakes that in
addition to complying with the applicable provisions of this Agreement, in the
absence of a final decision on the merits by a court or other body before which
the proceeding was brought, that an indemnification payment will not be made
unless in the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of non-party
Disinterested Directors, or (ii) by independent legal counsel in a written
opinion that the indemnitee was not liable for an act of willful misfeasance,
bad faith, gross negligence or reckless disregard of duties. The Corporation
further undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately determined
that indemnification is appropriate) against an officer, Trustee/Director, FSC
or controlling person of the Corporation will not be made absent the fulfillment
of at least one of the following conditions: (i) the indemnitee provides
security for his undertaking; (ii) the Corporation is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a quorum of
non-party Disinterested Directors or independent legal counsel in a written
opinion makes a factual determination that there is reason to believe the
indemnitee will be entitled to indemnification.
11. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of shares
may be sold to particular investors.
12. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
Exhibit A
to the
Distributor's Contract
World Investment Series, Inc.
World Utility Fund - Class A Shares
In consideration of the mutual covenants set forth in the Distributor's
Contract dated March 1, 1994, between World Investment Series, Inc. and
Federated Securities Corp., World Investment Series, Inc. executes and delivers
this Exhibit on behalf of the Class A Shares of World Utility Fund, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of March, 1994.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit B
to the
Distributor's Contract
World Investment Series, Inc.
World Utility Fund - Fortress Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 1st day of March, 1994, between World
Investment Series, Inc. and Federated Securities Corp. with respect to Classes
of the Funds set forth above.
1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed Classes
("Shares"). Pursuant to this appointment, FSC is authorized to select a group
of brokers ("Brokers") to sell Shares at the current offering price thereof as
described and set forth in the respective prospectuses of the Corporation, and
to render administrative support services to the Corporation and its
shareholders. In addition, FSC is authorized to select a group of
administrators ("Administrators") to render administrative support services to
the Corporation and its shareholders.
2. Administrative support services may include, but are not limited to,
the following functions: 1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker's or
Administrator's premises; 2) account closings: the Broker or Administrator
communicates account closings via computer terminals; 3) enter purchase
transactions: purchase transactions are entered through the Broker's or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Corporation share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Corporation's accounts,
and provides training and supervision of its personnel; 6) interest posting:
Broker or Administrator posts and reinvests dividends to the Corporation's
accounts; 7) prospectus and shareholder reports: Broker or Administrator
maintains and distributes current copies of prospectuses and shareholder
reports; 8) advertisements: the Broker or Administrator continuously advertises
the availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual rate
of .25 of 1% of the average aggregate net asset value of the shares of the World
Utility Fund - Fortress Shares held during the month. For the month in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration of any fee payable on the basis of the number of days that the
Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Classes' expenses exceed such lower
expense limitation as FSC may, by notice to the Corporation, voluntarily declare
to be effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the Corporation
on a quarterly basis showing amounts expended hereunder including amounts paid
to Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated March 1, 1994, between World Investment Series, Inc. and
Federated Securities Corp., World Investment Series, Inc. executes and delivers
this Exhibit on behalf of the Funds, and with respect to the separate Classes of
Shares thereof, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of March, 1994.
ATTEST: World Investment Series, Inc.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit C
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the World Utility
Fund, and with respect to the Class B Shares thereof, first set forth in
this Exhibit.
Witness the due execution hereof this 1st day of June, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ John W. McGonigle
Secretary Executive Vice President
(SEAL)
Exhibit D
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the World Utility
Fund, and with respect to the Class C Shares thereof, first set forth in
this Exhibit.
Witness the due execution hereof this 1st day of June, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ John W. McGonigle
Secretary Executive Vice President
(SEAL)
Exhibit E
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS A SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Asia
Pacific Growth Fund, and with respect to the Class A Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit F
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Asia
Pacific Growth Fund, and with respect to the Class B Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit G
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Asia
Pacific Growth Fund, and with respect to the Class C Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit H
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS A SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
Emerging Markets Fund, and with respect to the Class A Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit I
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
Emerging Markets Fund, and with respect to the Class B Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit J
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
Emerging Markets Fund, and with respect to the Class C Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit K
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS A SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
European Growth Fund, and with respect to the Class A Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit L
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
European Growth Fund, and with respect to the Class B Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit M
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
European Growth Fund, and with respect to the Class C Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit N
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS A SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
International Small Company Fund, and with respect to the Class A Shares
thereof, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit O
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
International Small Company Fund, and with respect to the Class B Shares
thereof, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit P
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated
International Small Company Fund, and with respect to the Class C Shares
thereof, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit Q
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS A SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Latin
American Growth Fund, and with respect to the Class A Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit R
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Latin
American Growth Fund, and with respect to the Class B Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit S
to the
Distributor's Contract
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS C SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated March 1, 1994, between World Investment
Series, Inc. and Federated Securities Corp. with respect to the Class of
shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.75 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class's expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1994 between World Investment
Series, Inc. and Federated Securities Corp., World Investment Series,
Inc. executes and delivers this Exhibit on behalf of the Federated Latin
American Growth Fund, and with respect to the Class C Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1995.
ATTEST: WORLD INVESTMENT SERIES, INC.
/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Asst. Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
EXHIBIT 15 UNDER FORM N-1A
EXHIBIT 1 UNDER ITEM 601/REG. S-K
WORLD INVESTMENT SERIES, INC.
RULE 12b-1 PLAN
This Plan ("Plan") is adopted as of this 1st day of March, 1994, by the
Board of Directors of World Investment Series, Inc. (the "Corporation"), a
Maryland corporation with respect to certain classes of shares ("Classes") of
the portfolios of the Corporation (the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Act"), so as to allow the Corporation to make
payments as contemplated herein, in conjunction with the distribution of Classes
of the Funds ("Shares").
2. This Plan is designed to finance activities of Federated Securities
Corp. ("FSC") principally intended to result in the sale of Shares to include:
(a) providing incentives to financial institutions ("Institutions") to sell
Shares; (b) advertising and marketing of Shares to include preparing, printing
and distributing prospectuses and sales literature to prospective shareholders
and with Institutions; and (c) implementing and operating the Plan. In
compensation for services provided pursuant to this Plan, FSC will be paid a fee
in respect of the following Classes set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made pursuant
to the "Distributor's Contract" entered into by the Corporation and FSC. Any
payments made by FSC to Institutions with funds received as compensation under
this Plan will be made pursuant to the "Rule 12b-1 Agreement" entered into by
FSC and the Institution.
4. FSC has the right (i) to select, in its sole discretion, the
Institutions to participate in the Plan and (ii) to terminate without cause and
in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC shall
prepare and furnish to the Board of Directors of the Corporation, and the Board
of Directors shall review, a written report of the amounts expended under the
Plan and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class (i) after
approval by majority votes of: (a) the Corporation's Board of Directors; (b)
the members of the Board of the Corporation who are not interested persons of
the Corporation and have no direct or indirect financial interest in the
operation of the Corporation's Plan or in any related documents to the Plan
("Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on the Plan; and (c) the outstanding voting securities of the
particular Class, as defined in Section 2(a)(42) of the Act and (ii) upon
execution of an exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to an exhibit
during the initial year of this Plan for the period of one year from the date
set forth above and may be continued thereafter if this Plan is approved with
respect to each Class at least annually by a majority of the Corporation's Board
of Directors and a majority of the Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a Class after the first annual approval by the Directors as
described above, this Plan will be effective as to that Class upon execution of
the applicable exhibit pursuant to the provisions of paragraph 6(ii) above and
will continue in effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year subject to approval
as described above.
8. All material amendments to this Plan must be approved by a vote of the
Board of Directors of the Corporation and of the Disinterested Directors, cast
in person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the costs
which the Classes may bear for distribution pursuant to the Plan without being
approved by a majority vote of the outstanding voting securities of the Classes
as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at any
time by: (a) a majority vote of the Disinterested Directors; or (b) a vote of a
majority of the outstanding voting securities of the particular Class as defined
in Section 2(a)(42) of the Act; or (c) by FSC on 60 days' notice to the
Corporation.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Directors of the Corporation shall be committed to the discretion
of the Disinterested Directors then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be subject
to termination, without penalty, pursuant to the provisions of Paragraph 10
herein.
13. This Plan shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
EXHIBIT A
to the
Rule 12b-1 Plan
WORLD INVESTMENT SERIES, INC.
World Utility Fund - Fortress Shares
This Plan is adopted by World Investment Series, Inc. with respect to the
Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .25 of 1% of the average
aggregate net asset value of the Fortress Shares of World Utility Fund held
during the month.
Witness the due execution hereof this 1st day of March, 1994.
WORLD INVESTMENT SERIES, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT B
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of World
Utility Fund held during the month.
Witness the due execution hereof this 1st day of June, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT C
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
WORLD UTILITY FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of World
Utility Fund held during the month.
Witness the due execution hereof this 1st day of June, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT D
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS A SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Class A Shares of Federated
Asia Pacific Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT E
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of Federated
Asia Pacific Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT F
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED ASIA PACIFIC GROWTH FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of Federated
Asia Pacific Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT G
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS A SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Class A Shares of Federated
Emerging Markets Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT H
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of Federated
Emerging Markets Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT I
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EMERGING MARKETS FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of Federated
Emerging Markets Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT J
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS A SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Class A Shares of Federated
European Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT K
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of Federated
European Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT L
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED EUROPEAN GROWTH FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of Federated
European Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT M
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS A SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Class A Shares of Federated
International Small Company Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT N
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of Federated
International Small Company Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT O
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED INTERNATIONAL SMALL COMPANY FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of Federated
International Small Company Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT P
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS A SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Class A Shares of Federated
Latin American Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT Q
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS B SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class B Shares of Federated
Latin American Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
President
EXHIBIT R
to the
Distribution Plan
WORLD INVESTMENT SERIES, INC.
FEDERATED LATIN AMERICAN GROWTH FUND
CLASS C SHARES
This Distribution Plan is adopted by World Investment Series, Inc.
with respect to the Class of Shares of the portfolio of the Corporation
set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of
the average aggregate net asset value of the Class C Shares of Federated
Latin American Growth Fund held during the month.
Witness the due execution hereof this 1st day of December, 1995.
WORLD INVESTMENT SERIES, INC.
By: /s/ Richard B. Fisher
Exhibit 18 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of WORLD INVESTMENT
SERIES, INC. and the Deputy General Counsel of Federated Investors, and each of
them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and DirectorNovember 21, 1995
John F. Donahue (Chief Executive Officer)
/s/ Richard B. Fisher President and DirectorNovember 21, 1995
Richard B. Fisher
/s/ David M. Taylor Treasurer November 21, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director November 21, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Director November 21, 1995
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/ William J. Copeland Director November 21, 1995
William J. Copeland
/s/ James E. Dowd Director November 21, 1995
James E. Dowd
/s/ Lawrence D. Ellis Director November 21, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director November 21, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director November 21, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director November 21, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Director November 21, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Director November 21, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director November 21, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 21st day of November , 1995.
- -- -----
(SEAL)
/s/ Marie M. Hamm
--------------------------------------------
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires September 16, 1996
