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. 7 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8 .......................... 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 , 199 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 16, 1996; 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.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of World Investment
Series, Inc., which is comprised of seven portfolios: (1) World Utility
Fund consisting of four classes of shares (a) Class A Shares, (b) Class F
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,
Federated Latin American Growth Fund, and (7) Federated Aggressive
International Income Fund consisting of three classes of shares (a) Class A
Shares, (b) Class B Shares, and (c) Class C Shares. This filing relates to
Federated Aggressive International Income Fund only 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,7a-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, 7a-c)
Performance Information; (1a) Financial
Highlights-Class A Shares; (1b) Financial
Highlights-Class F Shares; (1c) Financial
Highlights-Class B Shares; (1d) Financial
Highlights-Class C Shares.
Item 4. General Description
of Registrant ..........(1a-d, 7a-c) General Information;
(2a-c,3a-c,4a-c,5a-c,6a-c) Synopsis; (2a-
c,3a-c,4a-c, 5a-c,6a-c, 7a-c) Liberty
Family of Funds; (1a-d, 2a-c,3a-c,4a-
c,5a-c,6a-c, 7a-c) Investment
Information; (1a-d, 2a-c,3a-c,4a-c,5a-
c,6a-c, 7a-c) Investment Objective; (1a-
d, 2a-c,3a-c,4a-c, 5a-c,6a-c, 7a-c)
Investment Policies; (1a-d) Risk Factors
and Investment Considerations; (7a-c)
Risk Considerations in Emerging
Markets;(1a-d) Other Investment
Practices; (1a-d,2a-c, 3a-c,4a-c,5a-c,6a-
c, 7a-c) Investment Limitations.
Item 5. Management of the Fund...(1a-d, 7a-c) Fund Information; (2a-c, 3a-
c,4a-c, 5a-c,6a-c) Corporation
Information; (1a-d, 2a-c,3a-c,4a-c,5a-
c,6a-c, 7a-c) Management of the
Corporation; (1a,c,d, 2a-c,3a-c,4a-
c,5a-c,6a-c, 7a-c) Distribution of
Shares; (1b) Distribution of Class F
Shares; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c)
Administration of the Fund; (2a-c,3a-
c,4a-c,5a-c,6a-c,7a-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, 7a-c) Brokerage
Transactions.
Item 6. Capital Stock and
Other Securities .......(1a-d, 7a-c) Dividends and Distributions;
(1a,b,d,2a-c,3a-c,4a-c,5a-c,6a-c, 7a-c)
Account and Share Information; (1a-d,2a-
c,3a-c,4a-c,5a-c,6a-c, 7a-c) Shareholder
Information; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c,7a-c) Voting Rights; (1a-d,2a-
c,3a-c,4a-c,5a-c,6a-c,7a-c) Tax
Information; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c, 7a-c) Federal Income Tax; (2a-
c,3a-c,4a-c,5a-c,6a-c,7a-c) State and
Local Taxes; (1a-d) State and Local
Taxes; (1a-d,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,7a-c) Net
Asset Value; (1a,1c,1d, 2a-c,3a-c,4a-
c,5a-c,6a-c,7a-c) Investing in the Fund;
(1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-c, 7a-
c) How To Purchase Shares;
(1a,2a,3a,4a,5a,6a,7a) Investing in Class
A Shares; (1b) Investing in Class F
Shares; (1c,2b,3b,4b,5b,6b,7b) Investing
in Class B Shares; (1d,2c,3c,4c,5c,6c,7c)
Investing in Class C Shares; (1a,c,d,7a-
c) Special Purchase Features; (1b) Share
Purchases; (1b) Minimum Investment
Required; (1b) What Shares Cost; (1b,7a)
Reducing or Eliminating the Sales Charge;
(1b,7a-c) Systematic Investment Program;
(1b) Exchanging Securities for Fund
Shares; (1a-d,7a-c) Certificates and
Confirmations; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c,7a-c) Exchange Privilege.
Item 8. Redemption or Repurchase.(1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-c,7a-c)
How To Redeem Shares; (1b) Redeeming
Class F Shares; (1b,7a-c) Through a
Financial Institution; (1b,7a-c)
Redeeming Shares by Telephone; (1b,7a-c)
Redeeming Shares by Mail; (1a,1c,1d, 2a-
c,3a-c,4a-c,5a-c,6a-c,7a-c) Special
Redemption Features; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c,7a-c) Contingent Deferred
Sales Charge; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c,7a-c) Elimination of Contingent
Deferred Sales Charge; (1b,7a-c)
Systematic Withdrawal Program; (1a-
d,7a-c) 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,7a-c)
Cover Page.
Item 11. Table of Contents........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c)
Table of Contents.
Item 12. General Information
and History..............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c)
General Information About the Fund; (1a-
d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c) About
Federated Investors.
Item 13. Investment Objectives
and Policies.............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c)
Investment Objective and Policies.
Item 14. Management of the Corporation.(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-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,7a-c) Fund
Ownership; (1a-d,7a-c) Directors'
Compensation.
Item 16. Investment Advisory and Other
Services.................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c)
Investment Advisory Services; (2a-c,3a-
c,4a-c,5a-c,6a-c)Administrative Services;
(1a-d,7a-c) Other Services; (2a-c,3a-
c,4a-c,5a-c,6a-c,7a-c) Transfer Agent and
Dividend Disbursing Agent.
Item 17. Brokerage Allocation.....(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-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,7a-c)
Purchasing Shares; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c,7a-c) Determining Net Asset
Value; (1b) Exchange Privilege; (1a-d,2a-
c,3a-c,4a-c,5a-c,6a-c,7a-c) Redeeming
Shares.
Item 20. Tax Status...............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c) Tax
Status.
Item 21. Underwriters.............(1b-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-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,7a-c)
Total Return; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c,7a-c) Yield; (1a-d,2a-c,3a-c,4a-
c,5a-c,6a-c,7a-c) Performance
Comparisons; (1a-d,2a-c,3a-c,4a-c,5a-
c,6a-c,7a-c) Appendix - included in the
Prospectus.
Item 23. Financial Statements.....To be filed by amendment.
FEDERATED AGGRESSIVE INTERNATIONAL INCOME FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS
The shares of Federated Aggressive International Income Fund (the "Fund")
offered by this prospectus represent interests in the Fund, which is a
diversified investment portfolio in World Investment Series, Inc. (the
"Corporation"), an open-end, management investment company (a mutual fund). The
investment objective of the Fund is to seek a high level of current income in
U.S. dollars. The Fund has a secomdary objective of capital appreciation. The
Fund invests primarily in a diversified portfolio of government and corporate
debt obligations of issuers in emerging market countries and developed foreign
countries.
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 Class A Shares, Class B Shares or Class C Shares of the Fund. Keep
this prospectus for future reference.
SPECIAL RISKS
THE FUND'S PORTFOLIO MAY CONSIST PRIMARILY OF LOWER-RATED DEBT OBLIGATIONS,
WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS." THESE LOWER-RATED BONDS MAY BE
MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE ECONOMIC CONDITIONS THAN
INVESTMENT GRADE BONDS. THESE LOWER-RATED BONDS ARE REGARDED AS PREDOMINANTLY
SPECULATIVE WITH REGARD TO EACH ISSUER'S CONTINUING ABILITY TO MAKE INTEREST AND
PRINCIPAL PAYMENTS (I.E., THE BONDS ARE SUBJECT TO THE RISK OF DEFAULT). IN
ADDITION, THE SECONDARY TRADING MARKET FOR LOWER-RATED BONDS MAY BE LESS LIQUID
THAN THE MARKET FOR INVESTMENT GRADE BONDS. PURCHASERS SHOULD CAREFULLY ASSESS
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE THE SECTIONS OF THIS
PROSPECTUS ENTITLED "INVESTMENT RISKS" AND "REDUCING RISKS OF LOWER-RATED
SECURITIES."
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated September , 1996, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge, by calling 1-800- . To obtain other
------------
information or make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
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 September , 1996
Table of Contents will be generated when document is complete.
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 ("Directors") has established three classes of shares 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 a high
level of current income in U.S. dollars by investing in a portfolio comprised of
government and corporate debt obligations of issuers in emerging market
countries and developed foreign countries. 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.
The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES
The investment objective of the Fund is to seek a high level of current income
in U.S. dollars. The Fund has a secondary objective of capital appreciation.
The investment objectives cannot be changed without the approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a diversified
portfolio primarily consisting of government and corporate debt obligations of
issuers in emerging market countries and developed foreign countries. 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 .
However, the Fund may, from time to time, invest up 75% of its assets in either
emerging or developed foreign markets, if, in the judgment of the investment
adviser, the Fund has the opportunity to seek a high level of current income
without undue risk to principal. Unless indicated otherwise, the investment
policies 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 securities in which the Fund may invest include foreign government and
corporate debt obligations, including, but not limited to Brady Bonds, Eurobonds
and convertible securities. The Fund may also invest in repurchase agreements,
engage in foreign currency transactions and purchase options and financial
futures contracts, and invest in bank loan participations and assignments, which
are fixed and floating rate loans arranged through private negotiations between
foreign entities. See "Loan Participations and Assignments" below.
EMERGING MARKETS AND DEVELOPED FOREIGN COUNTRIES
Emerging markets may include: Argentina, Bolivia, Botswana, Brazil, Chile,
China, Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece, Hungary,
India, Indonesia, Jordan, Kenya, Korea, Malaysia, Mauritius, Mexico, Morocco,
Pakistan, Peru, Philippines, Poland, Portugal, Singapore, Slovakia, South
Africa, Sri Lanka, Venezuela, and Zimbabwe; while developed foreign countries
may include: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. While the
investment adviser considers these 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.
DEBT SECURITIES
The Fund allocates its assets among debt securities of issuers in two investment
areas: (1) emerging markets, and (2) developed foreign countries. The Fund
selects particular debt securities in each sector based on their relative
investment merits. Within both areas, the Fund selects debt securities from
those issued by governments, their agencies and instrumentalities; central
banks; and commercial banks and other corporate entities. Debt securities in
which the Fund may invest include bonds, notes, debentures, and other similar
instruments. The Fund may invest up to 100% of its total assets in foreign debt
and other fixed income securities that, at the time of purchase, may be rated
as low as C by Standard & Poor's Ratings Group ("S&P), Fitch Investors Service
("Fitch") or Moody's Investors Service, Inc., ("Moody's"), or, if unrated, are
of comparable quality as determined by the investment adviser. Such debt
securities are commonly known as "junk bonds." The prices of fixed income
securities generally fluctuate inversely to the direction of interest rates.
Please refer to the Appendix in this prospectus for a description of these
ratings.
The Fund's investments in emerging market securities may consist substantially
of "Brady Bonds" and other sovereign debt securities issued by emerging market
governments. Sovereign debt securities are those issued by governments that are
traded in the markets of developed countries or groups of developed countries.
The emerging market sovereign debt in which the Fund may invest is widely
considered to have a credit quality below investment grade. As a result, such
sovereign debt may be regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involves major risk exposure to adverse conditions.
BRADY BONDS
Brady Bonds have been issued by Argentina, Brazil, Bulgaria, Costa Rica,
Dominican Republic, Jordan, Mexico, Nigeria, Philippines, Poland, Uruguay,
Venezuela and are expected to be issued by Ecuador and other emerging market
countries. Approximately $163 billion in principal amount of Brady Bonds are
outstanding, the largest proportion having been issued by Brazil and Argentina.
Brady Bonds issued by Brazil and Argentina currently are rated below investment
grade. As of the date of this prospectus, the Fund is not aware of the
occurrence of any payment defaults on Brady Bonds. Investors should recognize,
however, that Brady Bonds have been issued only recently and, accordingly, 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 secondary market for Latin American debt. The
Salomon Brothers Brady Bond Index provides a benchmark that can be used to
compare returns of emerging market Brady Bonds with returns in other bond
markets (.g., the U.S. bond market.) Brady Bonds are neither issued nor
guaranteed by the U.S. government.
The Fund may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign entity and one or more financial
institutions ("Lender"). The Fund will invest in Loans in emerging markets.
The majority of such investments is expected to be in the form of participations
in Loans ("Participations") and assignments of portions of Loans from third
parties ("Assignments"). Participations typically will result in the Fund
having a contractual relationship only with the Lender, not with the borrower
government. The Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of loan
agreement relating to the loan ("Loan Agreement"), nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund will assume the credit risk of both the borrower and the Lender that is
selling the Participation.
In the event of the insolvency of the Lender selling a Participation, the Fund
may be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
borrower is determined by the adviser to be creditworthy. When the Fund
purchases Assignments from Lenders, the Fund will acquire direct rights against
the borrower on the Loan. However, since Assignments are arranged through
private negotiations between potential assignees and assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.
The liquidity of Assignments and Participations is limited and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the Fund's ability to
dispose of particular Assignments or Participations when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to those securities for purposes of
valuing the Fund's portfolio and calculating its net asset value. The
investment of the Fund in illiquid securities, including Assignments and
Participations, is limited to 15% of its net assets.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities rated, at the time of purchase, as
low as C by S&P, Fitch or 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. The Fund will limit investment in restricted securities
to 10% of its total assets. Securities that can be traded without material
restrictions in non-U.S. securities markets will not be treated as restricted,
even if they cannot be traded in U.S. securities markets without restriction.
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, the Fund may invest up to 100% of total assets 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. Such investments will be made
with the intent of preserving shareholders' capital and shall be consistent with
the Fund's investment objective.
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 or 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
objective and regulatory and federal tax considerations.
SWAPS, CAPS, FLOORS AND COLLARS
The Fund may enter into interest rate, currency and index swaps, and purchase or
sell related caps, floors and collars and other derivative instruments. 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 technique for managing the portfolio's
duration (i.e, the price sensitivity to changes in interest rates) 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
neither will sell interest rate caps or floors if it does not own securities or
other instruments providing an income stream roughly equivalent to what 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 (for example, an exchange of
floating rate payment for 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 based on changes in the value of the reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a 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.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including, futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." Some
securities, such as stock rights, warrants and convertible securities, although
not typically referred to as derivatives, contain options that may affect their
value and performance. Derivative contracts and securities can be used to
reduce or increase the volatility of an investment portfolio's total
performance. While the response of certain derivative contracts and securities
to market changes may differ from traditional investments, such as stock and
bonds, derivatives do not necessarily present greater market risks than
traditional investments. The Fund will only use derivative contracts for the
purposes disclosed in the applicable prospectus sections above. To the extent
that the Fund invests in securities that could be characterized as derivatives,
it will only do so in a manner consistent with its investment objective,
policies and limitations.
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 intends to diversify 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
as determined by the investment adviser 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 this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities which react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of lower-
rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt obligations. In
addition, since there are fewer investors in lower-rated securities, it may be
harder to sell the securities at an optimum time.
As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.
An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligation to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of the securities they have issued. As a
result of these restructurings, holders of lower-rated securities may receive
less principal and interest than they had bargained for at the time such bonds
were purchased. In the event of a restructuring, the Fund may bear additional
legal or administrative expenses in order to maximize recovery from an issuer.
The secondary trading market for lower-rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
portfolio.
Many corporate debt obligations, including many lower-rated bonds, permit the
issuers to call the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if the Fund owns a bond which is
called, the Fund will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at lower interest rates, thus
reducing income to the Fund.
REDUCING RISKS OF LOWER-RATED SECURITIES
The Fund's investment adviser believes that the risks of investing in lower-
rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:
CREDIT RESEARCH. The Fund's investment adviser will perform its own credit
analysis in addition to using nationally recognized statistical rating
organizations and other sources, including discussions with the issuer's
management, the judgment of other investment analysts, and its own informed
judgment. The Fund's investment adviser's credit analysis will consider the
issuer's financial soundness, its responsiveness to changes in interest rates
and business conditions, and its anticipated cash flow, interest or dividend
coverage and earnings. In evaluating an issuer, the Fund's investment adviser
places special emphasis on the estimated current value of the issuer's assets
rather than historical costs.
DIVERSIFICATION. The Fund invests in securities of many different issuers,
industries, and economic sectors to reduce portfolio risk.
ECONOMIC ANALYSIS. The Fund's investment adviser will analyze current
developments and trends in the economy and in the financial markets. When
investing in lower-rated securities, timing and selection are critical, and
analysis of the business cycle can be important.
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 Fund's 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 Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders.
In addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Fund's adviser deems it appropriate
to make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
. 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
. 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 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 charges 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
charge of 4.50% 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 qualify for reduced
sales charges. See "Reducing or Eliminating the Sales Charge-Class A Shares."
Class A Shares have no conversion feature.
CLASS B SHARES. Class B Shares are sold without an initial sales charge, 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 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 12b-1 fee.
CLASS C SHARES. Class C Shares are sold without an initial sales charge, 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 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 charge as follows:
SALES CHARGE AS DEALER
SALES CHARGE AS A PERCENTAGE
CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF PUBLIC OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING PRICE
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 charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Shares through a trust department, investment adviser, or
other financial intermediary may be charged a service or other fee by the
financial intermediary. Additionally no sales charge is imposed on shareholders
designated as "Liberty Life Members" or on Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee for services.
DEALER CONCESSION. For sales of Class A Shares, a dealer will normally receive
up to 90% of the applicable sales charge. Any portion of the sales charge 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 charge 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 charge; 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 charge 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 charge 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 CHARGE. The sales charge 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 on page ,
---
larger purchases reduce the sales charge 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 charge. In
addition, the sales charge, if applicable, is reduced or eliminated 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 $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.
To receive the sales charge reduction or elimination, 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 charge after it
confirms the purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction
or elimination, a shareholder has the privilege of combining concurrent
purchases of Class A Shares of two or more funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
("Federated Funds"), the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $80,000 in Class A Shares of
another Federated Fund with a sales charge, and $20,000 in Class A Shares of
this Fund, the sales charge would be reduced. To receive this sales charge
reduction or elimination, 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 or eliminate the sales
charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Class A Shares of Federated Funds (excluding money market funds) over the next
13 months, the sales charge may be reduced or eliminated by signing a letter of
intent to that effect. This letter of intent includes a provision for a sales
charge 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 charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in Class A Shares of any Federated
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 charge.
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
charge. 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
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or redeemed with a sales charge 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% for Shares purchased under this program. If Shares are purchased
in this manner, redemptions of these shares 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 charge,
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 will 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 charge, fee or other charge. Class B Shares acquired by
exchange from Class B Shares of another Federated Fund 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 Federal Reserve wire by calling the Fund. All information needed
will be taken over the telephone, and the order is considered received when
State Street Bank receives payment by wire. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attn: EDGEWIRE; For Credit to: (Fund Name) (Fund Class);
(Fund Number - this number can be found on the account statement or by
contacting the Fund); 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.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Once an account has been established, Shares may be
purchased by mailing a check made payable to the name of the Fund (designate
class of Shares and account number ) to: Federated Shareholder Services Company,
P.O. Box 8600, Boston, MA 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 charge, 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 Federated Funds at net asset value. Neither the Fund
nor any of the Federated Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange all or some of their
shares for Class A Shares.
CLASS B SHARES. Class B shareholders may exchange all or some of their Shares
for Class B Shares of other Federated Funds. (Not all Federated Funds currently
offer Class B Shares. Contact your financial institution regarding the
availability of Class B Shares of the Federated 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 Class B shareholder exchanges Shares for
Class B Shares in other Federated 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.
CLASS C SHARES. Class C shareholders may exchange all or some of their Shares
for Class C Shares of other Federated Funds at net asset value without a
contingent deferred sales charge. (Not all Federated Funds currently offer Class
C Shares. Contact your financial institution regarding the availability of Class
C Shares of the Federated Funds.) To the extent that a Class C shareholder
exchanges Shares for Class C Shares of other Federated 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."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-245-5051 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge.
Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any Federated Fund, as long as they maintain a $500 balance in one
of the Federated Funds.
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.
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 exchanging 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 Shareholder Services Company, 1099 Hingham
Street, Rockland, Massachusetts 02370-3317.
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 Shareholder 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 YOUR 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 wire transfered 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. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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 Shareholder Services Company, Fund Name, Fund
Class, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been
issued, they should be sent unendorsed with the written request by registered or
certified mail to the address noted above.
The written request should state: the Fund Name and 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. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
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 commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
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 charge, 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 charge and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales charge of .50% 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 Class A Shares at the time of purchase or the net asset value of
the redeemed Class A 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 Class B Shares at the time of purchase or the net asset
value of the redeemed Class B 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 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
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 more than one
full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and for 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 Federated 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, 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 their immediate family members; 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 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
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested in writing to Federated
Shareholder Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS AND DISTRIBUTIONS. Dividends are declared daily and paid monthly 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 charge,
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 quarter'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 Shares 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.
FUND 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 Directors handles the Directors'
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 ("Adviser"), subject to
direction by the Directors. The Adviser continually conducts investment research
and supervision for the Fund and is responsible for the purchase and 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
.85% 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 voluntary
waiver of the advisory fee by the Adviser, the Adviser may waive some or all of
its fee. The Adviser may terminate this voluntary waiver at any time at 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. 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. Prior to September 1995,
the Adviser had not served as an investment adviser to mutual funds.
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 $80 billion invested across more than
250 funds under management and/or administration by its subsidiaries, as of
December 31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800 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 Arnhold and 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.
Robert M. Kowit has been the Fund's portfolio manager since its inception. Mr.
Kowit joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Kowit served as a Managing Partner of Copernicus Global
Asset Management from January 1995 through October 1995. From 1990 to 1994, he
served as Senior Vice President of International Fixed Income and Foreign
Exchange for John Hancock Advisers. Mr. Kowit received his M.B.A. from Iona
College with a concentration in finance.
Both the Corporation and the Investment 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
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.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
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 5.50% 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 the amount of 0.25% for Class A Shares and
up to 0.75% 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. Shareholders of Class A Shares will
be notified if the Fund intends to charge a fee under the Distribution Plan.
For Class A 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 0.75% of Class B of 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 Distribution 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 Distribution 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 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. 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.
SUPPLEMENTAL 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 the net asset value of Class A Shares purchased by their
clients or customers under certain qualified 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,
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 substantial sales services, distribution-related
support services, or shareholder services. 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 Adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
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 adminstrative 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 and Class C
Shares; and Directors' fees incurred as a result of issues relating solely to
Class A Shares, Class B Shares and Class C Shares.
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 portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in 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 Fund'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 Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
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, if any, 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 Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue 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.
STATE AND LOCAL 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 charge 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, 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.
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.
ADDRESSES
Federated Aggressive International Income Fund
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, Pennsylvania 15222-3779
Class C Shares
Distributor
Federated Securities Corp. Federated
Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Global Research Corp. 175 Water
Street
New York, New York 10038-4965
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Service Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED AGGRESSIVE INTERNATIONAL INCOME FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Prospectus
An Open-End, Diversified
Management Investment Company
September , 1996
--
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip
Cusip
Cusip
Product Code (9/96)
FEDERATED AGGRESSIVE INTERNATIONAL INCOME FUND
(A PORTFOLIO OF WORLD INVESTMENT SERIES, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
for Class A Shares, Class B Shares, and Class C Shares of Federated
Aggressive International Income Fund (the "Fund") dated September , 1996.
--
This Statement is not a prospectus itself. You may request a copy of the
either the prospectus or a paper copy of this Statement of Additional
Information, if you have received it electronically, free of charge by
calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September , 1996
--
FEDERATED SECURITIES CORP.
Distributor
A SUBSIDIARY OF FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND 2
INVESTMENT OBJECTIVES AND POLICIES 2
CONVERTIBLE SECURITIES 3
WARRANTS 4
SOVEREIGN DEBT OBLIGATIONS 2
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 4
LENDING OF PORTFOLIO SECURITIES 4
REPURCHASE AGREEMENTS 5
REVERSE REPURCHASE AGREEMENTS 5
RESTRICTED AND ILLIQUID SECURITIES 6
FUTURES AND OPTIONS TRANSACTIONS 7
RISKS 14
FOREIGN CURRENCY TRANSACTIONS 20
SPECIAL CONSIDERATIONS AFFECTING EMERGING
MARKETS 25
ADDITIONAL RISK CONSIDERATIONS 27
PORTFOLIO TURNOVER 27
INVESTMENT LIMITATIONS 27
WORLD INVESTMENT SERIES, INC. MANAGEMENT 33
FUND OWNERSHIP 41
DIRECTORS COMPENSATION 41
INVESTMENT ADVISORY SERVICES 43
ADVISER TO THE FUND 43
ADVISORY FEES 43
OTHER RELATED SERVICES 44
OTHER SERVICES 20
FUND ADMINISTRATION 20
CUSTODIAN AND PORTFOLIO ACCOUNTING 20
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 20
INDEPENDENT AUDITORS 20
BROKERAGE TRANSACTIONS 44
PURCHASING SHARES 45
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
AGREEMENT 46
CONVERSION TO FEDERAL FUNDS 47
PURCHASES BY SALES REPRESENTATIVES, DIRECTORS,
AND EMPLOYEES OF THE FUND 47
DETERMINING NET ASSET VALUE 48
DETERMINING MARKET VALUE OF SECURITIES 48
TRADING IN FOREIGN SECURITIES 49
REDEEMING SHARES 49
REDEMPTION IN KIND 50
TAX STATUS 51
THE FUND'S TAX STATUS 51
FOREIGN TAXES 51
SHAREHOLDERS' TAX STATUS 51
TOTAL RETURN 52
YIELD 52
PERFORMANCE COMPARISONS 53
ABOUT FEDERATED INVESTORS 24
MUTUAL FUND MARKET ERROR! BOOKMARK NOT DEFINED.
INSTITUTIONAL CLIENTS 24
TRUST ORGANIZATIONS 24
BROKER/DEALERS AND BANK BROKER/DEALER
SUBSIDIARIES 24
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 Statement of Additional Information
relates to all three classes of Shares of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek a high level of current income
in U.S. dollars. The Fund has a secondary objective of capital appreciation.
The Fund pursues its investment objectives by investing primarily in government
and corporate debt securities of issuers in emerging market countries and
developed foreign countries. The investment objectives cannot be changed
without approval of shareholders.
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.
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.
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
extraconstitutional 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
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. 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
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 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 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 Executive Vice President
: October 22, 1930
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, Secretary and Treasurer
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, Secretary and Treasurer of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ 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 $104,898 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, 1995.
#The aggregate compensation is provided for the Corporation which was comprised
of 1 portfolio, as of
November 30, 1995.
+The information is provided for the last calendar year end.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Director on 15 additional Federated Funds.
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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
Pennsylvania, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. 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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based upon the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Directorss.
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: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services.
Research services provided by brokers and dealers may be used by the adviser or
by affiliates in advising the Fund and 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.
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 relationship to the value of the brokerage and
research services provided.
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.
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
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 the prospectus.
Dividend income is recorded on the ex-dividend date, except certain dividends
from foreign securities where the ex-dividend date may have passed, are recorded
as soon as the Fund is informed of the ex-dividend date.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o according to the prices provided by an independent pricing service if
available, or at fair value as determined in good faith by the
Directors; or
o for short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost, unless the Directors
determine that particular circumstances of the security indicate
otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, 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.
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 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 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.
. J.P. MORGAN NON DOLLAR INDEX
. J.P. MORGAN EMERGING MARKET INDEX
. SALOMON BROTHERS
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. Advertisements may quote performance information which does not
reflect the effect of the sales charge on Class A Shares.
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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns in general, that demonstrate basic
investment concepts such as tax-deferred compounding, dollar-cost averaging and
systematic investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a variety of
other investments, such as bank savings accounts, certificates of deposit, and
Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors 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. These traders handle trillions of
dollars in annual trading volume.
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 $3 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 CLIENTS
Federated Investors 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 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. Federated's service to
financial professionals and institutions has earned it high rankings in several
DALBAR Surveys. The marketing effort to these firms is headed by James F.
Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (To be filed by amendment)
(b) Exhibits:
(1) (i) Conformed Copy of Articles of Incorporation of the
Registrant;(1)
(ii) Conformed Copy of Articles Supplementary;(5)
(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; (4)
(5) (i) Conformed Copy of Investment Advisory Contract of
the Registrant through and including Exhibit F;(5)
(ii) Conformed Copy of Assignment of Investment Advisory
Contract;(5)
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant through and including Exhibit S;(5)
(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).
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. 4 on Form N-1A filed December 1, 1995 (File Nos. 33-52149
and 811-7141).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed January 26, 1996 (File Nos. 33-52149
and 811-7141).
(9) (i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement Agreement
of the Registrant;(5)
(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) Conformed Copy of Independent Auditors Consent;(5)
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) Conformed Copy of Rule 12b-1 Distribution
Plan through and including Exhibit R;(5)
(16) Copy of Schedule for Computation of Fund Performance Data
for World Utility Fund; (3)
(17) Copy of Financial Data Schedule;(5)
(18) Conformed Copy of Multiple Class Plan;(5)
(19) Conformed copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
+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. 4 on Form N-1A filed December 1, 1995, 1995 (File Nos. 33-
52149 and 811-7141).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed January 26, 1996 (File Nos. 33-52149
and 811-7141).
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of June 19, 1996
Shares of capital stock
($0.001 per Share par value)
Federated Aggressive International Income 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).
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the Investment Adviser,
see the section entitled "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: J.
Christopher Donahue, President, CEO AND COO; 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, 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: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; BayFunds; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.;
High Yield Cash Trust; Independence One Mutual Funds; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds; The
Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst Funds
II; The Virtus Funds; Tower Mutual Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
andWorld Investment Series, 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, ChiefDirector
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive 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,Secretary
Pittsburgh, PA 15222-3779 and Treasurer
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
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, 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
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. Joeseph Kenedy 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
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
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,
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 Shareholder Services Company P.O. Box 8600
(Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper)
Federated Services Company 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 their effective dates,
respectively.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, WORLD INVESTMENT SERIES,
INC., certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and 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 19th day of June, 1996.
WORLD INVESTMENT SERIES, INC.
BY: /s/ J.Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
June 19, 1996
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 June 19, 1996
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 19
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 Director June 6, 1996
John F. Donahue (Chief Executive Officer)
/s/Richard B. Fisher President and Director June 6, 1996
Richard B. Fisher
/s/John W. McGonigle Executive Vice President andJune 6, 1996
John W. McGonigle Treasurer (Principal
Financial and Accounting
Officer)
/s/Thomas G. Bigley Director June 6, 1996
Thomas G. Bigley
/s/John T. Conroy, Jr. Director June 6, 1996
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/William J. Copeland Director June 6, 1996
William J. Copeland
/s/James E. Dowd Director June 6, 1996
James E. Dowd
/s/Lawrence D. Ellis, M.D. Director June 6, 1996
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Director June 6, 1996
Edward L. Flaherty, Jr.
/s/Peter E. Madden Director June 6, 1996
Peter E. Madden
/s/Gregor F. Meyer Director June 6, 1996
Gregor F. Meyer
/s/John E. Murray, Jr. Director June 6, 1996
John E. Murray, Jr.
/s/Wesley W. Posvar Director June 6, 1996
Wesley W. Posvar
/s/Marjorie P. Smuts Director June 6, 1996
Marjorie P. Smuts
Sworn to and subscribed before me this 6th day of June, 1996
