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
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Pre-Effective Amendment No. ....................
Post-Effective Amendment No. 12 .................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 13 ................................... X
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WORLD INVESTMENT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) on _______________
pursuant to paragraph (b)(1)(v) 60 days after filing pursuant to paragraph
(a) (i)
X on January 31, 1998 pursuant to paragraph (a) (i) 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of WORLD INVESTMENT SERIES,
INC., which is comprised of eight portfolios: (1) Federated 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; (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; (7) Federated International High
Income Fund consisting of three classes of shares (a) Class A Shares, (b) Class
B Shares, and (c) Class C Shares, and (8) Federated International Growth Fund
consisting of three classes of shares (a) Class A Shares, (b) Class B Shares,
and (c) Class C Shares. This filing relates to all portfolios except Federated
International Growth Fund and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Cover Page....................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Cover Page.
Item 2. Synopsis......................(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-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, 2a, 3a,
4a, 5a, 6a, 7a) Financial
Highlights-Class A Shares; (1b)
Financial Highlights-Class F Shares;
(1c,2b,3b,4b,5b,6b,7b) Financial
Highlights-Class B Shares; (1d,2c,
3c,4c,5c,6c,7c) Financial
Highlights-Class C Shares.
Item 4. General Description
of Registrant ...............(1a-d) General Information; (2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Synopsis;
-------------
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Investment Information;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Investment Objective;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-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,8a-c) Investment Limitations.
<PAGE>
Item 5. Management of the Fund (1a-d,7a-c)
Fund Information; (2a-c,
3a-c,4a-c,5a-c,6a-c,8a-c) Corporation
Information;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Management of the Corporation;
(1a,c,d, 2a-c,3a-c,4a-c,5a-c,6a-c,
7a-c, 8a-c) Distribution of Shares;
(1b) Distribution of Class F Shares;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Administration of the Fund;
(2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-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,
8a-c) Brokerage Transactions.
Item 6. Capital Stock and
Other Securities ............(1a-d, 7a-c) Dividends and Distributions; (2a-c,3a-c,4a-c,5a-c,6a-c,8a-c)
Dividends;
----------------
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Account and Share Information;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Shareholder Information;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Voting Rights;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Tax Information; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Federal Income Tax;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) 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, 8a-c) Net Asset Value; (1a,1c,1d,
2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Investing in the Fund; (1a,1c,1d,
2a-c,3a-c,4a-c,5a-c,6a-c, 7a-c, 8a-c)
How To Purchase Shares;
(1a,2a,3a,4a,5a,6a,7a,8a) Investing in
Class A Shares; (1b) Investing in
Class F Shares;
(1c,2b,3b,4b,5b,6b,7b,8b) Investing in
Class B Shares;
(1d,2c,3c,4c,5c,6c,7c,8c) Investing in
Class C Shares; (1a,c,d,
2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c)
Special Purchase Features; (1b) Share
Purchases; (1b) Minimum Investment
Required; (1b) What Shares Cost; (1b,
2a-c,3a-c,4a-c,5a-c,6a-c, 7a, 8a-c)
Reducing or Eliminating the Sales
Charge; (1b,
2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Systematic Investment Program; (1b)
Exchanging Securities for Fund Shares;
(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c, 7a-c,
8a-c) Certificates and Confirmations;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Exchange Privilege.
<PAGE>
Item 8. Redemption or Repurchase (1a,1c,1d, 2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) How To
Redeem Shares; (1b) Redeeming Class F
------------------------
Shares; (1b,7a-c) Through a Financial Institution;
(1b,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Redeeming Shares by Telephone; (1b,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c)
Redeeming Shares by Mail;
(1a,1c,1d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Special Redemption
Features;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Contingent Deferred Sales Charge;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Elimination of Contingent Deferred
Sales Charge;
(1b,7a-c) Systematic Withdrawal Program;
(1a-d, 2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) Accounts With
Low Balances.
Item 9. Pending Legal Proceedings None
<PAGE>
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, 8a-c) Cover Page.
Item 11. Table of Contents.............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Table of Contents.
Item 12. General Information
and History...................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) General Information About the Fund;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) About Federated Investors.
Item 13. Investment Objectives
and Policies..................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-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, 8a-c) World Investment Series,
Inc. Management; Directors
Compensation.
Item 15. Control Persons and Principal
Holders of Securities.........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Fund Ownership.
Item 16. Investment Advisory and Other
Services......................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Investment Advisory Services;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Other Services.
Item 17. Brokerage Allocation..........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-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, 8a-c) Purchasing Shares;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Determining Net Asset Value; (1b) Exchange Privilege;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Redeeming Shares.
Item 20. Tax Status....................(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Tax Status.
Item 21. Underwriters..................(1b-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Distribution Plan and
Shareholder Services Agreement.
------------
<PAGE>
Item 22. Calculation of
Performance Data..............(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Total Return;
(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,
8a-c) Yield; (1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c, 8a-c) Performance
Comparisons.
Item 23. Financial Statements..........(1a-d,2a-c,3a-c,4a-c,5a-c,6a-c,7a-c,8a-c) To be filed by amendment.
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Federated World Utility Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
- --------------------------------------------------------------------------------
The shares of Federated World Utility 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 Fund's investment objective is to provide total return. The Fund invests
primarily in securities issued by domestic and foreign companies in the
utilities industries.
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 and Class C Shares of the Fund. Keep
this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated January 31,
1998, 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 1-800-341-7400. 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
General Information
The Corporation was established as a corporation under the laws of the State of
Maryland on January 25, 1994. The Corporation's address is Liberty Center,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of
Incorporation permit the Fund to offer separate series of shares representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. As of the date of this prospectus, the Board
of Directors ("Directors") has established four classes of shares known as Class
A Shares, Class B Shares, Class C Shares and Class F Shares. This prospectus
relates only to the Class A Shares, Class B Shares and Class C Shares of the
Corporation's portfolio known as Federated World Utility Fund (formerly, World
Utility Fund) (individually and collectively as the context requires, "Shares").
Shares of the Fund are designed to give institutions and individuals a
convenient means of seeking total return without undue risk through a
professionally managed, diversified portfolio comprised primarily of foreign and
domestic utility securities. The Fund is not intended to provide a complete
investment program for an investor.
For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.
Class A Shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."
Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
Investment Information
Investment Objective
The investment objective of the Fund is to provide total return. The investment
objective may be changed by the Directors without the approval of shareholders.
Shareholders will be notified in writing at least 30 days prior to any change in
the investment objective. Any such change may result in the Fund having an
investment objective different from the investment objective which a shareholder
considered appropriate at the time of investment in the Fund. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. 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.
Investment Policies
The Fund will seek to achieve its investment objective by investing at least 65%
of its total assets in securities issued by domestic and foreign companies in
the utilities industries. For these purposes, companies will be considered to be
in the utilities industries if, in the opinion of Federated Global Research
Corp. (the "Investment Adviser"), they are primarily engaged in the ownership or
operation of facilities used to generate, transmit, or distribute electricity,
telephone communications, cable and other pay television services,
radio-telephone communications, gas, or water.
The Fund's portfolio will at all times include issuers located in at least three
countries, although the Investment Adviser expects to invest in more than three
countries. It is expected that, under normal circumstances, the assets of the
Fund invested in U.S. securities will be higher than that invested in securities
of any other single country. At times, the Fund may have more than 65% of its
total assets invested in foreign securities.
The Fund may invest up to 35% of its total assets in securities of issuers
that are outside the utilities industries. Such investments may consist of
common stocks, debt securities, convertible securities, preferred stocks, or
other securities issued by either U.S. or foreign companies, governments, or
governmental instrumentalities. Some of these issuers may be in industries
related to the utilities industries and, therefore, may be subject to similar
considerations. The prices of fixed income securities fluctuate inversely to the
direction of interest rates. The prices of longer term bonds fluctuate more
widely in response to market interest rate changes.
Debt obligations in the portfolio, at the time they are purchased, generally
will be limited to those which fall in one of the following categories: (i)
rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or better
by Moody's Investors Service, Inc., ("Moody's") or (ii) determined by the
Investment Adviser to be of investment grade and not rated by either of the
aforementioned rating services. However, the Fund may invest up to 35% of the
value of its total assets in lower-rated debt obligations that are not
investment grade bonds (i.e., "junk bonds"), but are rated CCC or better by S&P
or Caa or better by Moody's, or are not rated but determined by the Investment
Adviser to be of comparable quality. Securities rated BB, B, and CCC by S&P or
Ba, B, and Caa by Moody's either have speculative characteristics or are
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. Debt obligations that
are not determined to be investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower rated bonds may be more difficult to dispose of or to value than
high-rated, lower-yielding bonds. The Investment Adviser attempts to reduce the
risks described above through diversification of the portfolio and by credit
analysis of each issuer as well as by monitoring broad economic trends and
corporate and legislative developments. In the event the rating on an issue held
in the Fund's portfolio is changed by the ratings services (or, for an unrated
issue, in the determination of the Investment Adviser), such event will be
considered by the Investment Adviser in its evaluation of the overall investment
merits of that security, but will not necessarily result in the automatic sale
of the security. A description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
Convertible Securities. Convertible securities include a spectrum of securities
which can be exchanged for or converted into common stock. Convertible
securities may include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and warrants; or
securities which cap or otherwise limit returns to the convertible security
holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt Exchangeable
for Common Stock when issued as a debt security), LYONS- (Liquid Yield Option
Notes, which are corporate bonds that are purchased at prices below par with no
coupons and are convertible into stock), PERCS- (Preferred Equity Redemption
Cumulative Stock (an equity issue that pays a high cash dividend, has a cap
price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
For temporary defensive purposes and to maintain liquidity in anticipation of
favorable investment opportunities, the Fund may invest in short-term money
market instruments including securities of other investment companies,
certificates of deposit, obligations issued or guaranteed by the United States
government or its agencies or instrumentalities, commercial paper rated not
lower than A-1 by S&P, Prime-1 by Moody's, or repurchase agreements.
Risk Factors and Investment Considerations
The Fund will attempt to meet its investment objective by being at least 65%
invested in securities issued by companies in the domestic and foreign utilities
industries. There exist certain risks associated with the utilities industries
and with foreign securities of which investors in the Fund should be aware.
Considerations of Utility Securities. There are certain risks and considerations
affecting utility companies, and the holders of utility company securities,
which an investor should take into account when investing in those securities.
Factors which may adversely affect utility companies include: difficulty in
financing large construction programs during inflationary periods; technological
innovations which may cause existing plants, equipment, or products to become
less competitive or obsolete; the impact of natural or man-made disasters
(especially on regional utilities); increased costs or reductions in production
due to the unavailability of appropriate types of fuel; seasonally or
occasionally reduced availability or higher cost of natural gas; and reduced
demand due to energy conservation among customers. Furthermore, the revenues of
domestic and foreign utility companies generally reflect the economic growth and
developments in the geographic areas in which they do business.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of such
regulation is to ensure desirable levels of service and adequate capacity to
meet public demand. To this end, prices are often regulated to enable consumers
to obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Recently,
utility regulators have permitted utilities to diversify outside of their
original geographic regions and their traditional lines of business. While the
Investment Adviser believes that these opportunities will permit certain utility
companies to earn more than their traditional regulated rates of return, other
companies may be forced to defend their core businesses and may be less
profitable. Of course, there can be no assurance that all of the regulatory
policies described in this paragraph will continue in the future.
In addition to the effects of regulation described in the previous paragraph,
utility companies may also be adversely affected by the following regulatory
considerations: the development and implementation of a national energy policy;
the differences between regulatory policies of different jurisdictions (or
different regulators which have concurrent jurisdiction); shifts in regulatory
policies; adequacy of rate increases; and future regulatory legislation.
Foreign utility companies may encounter different risks and opportunities than
those located in the United States. Foreign utility companies may be more
heavily regulated than their United States counterparts. Many foreign utility
companies currently use fuels which cause more pollution than fuels used by
United States utilities; in the future, it may be necessary for such foreign
utility companies to invest heavily in pollution control equipment or otherwise
meet pollution restrictions. Rapid growth in certain foreign economies may
encourage the growth of utility industries in those countries. Although many
foreign utility companies are currently government-owned, the Investment Adviser
believes that it is likely that some foreign governments will seek to
"privatize" their utility companies, (i.e., transfer ownership to private
investors).
In addition to the foregoing considerations which affect most utility companies,
there are specific considerations which affect specific utility industries:
Electric. The electric utility industry is made up of companies that are engaged
in the generation, transmission, and sale of electric energy. Domestic electric
utility companies have generally been favorably affected by lower fuel and
financing costs and the completion of major construction programs. Some electric
utilities are able to sell power outside of their traditional geographic areas.
Electric utility companies have historically been subject to increases in fuel
and other operating costs, high interest costs on borrowings needed for capital
construction programs, compliance with environmental and safety regulations, and
changes in the regulatory climate.
In the United States, the construction and operation of nuclear power facilities
is subject to a high degree of regulatory oversight by the Nuclear Regulatory
Commission and state agencies with concurrent jurisdiction. In addition, the
design, construction, licensing, and operation of nuclear power facilities have
been subject to lengthy delays and unanticipated costs due to changes in
regulatory policy, regional political actions, and lawsuits. Furthermore, during
rate authorizations, utility regulators may disallow the inclusion in electric
rates of the higher operating costs and capital expenditures resulting from
these delays and unanticipated costs, including the costs of a nuclear facility
which a utility company may never be able to use.
Telecommunications. The telephone industry is large and highly concentrated. The
greatest portion of this segment is comprised of companies which distribute
telephone services and provide access to the telephone networks. While many
telephone utility companies have diversified into other businesses in recent
years, the profitability of telephone utility companies could be adversely
affected by increasing competition, technological innovations, and other
structural changes in the industry. Cable television companies are typically
local monopolies, subject to scrutiny by both utility regulators and municipal
governments. Emerging technologies and legislation encouraging local competition
are combining to threaten these monopolies and may slow future growth rates of
these companies. The radio telecommunications segment of this industry,
including cellular telephone, is in its early developmental phases and is
characterized by emerging, rapidly growing companies.
Gas. Gas transmission and distribution companies are undergoing significant
changes. In the United States, the Federal Energy Regulatory Commission is
reducing its regulation of interstate transmission of gas. While gas utility
companies have in the recent past been adversely affected by disruptions in the
oil industry, increased concentration, and increased competition, the Investment
Adviser believes that environmental considerations should benefit the gas
industry in the future.
Water. Water utility companies purify, distribute, and sell water. This industry
is highly fragmented because most of the water supplies are owned by local
authorities. Water utility companies are generally mature and are experiencing
little or no per capita volume growth. The Investment Adviser believes that
favorable investment opportunities may result if anticipated consolidation and
foreign participation in this industry occur.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. These investments,
however, carry considerably more volatility and risk because they are associated
with less mature economies and less stable political systems.
Exchange Rates. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its holding 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 realize a
profit on the difference between the prices 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 companies;
the lack of uniform financial accounting standards applicable to foreign
companies; less readily available market quotations on foreign companies;
differences in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; generally lower foreign stock market
volume; the likelihood that foreign securities 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; and difficulties which may be encountered in
obtaining or enforcing a court judgment abroad. Risk Considerations in
Developing Countries. Securities prices in developing countries can be
significantly more volatile than in developed countries, reflecting the greater
uncertainties of investing in lesser developed markets and economies. In
particular, developing 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 developing 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 developing
countries may trade a small number of securities and may be unable to respond
effectively to increased 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 developing countries typically offer less regulatory
protection for investors.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund. Although
the Fund is unaware of any current restrictions, investors are advised that
these policies could be reinstituted.
Other Investment Practices
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 transactions 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.
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 on the Fund's records and
are maintained until the contract has been settled. 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 the trade date and settlement date will vary between twenty-four
hours and thirty 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 Fund's assets denominated in that currency. No more than 30% of the
Fund's assets will be committed to forward contracts for hedging purposes at any
time. (This restriction does not include forward contracts entered into to
settle securities transactions.)
Repurchase Agreements. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. 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.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend its portfolio securities to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will limit the amount of
portfolio securities it may lend to not more than one-third of its total assets.
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
cash or United States government securities that will be maintained in an amount
equal to at least 100% of the current market value of the securities loaned.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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 restriction on resale under federal securities law. To the extent
these securities are deemed to be illiquid, the Fund will limit its purchases
together with other securities considered to be illiquid to 15% of its net
assets.
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 a
future time. 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.
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.
Covered Call Options. The Fund may also write call options on all or any portion
of its portfolio to generate income for the Fund. Call options written by the
Fund give the holder the right to buy the underlying securities of the Fund at
the stated exercise price. The Fund will write call options only on securities
either held in its portfolio or for which it has the right to obtain without
payment of further consideration or for which it has segregated cash in the
amount of any additional consideration. The call options which the Fund writes
and sells must be listed on a recognized options exchange. The Fund's investment
in call options shall not exceed 5% of the Fund's total assets.
Investment Limitations
The Fund will not:
o with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase
agreements, and securities issued or guaranteed by the United States
government or its agencies or instrumentalities, or acquire more than
10% of the outstanding voting securities of any one issuer;
o borrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the value
of its total assets, including the amounts borrowed, and pledge up to
15% of the value its assets taken at cost to secure such borrowings; or
o invest more than 25% of its total assets in securities of companies
engaged principally in any one industry other than the utilities
industry, except that this restriction does not apply to cash or cash
items and securities issued or guaranteed by the United States
government or its agencies or instrumentalities.
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, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Investing in the Fund
This prospectus 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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. 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 also bear a higher 12b-1 fee
than Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the higher 12b-1 fee.
Class C Shares. Class C Shares are sold without an initial sales 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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp., may from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge as Sales Charge as Dealer Concession
Amount of a Percentage of a Percentage of as a Percentage of
Transaction Public Offering Price Net Amount Invested Public Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
</TABLE>
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 Class A 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; or
o using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. As shown in the table on page
16, larger purchases can reduce or eliminate 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 two or more Class A Shares in funds advised by subsidiaries of Federated
Investors ("Federated Funds"), the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $80,000 in one of
the Class A Shares in the Federated Funds with a sales charge, and $20,000 in
the 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
shares in the funds in the 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 any Class A Shares of any fund in
the 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 a right, 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.
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 fund in the Federated Funds will convert
into Class A Shares based on the time of the initial purchase. For purposes of
conversion to Class A Shares, Shares purchased through the reinvestment of
dividends and distributions paid on Class B Shares will be considered to be held
in a separate sub-account. Each time any Class B Shares in the shareholder's
account (other than those in the sub-account) convert to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account will also
convert to Class A Shares. The conversion of Class B Shares to Class A Shares is
subject to the continuing availability of a ruling from the Internal Revenue
Service or an opinion of counsel that such conversions will not constitute
taxable events for federal tax purposes. There can be no assurance that such
ruling or opinion will be available, and the conversion of Class B Shares to
Class A Shares will not occur if such ruling or opinion is not available. In
such event, Class B Shares would continue to be subject to higher expenses than
Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
Investing in Class C Shares
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge-Class C
Shares."
Purchasing Shares Through a Financial Institution. An investor may call his
financial institution (such as a bank or an investment dealer) to place an order
to purchase Shares. Orders placed through a financial institution are considered
received when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may charge
additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
Purchasing Shares by Wire. Once an account has been established, Shares may be
purchased by wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, MA; Attn: EDGEWIRE; For Credit to:
(Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date and Order
Number; Group Number or Dealer Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. 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 sending a check to: Federated Shareholder Services Company, P.O.
Box 8600, Boston, MA 02266-8600. The check should be made payable to the name of
the Fund (designate class of Shares and account number). 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 or savings 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 funds in the Federated Funds at net asset value.
Neither the Fund nor any of the funds in the Federated Funds imposes any
additional fees on exchanges.
Class B Shares. Class B shareholders may exchange all or some of their Shares
for Class B Shares of other funds in the Federated Funds. (Not all funds in the
Federated Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Federated
Funds). Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. In determining the
applicability of the contingent deferred sales charge, the required holding
period for your new Class B Shares received through an exchange will include the
period for which your original Class B Shares were held.
Class C Shares. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other funds in the Federated Funds at net asset value
without a contingent deferred sales charge. (Not all funds in the Federated
Funds currently offer Class C Shares. Contact your financial institution
regarding the availability of other Class C Shares in the Federated Funds.) In
determining the applicability of the contingent deferred sales charge, the
required holding period for your new Class C Shares received through an exchange
will include the period for which your original Class C Shares were held. For
more information, see "Contingent Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 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 funds in the Federated Funds, 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.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
Shares of the other fund. The exchange privilege may be modified or terminated
at any time. Shareholders will be notified of the modification or termination of
the exchange privilege.
Further information on the exchange privilege and prospectuses for the Federated
Funds are available by contacting the Fund.
Tax Consequences. An exercise of the exchange privilege is treated as a sale for
federal income tax purposes. Depending upon the circumstances, a capital gain or
loss may be realized.
Making an Exchange. Instructions for exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Shareholder
Services Company, 500 Victory Road-2nd Floor, Quincy, Massachusetts 02171.
Telephone Instructions. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated 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. Redemptions of Shares held through retirement plans will be
governed by the requirements of the respective plans. Redemption proceeds will
normally be sent the following day. However, in order to protect shareholders of
the Corporation from possible detrimental effects of redemptions, the Adviser
may cause a delay of two to seven days in sending redemption proceeds during
certain periods of market volatility or for certain shareholders. Dividends are
paid up to the day redemption proceeds are sent.
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 by wire transfer
to the shareholder's account at a domestic commercial bank that is a member of
the Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund
accounts within six full years of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's distributor. Any
applicable contingent deferred sales charge will be imposed on the lesser of the
net asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption in accordance with the
following schedule:
<PAGE>
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis. A contingent deferred sales
charge is not assessed in connection with an exchange of Fund Shares for Shares
of other funds in the 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
A contingent deferred sales charge will not be charged in connection with
exchanges of like Shares in other Federated Funds.
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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund.. 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 any other financial institution, to the extent that no payments were
advanced for purchases made through such entities. The Fund reserves the right
to discontinue or modify the elimination of the contingent deferred sales
charge. Shareholders will be notified of a discontinuation. 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 the shareholder
is entitled to such elimination.
Account and Share Information
Confirmations and Account Statements. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
Dividends and Distributions. Dividends are declared and paid quarterly to all
shareholders invested in the Fund on the record date. Distributions of any net
realized capital gains will be made at least once every twelve months. 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.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Fund Information
Management of the Corporation
Directors. The Corporation is managed by the 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 Directors.
Investment Adviser. Under the terms of an Advisory Agreement between the
Corporation and Federated Global Research Corp., Federated Global Research Corp.
will furnish to the Fund such investment advice, statistical and other factual
information as may from time to time be reasonably requested by the Fund.
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.
Advisory Fees. The Investment Adviser receives an annual investment advisory fee
equal to 1.00% of the Fund's average daily net assets. The fee paid by the Fund,
while higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. The Investment Adviser may voluntarily choose to waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Investment
Adviser can terminate this voluntary reimbursement of expenses at any time at
its sole discretion.
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 Investment 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 $110 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated Funds are presently at work in and through 4,500 financial
institutions nationwide.
Henry A. Frantzen has been the Fund's portfolio manager since November
1995. 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.
Drew J. Collins has been the Fund's portfolio manager since November 1995.
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.
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan (Class B Shares and Class C Shares only) and Shareholder
Services. Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), Class B Shares and Class C
Shares will pay a fee to the distributor in an amount computed at an annual rate
of .75% 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. For Class C Shares, the distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of .75% of each class 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 .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
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
Supplemental Payments to Financial Institutions. Federated Securities Corp. and
Federated Shareholder Services may offer to pay a fee, from their own assets, to
financial institutions as financial assistance for providing 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.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.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Investment Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Investment 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. In
selecting among firms believed to meet these criteria, the Investment Adviser
may give consideration to those firms which have sold or are selling Shares of
the Fund and other funds distributed by Federated Securities Corp. The
Investment Adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All Shares of each
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 of November 7, 1997, Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, for the sole benefit of its customers, was the
owner of record of approximately 296,434 shares (39.90%) of the Class F Shares
of the Fund, and therefore, may for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.
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. However, the Fund
may invest in the stock of certain foreign corporations which would constitute a
Passive Foreign Investment Company (PFIC). Federal income taxes may be imposed
on the Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios, 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 rate 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.
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 including Class F Shares (as described under "Other Classes 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, Class C Shares, and Class F Shares.
From time to time, advertisements for Class A Shares, Class B Shares, Class C
Shares and Class F 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, Class C Shares and Class F Shares to certain
indices.
Other Classes of Shares
The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to a
front-end sales charge, a contingent deferred sales charge, a Rule 12b-1 Plan, a
Shareholder Services Plan, and a minimum initial investment of $1,500, unless
the investment is in a retirement account in which the minimum investment is
$50.
Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to
certain of the same expenses; however, the front-end sales charge for Class F
Shares is lower than that for Class A Shares. Expense differences, however,
between Class A Shares, Class B Shares, Class C Shares and Class F Shares may
affect the performance of each class.
To obtain more information and a prospectus for Class F Shares, investors may
call 1-800-341-7400 or contact their financial institution.
<PAGE>
Addresses
Federated World Utility 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 Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
- --------------------------------------------------------------------------------
Federated World Utility 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
January 31, 1998
Federated Investors
(LOGO)
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 981487101
Cusip 981487309
Cusip 981487408
G00440-03 (1/98)
- --------------------------------------------------------------------------------
Federated World Utility Fund
(A Portfolio of World Investment Series, Inc.)
Class F Shares
Prospectus
- --------------------------------------------------------------------------------
The Class F Shares of Federated World Utility 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 Fund's investment objective is to provide total return. The Fund invests
primarily in securities issued by domestic and foreign companies in the
utilities industries.
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 F Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated January 31,
1998, 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 1-800-341-7400. 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
General Information
The Corporation was established as a corporation under the laws of the state of
Maryland on January 25, 1994. The Corporation's address is Liberty Center,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of
Incorporation permit the Corporation to offer separate series of shares
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Directors ("Directors") has established four classes of
shares, known as Class A Shares, Class B Shares, Class C Shares, and Class F
Shares. This prospectus relates only to Class F Shares ("Shares") of the
Corporation's portfolio known as Federated World Utility Fund (formerly, World
Utility Fund).
Shares of the Fund are designed to give institutions and individuals a
convenient means of seeking total return without undue risk through a
professionally managed, diversified portfolio comprised primarily of foreign and
domestic utility securities. The Fund is not intended to provide a complete
investment program for an investor. A minimum initial investment of $1,500 is
required, unless the investment is in a retirement account, in which case the
minimum investment is $50.
In general, Shares are sold at net asset value plus an applicable sales charge
and are redeemed at net asset value. However, a contingent deferred sales charge
is imposed on Shares, other than Shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase date.
For a more complete description, see "Redeeming Class F Shares."
Investment Information
Investment Objective
The investment objective of the Fund is to provide total return. The investment
objective may be changed by the Directors without the approval of shareholders.
Shareholders will be notified in writing at least 30 days prior to any change in
the investment objective. Any such change may result in the Fund having an
investment objective different from the investment objective which a shareholder
considered appropriate at the time of investment in the Fund. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the policies described in this prospectus. 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.
Investment Policies
The Fund will seek to achieve its investment objective by investing at least 65%
of its total assets in securities issued by domestic and foreign companies in
the utilities industries. For these purposes, companies will be considered to be
in the utilities industries if, in the opinion of Federated Global Research
Corp. (the "Investment Adviser"), they are primarily engaged in the ownership or
operation of facilities used to generate, transmit, or distribute electricity,
telephone communications, cable and other pay television services,
radio-telephone communications, gas, or water.
The Fund's portfolio will at all times include issuers located in at least three
countries, although the Investment Adviser expects to invest in more than three
countries. It is expected that, under normal circumstances, the assets of the
Fund invested in U.S. securities will be higher than that invested in securities
of any other single country. At times, the Fund may have more than 65% of its
total assets invested in foreign securities.
The Fund may invest up to 35% of its total assets in securities of issuers
that are outside the utilities industries. Such investments may consist of
common stocks, debt securities, convertible securities, preferred stocks, or
other securities issued by either U.S. or foreign companies, governments, or
governmental instrumentalities. Some of these issuers may be in industries
related to the utilities industries and, therefore, may be subject to similar
considerations. The prices of fixed income securities fluctuate inversely to the
direction of interest rates. The prices of longer term bonds fluctuate more
widely in response to market interest rate changes.
Debt obligations in the portfolio, at the time they are purchased, generally
will be limited to those which fall in one of the following categories: (i)
rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or better
by Moody's Investors Service, Inc., ("Moody's") or (ii) determined by the
Investment Adviser to be of investment grade and not rated by either of the
aforementioned rating services. However, the Fund may invest up to 35% of the
value of its total assets in lower-rated debt obligations that are not
investment grade bonds, (i.e., "junk bonds") but are rated CCC or better by S&P
or Caa or better by Moody's, or are not rated but are determined by the
Investment Adviser to be of comparable quality. Securities rated BB, B, and CCC
by S&P or Ba, B, and Caa by Moody's have either speculative characteristics or
are predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. Debt obligations that
are not determined to be investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower rated bonds may be more difficult to dispose of or to value than
high-rated, lower-yielding bonds. The Investment Adviser attempts to reduce the
risks described above through diversification of the portfolio and by credit
analysis of each issuer as well as by monitoring broad economic trends and
corporate and legislative developments. In the event the rating on an issue held
in the Fund's portfolio is changed by the ratings services (or, for an unrated
issue, in the determination of the Investment Adviser), such event will be
considered by the Investment Adviser in its evaluation of the overall investment
merits of that security, but will not necessarily result in the automatic sale
of the security. A description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
Convertible Securities. Convertible securities include a spectrum of securities
which can be exchanged for or converted into common stock. Convertible
securities may include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and warrants; or
securities which cap or otherwise limit returns to the convertible security
holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt Exchangeable
for Common Stock when issued as a debt security), LYONS- (Liquid Yield Option
Notes, which are corporate bonds that are purchased at prices below par with no
coupons and are convertible into stock), PERCS- (Preferred Equity Redemption
Cumulative Stock (an equity issue that pays a high cash dividend, has a cap
price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
For temporary defensive purposes and to maintain liquidity in anticipation of
favorable investment opportunities, the Fund may invest in short-term money
market instruments including securities of other investment companies,
certificates of deposit, obligations issued or guaranteed by the United States
government or its agencies or instrumentalities, commercial paper rated not
lower than A-1 by S&P, Prime-1 by Moody's or repurchase agreements.
Risk Factors and Investment Considerations
The Fund will attempt to meet its investment objective by being at least 65%
invested in securities issued by companies in the domestic and foreign utilities
industries. There exist certain risks associated with the utilities industries
and with foreign securities of which investors in the Fund should be aware.
Considerations of Utility Securities. There are certain risks and considerations
affecting utility companies, and the holders of utility company securities,
which an investor should take into account when investing in those securities.
Factors which may adversely affect utility companies include: difficulty in
financing large construction programs during inflationary periods; technological
innovations which may cause existing plants, equipment, or products to become
less competitive or obsolete; the impact of natural or man-made disasters
(especially on regional utilities); increased costs or reductions in production
due to the unavailability of appropriate types of fuel; seasonally or
occasionally reduced availability or higher cost of natural gas; and reduced
demand due to energy conservation among customers. Furthermore, the revenues of
domestic and foreign utility companies generally reflect the economic growth and
developments in the geographic areas in which they do business.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of such
regulation is to ensure desirable levels of service and adequate capacity to
meet public demand. To this end, prices are often regulated to enable consumers
to obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Recently,
utility regulators have permitted utilities to diversify outside of their
original geographic regions and their traditional lines of business. While the
Investment Adviser believes that these opportunities will permit certain utility
companies to earn more than their traditional regulated rates of return, other
companies may be forced to defend their core businesses and may be less
profitable. Of course, there can be no assurance that all of the regulatory
policies described in this paragraph will continue in the future.
In addition to the effects of regulation described in the previous paragraph,
utility companies may also be adversely affected by the following regulatory
considerations: the development and implementation of a national energy policy;
the differences between regulatory policies of different jurisdictions (or
different regulators which have concurrent jurisdiction); shifts in regulatory
policies; adequacy of rate increases; and future regulatory legislation.
Foreign utility companies may encounter different risks and opportunities than
those located in the United States. Foreign utility companies may be more
heavily regulated than their United States counterparts. Many foreign utility
companies currently use fuels which cause more pollution than fuels used by
United States utilities; in the future, it may be necessary for such foreign
utility companies to invest heavily in pollution control equipment or otherwise
meet pollution restrictions. Rapid growth in certain foreign economies may
encourage the growth of utility industries in those countries. Although many
foreign utility companies are currently government-owned, the Investment Adviser
believes that it is likely that some foreign governments will seek to
"privatize" their utility companies, (i.e., transfer ownership to private
investors).
In addition to the foregoing considerations which affect most utility companies,
there are specific considerations which affect specific utility industries:
Electric. The electric utility industry is made up of companies that are engaged
in the generation, transmission, and sale of electric energy. Domestic electric
utility companies have generally been favorably affected by lower fuel and
financing costs and the completion of major construction programs. Some electric
utilities are able to sell power outside of their traditional geographic areas.
Electric utility companies have historically been subject to increases in fuel
and other operating costs, high interest costs on borrowings needed for capital
construction programs, compliance with environmental and safety regulations, and
changes in the regulatory climate.
In the United States, the construction and operation of nuclear power facilities
is subject to a high degree of regulatory oversight by the Nuclear Regulatory
Commission and state agencies with concurrent jurisdiction. In addition, the
design, construction, licensing, and operation of nuclear power facilities have
been subject to lengthy delays and unanticipated costs due to changes in
regulatory policy, regional political actions, and lawsuits. Furthermore, during
rate authorizations, utility regulators may disallow the inclusion in electric
rates of the higher operating costs and capital expenditures resulting from
these delays and unanticipated costs, including the costs of a nuclear facility
which a utility company may never be able to use.
Telecommunications. The telephone industry is large and highly concentrated. The
greatest portion of this segment is comprised of companies which distribute
telephone services and provide access to the telephone networks. While many
telephone utility companies have diversified into other businesses in recent
years, the profitability of telephone utility companies could be adversely
affected by increasing competition, technological innovations, and other
structural changes in the industry. Cable television companies are typically
local monopolies, subject to scrutiny by both utility regulators and municipal
governments. Emerging technologies and legislation encouraging local competition
are combining to threaten these monopolies and may slow future growth rates of
these companies. The radio telecommunications segment of this industry,
including cellular telephone, is in its early developmental phases and is
characterized by emerging, rapidly growing companies.
Gas. Gas transmission and distribution companies are undergoing significant
changes. In the United States, the Federal Energy Regulatory Commission is
reducing its regulation of interstate transmission of gas. While gas utility
companies have in the recent past been adversely affected by disruptions in the
oil industry, increased concentration, and increased competition, the Investment
Adviser believes that environmental considerations should benefit the gas
industry in the future.
Water. Water utility companies purify, distribute, and sell water. This industry
is highly fragmented because most of the water supplies are owned by local
authorities. Water utility companies are generally mature and are experiencing
little or no per capita volume growth. The Investment Adviser believes that
favorable investment opportunities may result if anticipated consolidation and
foreign participation in this industry occur.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. These investments,
however, carry considerably more volatility and risk because they are associated
with less mature economies and less stable political systems.
Exchange Rates. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its holding 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 realize a
profit on the difference between the prices 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 companies;
the lack of uniform financial accounting standards applicable to foreign
companies; less readily available market quotations on foreign companies;
differences in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; generally lower foreign stock market
volume; the likelihood that foreign securities 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; and difficulties which may be encountered in
obtaining or enforcing a court judgment abroad.
Risk Considerations in Developing Countries. Securities prices in developing
countries can be significantly more volatile than in developed countries,
reflecting the greater uncertainties of investing in lesser developed markets
and economies. In particular, developing 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 developing 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 developing
countries may trade a small number of securities and may be unable to respond
effectively to increased 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 developing countries typically offer less regulatory
protection for investors.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund. Although
the Fund is unaware of any current restrictions, investors are advised that
these policies could be reinstituted.
Other Investment Practices
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 transactions 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.
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 on the Fund's records and
are maintained until the contract has been settled. 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 the trade date and settlement date will vary between twenty-four
hours and thirty 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 Fund's assets denominated in that currency. No more than 30% of the
Fund's assets will be committed to forward contracts for hedging purposes at any
time. (This restriction does not include forward contracts entered into to
settle securities transactions.)
Repurchase Agreements. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. 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.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend its portfolio securities to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will limit the amount of
portfolio securities it may lend to not more than one-third of its total assets.
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
cash or United States government securities that will be maintained in an amount
equal to at least 100% of the current market value of the securities loaned.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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 restriction on resale under federal securities law. To the extent
these securities are deemed to be illiquid, the Fund will limit its purchases
together with other securities considered to be illiquid to 15% of its net
assets.
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 a
future time. 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.
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.
Covered Call Options. The Fund may also write call options on all or any portion
of its portfolio to generate income for the Fund. Call options written by the
Fund give the holder the right to buy the underlying securities of the Fund at
the stated exercise price. The Fund will write call options only on securities
either held in its portfolio or for which it has the right to obtain without
payment of further consideration or for which it has segregated cash in the
amount of any additional consideration. The call options which the Fund writes
and sells must be listed on a recognized options exchange. The Fund's investment
in call options shall not exceed 5% of the Fund's total assets.
Investment Limitations
The Fund will not:
o with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase
agreements, and securities issued or guaranteed by the United States
government or its agencies or instrumentalities, or acquire more than
10% of the outstanding voting securities of any one issuer;
o borrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the value
of its total assets, including the amounts borrowed, and pledge up to
15% of the value of its assets taken at cost to secure such borrowings;
or
o invest more than 25% of its total assets in securities of companies
engaged principally in any one industry other than the utilities
industry, except that this restriction does not apply to cash or cash
items and securities issued or guaranteed by the United States
government or its agencies or instrumentalities.
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 the Class F Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of
Class F Shares in the liabilities of the Fund and those attributable to the
Class F Shares, and dividing the remainder by the total number of Class F Shares
outstanding. The net asset value for Class F Shares may differ from that of
Class A Shares, Class B Shares, and Class C Shares due to the variance in daily
net income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; or (iii) the following holidays: New
Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Investing in Class F Shares
Share Purchases
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
Federated Securities Corp. (the "Distributor") or directly from Federated
Securities Corp. once an account has been established. In connection with the
sale of Shares, 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.
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. It is the financial institution's
responsibility to transmit orders promptly. 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.
The financial institution which maintains investor accounts 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 (see
"Other Payments to Financial Institutions").
Directly by Mail. An investor may place an order to purchase Shares directly by
mail from the Distributor once an account has been established. To do so, mail a
check made payable to Federated World Utility Fund- Class F Shares to Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company, into federal
funds. This is generally the next business day after the transfer agent's bank
receives the check.
Directly by Wire. To purchase Shares directly from the distributor by Federal
Reserve wire once an account has been established, call the Fund. All
information needed will be taken over the telephone, and the order is considered
received when the transfer agent's 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, Massachusetts 02105; Attention: EDGEWIRE;
For Credit to: Federated World Utility Fund-- Class F Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; 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.
Minimum Investment Required
The minimum initial investment in Shares is $1,500 unless the investment is in a
retirement plan, in which case the minimum initial investment is $50. Subsequent
investments must be in amounts of at least $100, except for retirement plans,
which must be in amounts of at least $50.
What Shares Cost
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales charge for purchases of $1 million or
more. In addition, no sales charge is imposed for Shares purchased through bank
trust departments or investment advisers registered under the Investment
Advisers Act of 1940 purchasing on behalf of their clients, or by sales
representatives, Directors, and employees 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., their spouses
and children under age 21, or any trusts or pension or profit-sharing plans for
these persons or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp., or its
affiliates, to the extent that no payment was advanced for purchases made by
such entities. Unaffiliated institutions through whom Shares are purchased may
charge fees for services provided which may be related to the ownership of Fund
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the institution with regard to services provided, the
fees charged for these services, and any restrictions and limitations imposed.
Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
Dealer Concession. For sales of Shares, broker/dealers will normally receive
100% of the applicable sales charge. Any portion of the sales charge which is
not paid to a broker/dealer will be retained by the distributor. However, from
time to time, and at the sole discretion of the distributor, all or a part of
that portion may be paid to a dealer. 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.
Eliminating the Sales Charge
The sales charge can be eliminated on the purchase of Shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o concurrent purchases
Quantity Discounts and Accumulated Purchases. There is no sales charge for
purchases of $1 million or more. The Fund will combine purchases 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
is eliminated for purchases of $1 million or more made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000 and he
purchases $100,000 more at the current public offering price, there will be no
sales charge on the additional purchase.
The Fund will also combine purchases for the purpose of reducing the contingent
deferred sales charge imposed on some Share redemptions. For example, if a
shareholder already owns Shares having a current value at public offering price
of $1 million and purchases an additional $1 million at the current public
offering price, the applicable contingent deferred sales charge would be reduced
to 0.50% of those additional Shares. For more information on the levels of
contingent deferred sales charges and holding periods, see the section entitled
"Contingent Deferred Sales Charge."
To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by his financial institution at the time the purchase is made that
Shares are already owned or that purchases are being combined. The Fund will
eliminate the sales charge and/or contingent deferred sales charge after it
confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $1 million of
Shares over the next 13 months, the sales charge may be eliminated by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge elimination depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 1.00% of the
total amount intended to be purchased in escrow (in Shares) until such purchase
is completed.
The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales charge.
This letter of intent will not obligate the shareholder to purchase Shares. This
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales charge on such
purchases will not be adjusted to reflect a lower sales charge).
Reinvestment Privilege. If Shares in the Fund have been redeemed, the
shareholder has a one-time right, 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 receive this
elimination of the sales charge. If the shareholder redeems his Shares in the
Fund, there may be tax consequences.
Concurrent Purchases. For purposes of qualifying for a sales charge elimination,
a shareholder has the privilege of combining concurrent purchases of two or more
funds offering Class F Shares, the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $400,000 in Class F
Shares of one of the other funds advised by subsidiaries of Federated Investors
("Federated Funds"), and $600,000 in Shares, the sales charge would be
eliminated.
To receive this sales charge 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 eliminate the sales charge
after it confirms the purchases.
Systematic Investment Program
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the transfer
agent's bank, plus the 1.00% sales charge for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp. or his financial institution.
Exchanging Securities for Fund Shares
Investors may exchange certain securities or a combination of securities and
cash for Shares. The securities and any cash must have a market value of at
least $25,000. From time to time the Fund will prepare a list of securities
which may be eligible for acceptance and furnish this list to brokers upon
request. Securities accepted by the Fund are valued in the same manner as the
Fund values its portfolio securities. Investors wishing to exchange securities
should first contact their investment broker, who will contact Federated
Securities Corp.
Exchange Privileges
Class F Shares may be exchanged for Shares at net asset value without a sales
charge (if previously paid) or a contingent deferred sales charge.
Shareholders using this privilege must exchange Shares having a net asset value
which at least meets the minimum investment required for the fund into which the
exchange is being made. A shareholder may obtain information on the exchange
privilege, and may obtain prospectuses for other Federated Funds by calling
Federated Securities Corp. or their financial institution.
Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge. Each of the funds may
also invest in certain other types of securities as described in each fund's
prospectus.
Confirmations and Account Statements
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates. As transfer agent for the Fund,
Federated Shareholder Services Company maintains a share account for each
shareholder. Share certificates are not issued unless requested on the
application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly statements are sent to report dividends paid during the
quarter.
Dividends and Distributions
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Distributions of any net realized capital gains will be
made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on the payment date, at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to 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.
Redeeming Class F Shares
The Fund redeems Shares 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 through a financial institution or directly from the Fund by written
request. Redemption proceeds will normally be sent the following day. However,
in order to protect shareholders of the Corporation from possible detrimental
effects of redemptions, the Adviser may cause a delay of two to seven days in
sending redemption proceeds during certain periods of market volatility or for
certain shareholders. Dividends are paid up to the day redemption proceeds are
sent.
Through a Financial Institution
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) 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 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 to the Fund. The financial
institution may charge customary fees and commissions for this service. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
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 transferred 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 an Automated Clearing House member 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, 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.
Contingent Deferred Sales Charge
Shareholders redeeming Shares from their Fund accounts within certain time
periods from the purchase dates of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
purchase price or the net asset value of the Shares redeemed as follows:
Contingent Deferred
Amount of Purchase Shares Held Sales Charge
Up to $1,999,999 less than 4 years 1.00%
$2,000,000 to $4,999,999 less than 2 years 0.50%
$5,000,000 or more less than 1 year 0.25%
In instances in which Shares have been acquired in exchange for Class F Shares
in other Federated Funds (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on Shares acquired through the reinvestment of
dividends or distributions of short-term or long-term capital gains. In
computing the amount of contingent deferred sales charge for accounts with
shares subject to a single holding period, if any, redemptions are deemed to
have occurred in the following order: 1) first of Shares acquired through the
reinvestment of dividends and long-term capital gains, 2) second of purchases of
Shares occurring prior to the number of years necessary to satisfy the
applicable holding period, and 3) finally of purchases of Shares occurring
within the current holding period.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account, after the beneficial owner
attains age 59-1/2; or (iii) from the death or total and permanent disability of
the beneficial owner. The exemption from the contingent deferred sales charge
for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend
to account transfers, rollovers, and other redemptions made for purposes of
reinvestment. Contingent deferred sales charges are not charged in connection
with exchanges of Shares for like shares in other Federated Funds, or in
connection with redemptions by the Fund of accounts with low balances. Shares of
the Fund originally purchased through a bank trust department or investment
adviser registered under the Investment Advisers Act of 1940, and third party
administrators acting on behalf of deferred contribution plans, are not subject
to the contingent deferred sales charge, to the extent that no payment was
advanced for purchases made by such entities. For more information, see "Other
Payments to Financial Institutions."
Systematic Withdrawal Program
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount 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; the minimum withdrawal amount
is $100. 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
Shares. For this reason, payments under this program should not be considered as
yield or income on the shareholder's investment in Shares. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000 at current offering price, other than retirement accounts subject
to required minimum distributions.
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge, it is
not advisable for shareholders to be purchasing Shares while participating in
this program.
Contingent deferred sales charges are charged for Shares redeemed through this
program within four years of their purchase dates.
Accounts With Low Balances
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$1,500. This requirement does not apply, however, if the balance falls below
$500 because of changes in the Fund's net asset value.
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
Directors. The Corporation is managed by the 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 Directors.
Investment Adviser. Under the terms of an Advisory Agreement between the
Corporation and Federated Global Research Corp., Federated Global Research Corp.
will furnish to the Fund such investment advice, statistical and other factual
information as may from time to time be reasonably requested by the Fund.
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.
Advisory Fees. The Investment Adviser receives an annual investment advisory fee
equal to 1.00% of average daily net assets of the Fund. 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. The Investment Adviser may voluntarily choose to waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Investment
Adviser can terminate this voluntary reimbursement of expenses at any time at
its sole discretion.
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 Investment 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 $110 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated Funds are presently at work in and through 4,500 financial
institutions nationwide.
Henry A. Frantzen has been the Fund's portfolio manager since November
1995. 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.
Drew J. Collins has been the Fund's portfolio manager since November 1995.
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.
Distribution of Class F Shares
Federated Securities Corp. is the principal distributor for Shares. Federated
Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
Fund may pay to the Distributor an amount, computed at an annual rate of .25% of
the average daily net asset value of Shares to finance any activity which is
principally intended to result in the sale of shares subject to the Distribution
Plan. The Distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the Distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
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 .25% of the average daily net asset value of
Shares to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services"). Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.
Other Payments to Financial Institutions. In addition, the Distributor will pay
financial institutions, for distribution and/or administrative services, an
amount equal to 1.00% of the offering price of the Shares acquired by their
clients or customers on purchases up to $1,999,999, .50% of the offering price
on purchases of $2,000,000 to $4,999,999, and .25% of the offering price on
purchases of $5,000,000 or more. (This fee is in addition to the 1.00% sales
charge on purchases of less than $1 million.) The financial institutions may
elect to receive amounts less than those stated, which would reduce the stated
contingent deferred sales charge and/or the holding period used to calculate the
fee.
Supplemental Payments to Financial Institutions. Federated Securities Corp. and
Federated Shareholder Services may offer to pay a fee, from their own assets, to
financial institutions as financial assistance for providing 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 the Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.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.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Investment Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Investment Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained elsewhere.
In selecting among firms believed to meet this criteria, the Investment Adviser
may give consideration to those firms which have sold or are selling Shares of
the Fund and other funds distributed by Federated Securities Corp. The
Investment Adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Directors.
Shareholder Information
Voting Rights
Each Share 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 Corporation have equal voting rights, except that only shares of
that particular Fund or class are entitled to vote in matters affecting that
Fund or class. As of November 7, 1997. Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, was the owner of
record of approximately 296,434 shares (39.90%) of the Class F Shares of the
Fund, and therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the 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. However, the Fund
may invest in the stock of certain foreign corporations which would constitute a
Passive Foreign Investment Company (PFIC). Federal income taxes may be imposed
on the Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios, 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.
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 the total return for Class F Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the offering price per share of Shares 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 Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class F Shares, Class A
Shares, Class B Shares, and Class C Shares.
From time to time, the Fund may advertise the performance of Class F Shares
using certain financial publications and/or compare its performance to certain
indices.
Other Classes of Shares
The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of financial
institutions subject to certain differences.
Class A Shares are sold subject to a front-end sales charge and a Shareholder
Services Plan. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in which
case the minimum investment is $50.
Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to
certain of the same expenses; however, the front-end sales charge for Class F
Shares is lower than that for Class A Shares. Expense differences, however,
between Class A Shares, Class B Shares, Class C Shares and Class F Shares may
affect the performance of each class.
To obtain more information and a combined prospectus for Class A Shares, Class B
Shares, and Class C Shares, investors may call 1-800-341-7400 or contact their
financial institution.
<PAGE>
Addresses
Federated World Utility Fund
Class F Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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 P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
- --------------------------------------------------------------------------------
Federated World Utility Fund
(formerly, World Utility Fund)
Class F Shares
- --------------------------------------------------------------------------------
Prospectus
A Diversified Portfolio of
World Investment Series, Inc.,
an Open-End, Management
Investment Company
January 31, 1998
Federated Investors
(LOGO)
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 981487200
4021404A-F (1/98)
Federated World Utility Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Class F 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 World Utility Fund (the "Fund"), dated January 31, 1998, and the
prospectus for Class F Shares of the Fund, dated January 31, 1998. You may
request a copy of a prospectus or a paper copy of this Statement of
Additional Information, if you have received it electronically, free of
charge by calling 1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 981487101
Cusip 981487200
Cusip 981487309
Cusip 981487408
4021404B (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Lending Portfolio Securities 1
Portfolio Turnover 2
Investment Limitations 2
World Investment Series, Inc. Management 4
Fund Ownership 8
Directors Compensation 9
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 10
Brokerage Transactions 10
Other Services 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Auditors 11
Purchasing Shares 11
Distribution Plan (Class B Shares,
Class C Shares and Class F Shares)
and Shareholder Services Agreement 11
Conversion to Federal Funds 11
Purchases by Sales Representatives,
Fund Directors, and Employees 11
Exchanging Securities for Fund Shares12
Determining Net Asset Value 12
Determining Market Value of Securities12
Trading in Foreign Securities 12
Exchange Privilege (Class F Shares Only) 13
Reduced Sales Charge 13
Requirements for Exchange 13
Tax Consequences 13
Making an Exchange 13
Redeeming Shares 14
Redemption in Kind 14
Elimination of the Contingent Deferred
Sales Charge 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 15
Total Return 15
Yield 15
Performance Comparisons 15
Economic and Market Information 17
About Federated Investors 17
Mutual Fund Market 18
Institutional Clients 18
Bank Marketing 18
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 18
Appendix 19
Financial Statements 20
<PAGE>
General Information About the Fund
The Fund is a portfolio in World Investment Series, Inc. (the "Corporation")
which was established as a corporation under the laws of the state of Maryland
on January 25, 1994. Effective January 31, 1996, the Fund changed its name to
Federated World Utility Fund.
Shares of the Fund are offered in four classes known as Class A Shares, Class B
Shares, Class C Shares and Class F Shares (individually and collectively
referred to as "Shares" as the context may require). This Statement of
Additional Information relates to all classes of Shares of the Fund.
Investment Objective and Policies
The Fund's investment objective is to provide total return.
Types of Investments
The Fund will seek to achieve its investment objective by investing at least 65%
of its total assets in securities issued by domestic and foreign companies in
the utilities industries. The Fund may also purchase fixed income securities and
foreign government securities; enter into forward commitments, repurchase
agreements, and, without limit, foreign currency transactions; and maintain
reserves in foreign or U.S. money market instruments.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and 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.
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 deemed by the Fund's adviser to
be creditworthy.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common stock at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common stock up to the first call
price. They are effectively capped at that point unless the common stock rises
above a second price point, at which time they participate with unlimited upside
potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Lending Portfolio
Securities
In order to generate additional income, the Fund may lend its portfolio
securities 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 Corporation's Board of
Directors (the "Directors") and will receive collateral equal to at least 100%
of the value of the securities loaned. The Fund does not intend to lend
portfolio securities in the current fiscal year.
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.
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.
Portfolio Turnover
It is not anticipated that the portfolio trading engaged in by the Fund will
result in its annual rate of portfolio turnover exceeding 100%. The Fund's
investment adviser does not anticipate that portfolio turnover will result in
adverse tax consequences. However, relatively high portfolio turnover may result
in high transaction costs to the Fund. For the fiscal years ended November 30,
1996 and 1995, the Fund's portfolio turnover rates were 50% and 46%%,
respectively.
Investment Limitations
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase agreements,
or other transactions which are permitted by the Fund's investment objective
and policies.
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund will not
purchase securities of any one issuer (other than cash, cash items, or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities) if as a result more than 5% of the value
of its total assets would be invested in the securities of that issuer, and
the Fund will not acquire more than 10% of the outstanding voting securities
of any one issuer.
Concentration of Investments
The Fund will not invest more than 25% of its total assets in securities of
issuers having their principal business activities in one industry, except
the utilities industry.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-third
of the value of its total assets, including the amount borrowed. The Fund
will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings exceeding 5% of the value of its total assets
are outstanding.
Pledging Securities
The Fund will not mortgage, pledge, or hypothecate securities, except when
necessary for permissible borrowings. In those cases, it may pledge assets
having a value of 15% of its assets taken at cost.
Buying on Margin
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of purchases and sales
of securities.
Underwriting
The Fund will not underwrite or participate in the marketing of securities
of other issuers, except as it may be deemed to be an underwriter under
federal securities law in connection with the disposition of its portfolio
securities.
Investing in Real Estate
The Fund will not invest in real estate or real estate limited partnerships,
although it may invest in securities secured by real estate or interests in
real estate or issued by companies, including real estate investment trusts,
which invest in real estate or interests therein.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase or sell
forward contracts with respect to foreign securities or currencies.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Except as noted, shareholders will be
notified before any material change in these limitations becomes effective.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for purpose of exercising
control or management.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including securities not determined by the Directors to
be liquid, and repurchase agreements with maturities longer than seven days
after notice.
Puts and Calls
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
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.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and individual profits in excess
of $100,000,000 at the time of investment to be "cash items".
The Fund does not intend to borrow money, pledge securities, or invest in
securities of other investment companies in excess of 5% of the value of its
total assets during the coming fiscal year.
The Fund reserves the right to convert to a master/feeder arrangement. The
Fund's portfolio may, notwithstanding any investment policy or limitation,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same investment objectives, policies
and limitations as the Fund.
<PAGE>
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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company .
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, , University of Pittsburgh; Director or Trustee of the
Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation ; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
<PAGE>
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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; and World Investment Series,
Inc.
Fund Ownership
Officers and Directors as a group own less than 1% of the Fund's outstanding
shares .
As of November 7, 1997, no shareholders of record owned 5% or more of the
outstanding Class A Shares of the Fund.
As of November 7, 1997, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 122,692 shares (11.87%).
As of November 30, 1997, the following shareholders of record owned 5% or more
of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 23,646 shares (17.16%); Donaldson Lufkin Jenrette Securities
Corporation Inc., Jersey City, New Jersey (as record owner holding Class C
Shares for its clients), owned approximately 7,178 shares (5.21%).
As of November 30, 1997, the following shareholder of record owned 5% or more of
the outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 296,434 shares (39.90%).
<PAGE>
Directors Compensation
NAME , AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH COMPENSATION FROM TO DIRECTORS FROM
CORPORATION CORPORATION*# CORPORATION AND FUND COMPLEX+
John F. Donahue, $ 0 $ -0- for the Corporation and
Chairman and Director 56 investment companies
Thomas G. Bigley $1,018 $108,725 for the Corporation and
Director 56 investment companies
John T. Conroy, Jr., $1,120 $119,615 for the Corporation and
Director 56 investment companies
William J. Copeland, $1,120 $119,615 for the Corporation and
Director 56 investment companies
James E. Dowd, $1,120 $119,615 for the Corporation and
Director 56 investment companies
Lawrence D. Ellis, M.D., $1,018 $108,725 for the Corporation and
Director 56 investment companies
Richard B. Fisher, $ 0 $ -0- for the Corporation and
President and Director 6 investment companies
Edward L. Flaherty, Jr., $1,120 $119,615 for the Corporation and
Director 56 investment companies
Peter E. Madden, $1,018 $108,725 for the Corporation and
Director 56 investment companies
John E. Murray, Jr., $1,018 $108,725 for the Corporation and
Director 56 investment companies Complex
Wesley W. Posvar, $1,018 $108,725 for the Corporation and
Director 56 investment companies
Marjorie P. Smuts, $1,018 $108,725 for the Corporation and
Director 56 investment companies
* Information is furnished for the fiscal year ended November 30, 1996.
# The aggregate compensation provided is for the Corporation, which is comprised
of seven portfolios.
+ The information provided is for the last calendar year end.
Investment Advisory Services
Adviser to the Fund
Prior to November 20, 1995, Federated Management served as the Fund's investment
adviser. However, effective November 20, 1995, 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 Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the respective prospectuses. For the fiscal years ended
November 30, 1997 and 1996, the Adviser earned $_____ and $214,584, of which
$_____ and $204,186 were waived. For the period from November 20, 1995 to
November 30, 1995, the Adviser earned $3,292, all of which was waived. For the
period from December 1, 1994 to November 20, 1995, Federated Management earned
$116,852, all of which was waived.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: 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 its 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.
For the fiscal years ended November 30, 1997, 1996 and 1995, the Fund paid total
brokerage commissions of $_____, $48,762, and $28,019, respectively.
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.
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 each
prospectus. From March 17, 1994, to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
November 30, 1997, 1996 and 1995, , the Administrators earned $_____, $215,000,
and $175,713 respectively.
Custodian and Portfolio Accountant
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, 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
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 on the size, type, and
number of accounts and transactions made by shareholders.
<PAGE>
Independent Auditors
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.
Purchasing Shares
Except under certain circumstances described in the respective prospectuses,
Shares are sold at their net asset value (plus a sales charge on Class A Shares
and Class F Shares only) on days the New York Stock Exchange is open for
business. The procedure for purchasing Shares is explained in the respective
prospectuses under "How to Purchase Shares" and "Investing in Class F Shares."
Distribution Plan (Class B Shares, Class C Shares and Class F Shares) and
Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, 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, (Class B Shares, Class C Shares and Class F
Shares) the Directors expect that 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.
For the fiscal years ended November 30, 1997 and 1996, payments in the
amounts of $_____, $_____, $_____ and $19,710, $5,453 and $1,336 were made
pursuant to the Distribution Plan for Class B Shares, Class C Shares and Class F
Shares, respectively. For the period from July 27, 1995 (date of initial public
investment) to November 30, 1995, payments in the amounts of $1,047 and $502
were made pursuant to the Distribution Plan for Class B Shares and Class C
Shares, respectively. For the fiscal year ended November 30, 1995, payment in
the amount of $13,444 was made pursuant to the Distribution Plan for Class F
Shares.
For the fiscal year ended November 30, 1997, payments in the amounts of $______,
$______, $_____ and $_____ were made pursuant to the Shareholder Services
Agreement for Class A Shares, Class B Shares, Class C Shares and Class F Shares,
respectively. For the period from July 27, 1995 (date of initial public
investment) to November 30, 1995, payments in the amounts of $349, and $167 were
made pursuant to the Shareholder Services Agreement for Class B Shares and Class
C Shares, respectively. For the fiscal year ended November 30, 1995, payments in
the amounts of $16,075 and $13,444 were made pursuant to the Shareholder
Services Agreement for Class A Shares and Class F Shares, respectively.
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 Shareholder Services Company acts as the shareholder's
agent in depositing checks and converting them to federal funds.
Purchases by Sales Representatives, Fund Directors, and Employees
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 Shares at net asset value without a
sales charge. Shares may also be sold without a sales charge to trusts or
pension or profit-sharing plans for these persons.
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.
Exchanging Securities for Fund Shares
Investors may exchange convertible securities they already own for Shares, or
they may exchange a combination of convertible securities and cash for Shares.
Any securities to be exchanged must meet the investment objective and policies
of the Fund, must have a readily ascertainable market value, and must not be
subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for acceptance and
furnish this list to brokers upon request. The Fund reserves the right to reject
any security, even though it appears on the list, and the right to amend the
list of acceptable securities at any time without notice to brokers or
investors.
An investment broker acting for an investor should forward the securities in
negotiable form with an authorized letter of transmittal to Federated Securities
Corp. Federated Securities Corp. will determine that transmittal papers are in
good order and forward to the Fund's custodian, State Street Bank and Trust
Company. The Fund will notify the broker of its acceptance and valuation of the
securities within five business days of their receipt by State Street Bank.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share will be issued
for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Shares, a gain or loss may be realized by the investor.
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 respective prospectuses.
Dividend income is recorded on the ex-dividend date except that 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 are determined as follows:
o according to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one
exchange, the price on the primary market for that security, as
determined by the Adviser, is used.);
o according to the mean between the last closing bid and asked prices, if
no sale on the recognized exchange is reported or if the security is
traded over-the-counter;
o 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, which approximates
value.
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.
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.
Exchange Privilege (Class F Shares Only)
This section relates only to Class F Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares, Class B Shares, and Class C
Shares of the Fund, please see the prospectus for these classes of Shares.
The Securities and Exchange Commission has issued an order exempting the Fund
from certain provisions of the Investment Company Act of 1940. As a result, Fund
shareholders are allowed to exchange all or some of their Class F Shares for
Class F Shares in other Federated Funds (which are sold with a sales charge
different from that of the Fund or with no sales charge and which are advised by
subsidiaries or affiliates of Federated Investors) without the assessment of a
contingent deferred sales charge on the exchanged Shares.
The order also allows certain other funds that are not advised by subsidiaries
or affiliates of Federated Investors, which do not have a sales charge, to
exchange their shares for Class F Shares on a basis other than the current
offering price. These exchanges may be made to the extent that such shares were
acquired in a prior exchange, at net asset value, for shares of a Federated Fund
carrying a sales charge.
Reduced Sales Charge
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
Requirements for Exchange
Shareholders using this privilege must exchange Class F 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.
Upon receipt of proper instructions and required supporting documents, Class F
Shares submitted for exchange are redeemed and the proceeds invested in Class F
Shares of the other fund.
Further information on the exchange privilege and prospectuses for Class F Funds
or certain Federated Funds are available by calling the Fund.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short-term or long-term capital
gain or loss may be realized.
Making an Exchange
Instructions for exchanges for certain Federated Funds may be given in writing
or by telephone. Written instructions may require a signature guarantee.
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 or its agents. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund or
its agents. Shares may be exchanged between two funds by telephone only if
the two funds have identical shareholder registrations.
Telephoned exchange instructions may be recorded. They must be received by
the transfer agent before 4:00 p.m. (Eastern time) for shares to be
exchanged that day. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
<PAGE>
Redeeming Shares
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
respective prospectuses under "How to Redeem Shares" or "Redeeming Class F
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.
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 each class of Shares of the Fund may be significantly
affected on days when shareholders do not have an opportunity to redeem their
Shares.
Class B Shares redeemed within six years of purchase, Class C Shares and
applicable Class A Shares redeemed within one year of purchase, and Class F
Shares redeemed within four years 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 institutions 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.
Redemption in Kind
Although the Fund 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 Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable.
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Corporation is obligated to redeem Shares
for any shareholder in cash up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. In determining the
applicability of the Contingent Deferred Sales Charge, the 12 month holding
requirement for your new Class B Shares received through an exchange will
include the period for which your original Class B Shares were held. However,
for purposes of meeting the $10,000 minimum account value requirement, Class B
Share accounts values will not be aggregated.
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 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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company (PFIC). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
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 returns of the Fund's Class A Shares for the
one-year period ended November 30, 1997 and for the period from April 21, 1994,
(date of initial public investment) to November 30, 1996, were __% and 29.24%..
The average total returns of the Fund's Class B Shares for the one-year period
ended November 30, 1997 and for the period from July 27, 1995 (date of initial
public investment) to November 30, 1996 and for the fiscal year ended November
30, 1996 were ____%, 19.81% and 13.17%, respectively. The average annual total
returns of the Fund's Class C Shares for the one-year period ended November 30,
1997 and for the period from July 27, 1995 (date of initial public investment)
to November 30, 1996 and for the fiscal year ended November 30, 1996 were ____%,
24.45% and 17.58%, respectively. The average annual total returns of the Fund's
Class F Shares for the one-year period ended November 30, 1997 and for the
period from April 22, 1994 (date of initial public investment) to November 30,
1996 and for the fiscal years ended November 30, 1995 and 1996, were 34.09%,
15.52% and 17.33%, respectively.
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 offering price per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
charge on Class A Shares or Class F Shares, adjusted over the period by any
additional Shares, assuming the quarterly 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 offering price of Shares redeemed. Occasionally, total return which
does not reflect the effect of the sales charge may be quoted in advertising.
Yield
For the period ended November 30, 1997, the thirty-day yields for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares were %, %, %, and %,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the SEC) earned by the 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 then annualized
using semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by the Fund because of certain
adjustments required by the SEC 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 a class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each class 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 a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per Share fluctuate daily. Both net earnings and net asset
value 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 specific period of time.
o Europe, Australia, and Far East (EAFE) is a market capitalization
weighted foreign securities index, which is widely used to measure the
performance of European, Australian, New Zealand and Far Eastern stock
markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns
monthly. EAFE U.S. dollar total return is a net dividend figure less
Luxembourg withholding tax. The EAFE is monitored by Capital
International, S.A., Geneva, Switzerland.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's index assumes reinvestments
of all dividends paid by stocks listed on its index. Taxes due on any of
these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures.
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.
o Dow Jones Composite Average or its component averages--an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks. Comparisons of
performance assume reinvestment of dividends.
o Dow Jones World Industry Index or its component indices, including,
among others, the utility sector.
o Standard & Poor's 500 Stock Index or its component indices--an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
o The New York Stock Exchange composite or component indices--unmanaged
indices of all industrial, utilities, transportation, and finance stocks
listed on the New York Stock Exchange.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Lipper-Mutual Fund Performance Analysis and Lipper-Fixed Income Fund
Performance Analysis--measure of total return and average current yield
for the mutual fund industry. Rank individual mutual fund performance
over specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
o Value Line Mutual Fund Survey, published by Value Line Publishing,
Inc.--analyzes price, yield, risk, and total return for equity and fixed
income mutual funds. The highest rating is one, and ratings are
effective for two weeks.
o Mutual Fund Source Book, published by Morningstar, Inc.--analyzes price,
yield, risk, and total return for equity and fixed income funds.
o CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc.--analyzes price, current yield, risk, total return, and average
rate of return (average annual compounded growth rate) over specified
time periods for the mutual fund industry.
o Value Line Index--an unmanaged index which follows the stocks of
approximately 1,700 companies.
o Wilshire 5000 Equity Index--represents the return on the market value of
all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill
Lynch, Pierce, Fenner & Smith, Smith Barney Shearson and Bloomberg
L.P.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ( "EAFE Index"). The EAFE index is an unmanaged index of more
than 1,000 companies of Europe, Australia and the Far East.
o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics--a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
o Strategic Insight Mutual Fund Research and Consulting, 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 specific period of time.
Advertisements and sales literature for all four classes 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
either class of Shares based on quarterly reinvestment of dividends over a
specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of a 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.
Advertisements may quote performance information which does not reflect the
effect of various sales charges on Class A Shares, Class B Shares, Class C
Shares, and Class F Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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
Investors' equity and high yield corporate bond management while William D.
Dawson, Executive Vice President, oversees Federated Investors' domestic
fixed income management. Henry A. Frantzen, Executive Vice President,
oversees the management of Federated Investors' international and global
portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Timothy C.
Pillion, Senior Vice President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country --supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund. (Financial
Statements to be filed by Amendment)
- -------------
*source: Investment Company Institute
<PAGE>
Appendix
Standard & Poor's Ratings Group ("S&P") Corporate Bond Rating Definitions
AAA--Debt rated "AAA" has the highest rating. 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 effect 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 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 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.
Moody's Investors Service, Inc., Corporate 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 other elements 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 some time 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 the 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.
<PAGE>
Standard & Poor's Ratings Group Commercial Paper Rating Definitions
A-1--This highest category 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.
Moody's 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:
o Leading market positions in well established industries.
o High rates of returns on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Federated Asia Pacific Growth Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated Asia Pacific Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in these shares involves investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
31, 1998, 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 1-800-341-7400. To
obtain other information or to 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Table of Contents
<PAGE>
Synopsis
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in equity securities of Asian
and Pacific Rim companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in non-U.S. issuers, entering
into repurchase agreements, investing in when-issued securities, lending
portfolio securities, and entering into futures contracts and related options.
These risks are described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated."
Investment Information
Investment Objective
The Fund seeks to provide long-term growth of capital. Any income received from
the portfolio is incidental. The investment objective of the Fund cannot be
changed without the approval of the shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in equity
securities of Asian and Pacific Rim companies. Under normal market conditions,
the Fund will invest at least 65% of its total assets in equity securities of
companies located in Asia and the Pacific Rim. The Fund may invest in securities
of issuers located in any country in Asia or the Pacific Rim where the Adviser
believes there is potential for above-average capital appreciation. Such
countries may include, but are not limited to: Australia, China, Hong Kong,
Indonesia, Japan, South Korea, Malaysia, New Zealand, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, and those countries comprising the
Indian sub-continent. The Fund may invest in other countries in Asia and the
Pacific Rim when their markets become sufficiently developed, in the opinion of
the Adviser. The Fund intends to allocate its investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry.
Asian and Pacific Rim companies are defined as (i) those organized under the
laws of, or with a principal office located in, an Asian or Pacific Rim country
or (ii) those for which the principal securities trading market is in Asia or
the Pacific Rim or (iii) those, wherever organized or traded, which derived
(directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit in their most current fiscal
year from goods produced, services performed, or sales made in Asia or the
Pacific Rim.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of the shareholders of the Fund.
Shareholders will be notified before any material change in these policies
becomes effective.
Acceptable Investments. The equity securities in which the Fund may invest
include common stock, preferred stock (either convertible or non-convertible),
sponsored or unsponsored depositary receipts or shares, and warrants, including
other substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities, including convertible securities, denominated in currencies other
than U.S. dollars; enter into forward commitments, repurchase agreements and
foreign currency transactions; maintain reserves in foreign or U.S. money market
instruments and cash; and purchase options and financial futures contracts.
Common and Preferred Stock. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
In selecting securities, the Adviser typically evaluates industry trends, a
company's financial strength, its competitive position in domestic and export
markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
Depositary Receipts. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored securities representing underlying international
securities such as American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), Global Depositary Certificates ("GDCs"), and International
Depositary Receipts ("IDRs") or securities convertible into foreign equity
securities. ADRs and ADSs typically are issued by a United States bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), GDRs, GDCs, and IDRs are typically issued by foreign banks or
trust companies, although they also may be issued by United States banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. ADRs, ADSs, CDRs, EDRs, GDRs,
GDCs, and IDRs are collectively known as "Depositary Receipts." Depositary
Receipts may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored Depositary
Receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
Debt Securities. In pursuit of the Fund's objective of long-term growth of
capital, the Fund may invest up to 35% of its total assets in debt securities.
Capital appreciation in debt securities may arise as a result of favorable
changes in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities is
incidental to the Fund's objective of long-term growth of capital. These debt
obligations consist of U.S. and foreign government securities and corporate debt
securities, including, but not limited to, Samurai and Yankee bonds, Eurobonds
and depositary receipts. The issuers of such debt securities may or may not be
domiciled in Asia or the Pacific Rim.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or Moody's Investors Service, Inc.
("Moody's"), or, if unrated, are of comparable quality as determined by the
Adviser. Such dept 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.
Convertible Securities. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests. Please see
"Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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. 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 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.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned at all times.
Temporary Investments. For temporary defensive purposes, when the Adviser
determines that market conditions warrant (up to 100% of total assets) and to
maintain liquidity (up to 35% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including foreign
and domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize short-term profit or loss.
Foreign Currency Transactions. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot 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 Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the value of the Fund's assets
denominated in that currency at the time the contract was initiated, but as
consistent with their other investment policies and as not otherwise limited in
their ability to use this strategy.
Options. The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange or
traded over-the- counter. The Fund may use options to manage interest rate and
currency risks. The Fund may also write covered call options and secured put
options to seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
Futures and Options on Futures. The Fund may enter into futures contracts
involving foreign currency, securities, and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits exclusive of the margin
needed for foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's assets,
provided further that in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In addition, the Fund may not sell futures contracts if the value of
such futures contracts exceeds the total market value of the Fund's portfolio
securities. Futures contracts and options thereon sold by the Fund are generally
subject to segregation and coverage requirements established by either the
Commodities Futures Trading Commission ("CFTC") or the Securities and Exchange
Commission ("SEC"), with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the Adviser believes such investment is
more efficient, liquid, or cost-effective than investing directly in the
securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the Adviser believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the Adviser's ability to predict pertinent market movements; (2) there
might be imperfect correlation, or even no correlation, between the change in
market value of the securities held by the Fund and the prices of the futures
and options thereon relating to the securities purchased or sold by the Fund.
The use of futures and related options may reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements but they
can also reduce the opportunity for gain by offsetting the positive effect of
favorable price movements in positions. No assurance can be given that the
Adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objective and regulatory and federal tax considerations.
Risks of Futures and Options Transactions. When the Fund uses futures and
options on futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the Adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock price
movements. In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
Swap Agreements. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
Risk Characteristics of Foreign Securities. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund 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 the securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar, the value
of Fund assets denominated in that currency will decrease. Under the United
States Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax.")
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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; o the likelihood that
securities of foreign issuers may be less liquid or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund.
Investors are advised that when such policies are instituted, the Fund will
abide by them.
Investing in Asia and the Pacific Rim. The Fund is susceptible to political and
economic factors affecting issuers in Asian and Pacific Rim countries. Many of
the countries of Asia and the Pacific Rim are developing both economically and
politically. Asian and Pacific Rim countries may have relatively unstable
governments, economies based on only a few commodities or industries, and
securities markets trading infrequently or in low volumes. Some Asian and
Pacific Rim countries restrict the extent to which foreigners may invest in
their securities markets. Securities of issuers located in some Asian and
Pacific Rim countries tend to have volatile prices and may offer significant
potential for loss as well as gain. Further, certain companies in Asia and the
Pacific Rim may not have firmly established product markets, may lack depth of
management, or may be more vulnerable to political or economic developments such
as nationalization of their own industries.
Risk Factors Relating to Investing in High Yield Securities. The debt securities
in which the Fund invests are usually not in the three highest rating categories
of a nationally recognized statistical rating organization (AAA, AA, or A for
S&P or Fitch and Aaa, Aa, or A for Moody's), but are in the lower rating
categories or are unrated, but are of comparable quality and have speculative
characteristics or are speculative. Lower-rated bonds or unrated bonds are
commonly referred to as "junk bonds." A description of the rating categories is
contained in the Appendix of this prospectus.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments.
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Net Asset Value
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King 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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares are not subject to a sales charge. See "Investing in Class A Shares."
Certain purchases of Class A Shares qualify for reduced sales charges. See
"Reducing or Eliminating the Sales Charge." 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 also bear a higher 12b-1 fee
than Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the higher 12b-1 fee.
Class C Shares. Class C Shares are sold without an initial sales 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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
Sales Charge as Dealer
Sales Charge as a PercentageConcession
a Percentage of Net as a Percentage
Amount of of Offering Amount of Public
Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales 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 Class A 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; or
o using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
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 for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the other Federated Funds 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, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $50,000 of
shares of Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced 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 any 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.
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 may no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales 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 their net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales
Charge--Class C Shares."
Purchasing Shares Through a Financial Institution. An investor may call his
financial institution (such as a bank or an investment dealer) to place an order
to purchase Shares. Orders placed through a financial institution are considered
received when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may charge
additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
Purchasing Shares by Wire. Once an account has been established, Shares may be
purchased by wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. 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 sending 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, Massachusetts 02266-8600. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
Special Purchase Features
Systematic Investment Program. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales 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 other Class B Shares in the Federated Funds.) Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class B Shares
received through an exchange will include the period for which your original
Class B Shares were held. For more information, see "Contingent Deferred Sales
Charge."
Class C Shares. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other 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 other
Class C Shares in the Federated Funds.) In determining the applicability of the
contingent deferred sales charge, the required holding period for your new Class
C Shares received through an exchange will include the period for which your
original Class C Shares were held. For more information, see "Contingent
Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 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 as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any Federated Funds, 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.
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 exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Shareholder
Services Company, 500 Victory Road--2nd Floor, North Quincy, Massachusetts
02171.
Telephone Instructions. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated 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. Investors who redeem shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below. Redemption
proceeds will normally be sent the following day. However, in order to protect
shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
Redeeming Shares Through a Financial Institution. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
Redeeming Shares by Telephone. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Shares at the time of purchase or the net asset value of
the redeemed Shares at the time of redemption in accordance with the following
schedule:
<PAGE>
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for less than six years with respect
to Class B Shares and less than one full year from the date of purchase with
respect to Class C Shares 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 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 Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. 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 the shareholder is
entitled to such elimination.
Account and Share Information
Confirmations and Account Statements. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid.
Dividends. Dividends are declared and paid annually to all shareholders invested
in the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales 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 year's dividend.
Capital Gains. Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Corporation Information
Management of the Corporation
Board of Directors. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs and
for exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by Federated
Global Research Corp., the Fund's investment adviser, subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.10% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion.
Adviser's Background. Federated Global Research Corp., incorporated in Delaware
on May 12, 1995, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors. 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 $110billion invested across over 300
funds under management and/or administration by its subsidiaries, as of December
31, 1996, Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955. Federated
funds are presently at work in and through 4,500 financial institutions
nationwide.
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 until 1995.
He was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Pennsylvania.
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received his
M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
distributor may be paid a fee in an amount computed at an annual rate of up to
.25% for Class A Shares and up to .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, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/ dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of .75% of Class B Shares'
average daily net assets, it will take the distributor a number of years to
recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the 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 .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
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
Other Payments to Financial Institutions. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to .50% of the net asset value of Class A Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing substantial marketing and sales support. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
Administration of the Fund
Administrative Services. Federated 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections
and other matters submitted to shareholders for vote. All shares of each fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of November 7, 1997, the following shareholders of record owned 25% or
more of the outstanding shares of the Fund: Federated International Growth Fund
owned 51.32% of the voting securities of the Fund's Class A Shares and Merrill
Lynch Pierce Fenner & Smith (as record owned holding Class C Shares for its
clients), owned 30.34% of voting securities of the Fund's Class C Shares, and
therefore, may for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares.
No federal income tax is due on any dividends earned in an IRA or qualified
retirement plan until distributed.
Due to differences in the book and tax treatment of fixed income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
<PAGE>
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.
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 identifiable 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.
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o 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.
<PAGE>
Addresses
Federated Asia Pacific Growth Fund
Class A Shares
Class B Shares Federated Investors Tower
Class C Shares Pittsburgh, Pennsylvania 15222-3779
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 CompanyP.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
Federated Asia Pacific Growth 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
January 31, 1998
Federated Investors
(LOGO)
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 981487 50 7
Cusip 981487 60 6
Cusip 981487 70 5
G01470-02 (1/98)
Federated Asia Pacific Growth 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 Asia Pacific Growth Fund (the "Fund") dated January 31, 1998. This
Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling
1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 981487507
Cusip 981487606
Cusip 981487705
G01470-03 (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
Sovereign Debt Obligations 1
When-Issued and Delayed
Delivery Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options 3
Risks 6
Foreign Currency Transactions 8
Special Considerations Affecting Asia and
the Pacific Rim 10
Special Considerations Affecting
Emerging Markets 10
Additional Risk Considerations 10
Portfolio Turnover 11
Investment Limitations 11
World Investment Series, Inc.
Management 14
Fund Ownership 18
Directors Compensation 19
Investment Advisory Services 19
Adviser to the Fund 19
Advisory Fees 20
Other Related Services 20
Brokerage Transactions 20
Other Services 20
Fund Administration 20
Custodian and Portfolio Accountant 20
Transfer Agent 21
Independent Auditors 21
Purchasing Shares 21
Distribution Plan and Shareholder
Services Agreement 21
Conversion to Federal Funds 21
Purchases by Sales Representatives,
Directors, and Employees
of the Fund 21
Determining Net Asset Value 22
Determining Market Value of Securities22
Trading in Foreign Securities 22
Redeeming Shares 22
Redemption in Kind 23
Elimination of the Contingent
Deferred Sales Charge 23
Tax Status 23
The Fund's Tax Status 23
Foreign Taxes 23
Shareholders' Tax Status 24
Total Return 24
Yield 24
Performance Comparisons 24
Economic and Market Information 26
About Federated Investors 26
Mutual Fund Market 26
Institutional Clients 27
Bank Marketing 27
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 27
Financial Statements 27
<PAGE>
General Information About the Fund
The Fund is a portfolio of World Investment Series, Inc. (the "Corporation"),
which was established as a corporation under the laws of the state of Maryland
on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.
Investment Objective and Policies
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Asian and
Pacific Rim companies. The investment objective cannot be changed without the
approval of shareholders.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential. PERCS, or similar instruments marketed under
different names, offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less risky
and less volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price limits gains
when the common stock rises.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Sovereign Debt Obligations
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the "Directors").
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Directors. The
Directors may consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.
Futures and Options
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
Futures Contracts
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest rates.
A rise in rates generally means a drop in price. Conversely, a drop in rates
generally means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund could
enter into contracts to deliver securities at a predetermined price (i.e.,
"go short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the anticipated holding period.
The Fund would "go long" (i.e., agree to purchase securities in the future
at a predetermined price) to hedge against a decline in market interest
rates. The Fund may also invest in securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid,
or cost-effective than investing directly in the securities underlying the
index.
Stock Index Options
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in
an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on
stock indices will be subject to the ability of the investment adviser to
predict correctly movements in the direction of the stock market generally
or of a particular industry.
Put Options on Financial Futures Contracts
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract of
the type underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver the futures
contract in return for payment of the strike price. If the Fund neither
closes out nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for the contract
will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the Fund
grants to the purchaser of the put the right to receive from the Fund, at
the strike price, a short position in such futures contract, even though the
strike price upon exercise of the option is greater than the value of the
futures position received by such holder. If the value of the underlying
futures position is not such that exercise of the option would be profitable
to the option holder, the option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it whether
or not the option is exercised. It will generally be the policy of the Fund,
in order to avoid the exercise of an option sold by it, to cancel its
obligation under the option by entering into a closing purchase transaction,
if available, unless it is determined to be in the Fund's interest to
deliver the underlying futures position. A closing purchase transaction
consists of the purchase by the Fund of an option having the same term as
the option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing a
closing purchase transaction may be higher than the premium received when
the option was sold, depending in large part upon the relative price of the
underlying futures position at the time of each transaction.
Call Options on Financial and Stock Index Futures Contracts
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge its
portfolio against an increase in market interest rates, a decrease in stock
prices, or when the investment adviser believes such investment is more
efficient, liquid or cost-effective than investing directly in the futures
contract or the underlying securities or when such futures contracts or
securities are unavailable for investment upon favorable terms. When the
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures contract)
at the fixed strike price at any time during the life of the option if the
option is exercised. As stock prices fall or market interest rates rise and
cause the price of futures to decrease, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the comparative
market of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a long (or buyer's)
position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss or
minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If this
limitation is exceeded at any time, the Fund will take prompt action to
close out a sufficient number of open contracts to bring its open futures
and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the Fund
but is instead settlement between the Fund and the broker of the amount one
would owe the other if the futures contract expired. In computing its daily
net asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
Purchasing Put and Call Options on Portfolio Securities
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
Writing Covered Put and Call Options on Portfolio Securities
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer of
a put option, the Fund has the obligation to purchase a security from the
purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or greater
than the exercise price of the underlying securities.
<PAGE>
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 and,
accordingly, will not treat them as being subject to its borrowing
restrictions. There is no minimal acceptable rating for a swap, cap, floor,
or collar to be purchased or held in the Fund's portfolio. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Risks of Hedging Strategies Outside the U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected
by: (i) other complex foreign political, legal and economic factors, (ii)
lesser availability than in the U.S. of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S., (iv) the
imposition of different exercise and settlement terms and procedures and the
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts
Many hedging strategies, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either
the full amount of any obligation by the Fund to pay or deliver securities
or assets must be covered at all times by the securities, instruments or
currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, a currency contract
which obligates the Fund to buy or sell currency will generally require the
Fund to hold an amount of that currency or liquid securities denominated in
that currency equal to the Fund's obligations or to segregate liquid high
grade assets equal to the amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possibly daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and hedging
strategies. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other hedging strategies may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation
would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
Foreign Currency Transactions
Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price at
which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in connection
with its portfolio investments. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts in order
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. However, forward foreign currency exchange contracts
may limit potential gains which could result from a positive change in such
currency relationships. The investment adviser believes that it is important
to have the flexibility to enter into forward foreign currency exchange
contracts whenever it determines that it is in the Fund's best interest to
do so. The Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in the
case of a "cross-hedge" denominated in a currency or currencies that the
investment adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund will not enter
into a forward foreign currency exchange contract with a term longer than
one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against
an adverse movement in the value of a foreign currency, the option will not
limit the movement in the value of such currency. For example, if the Fund
was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction with
that purchase, were to purchase a foreign currency call option to hedge
against a rise in value of the currency, and if the value of the currency
instead depreciated between the date of purchase and the settlement date,
the Fund would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency needed for
settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund may
be able to achieve these objectives possibly more effectively and at a lower
cost by using futures transactions instead of forward foreign currency
exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively
new. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. To reduce this
risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the opinion of the investment
adviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
Special Considerations Affecting Asia and the Pacific Rim
Investment in securities of issuers domiciled in Japan and Hong Kong entails
special considerations. Overseas trade is important to Japan's economy. Japan
has few natural resources and must export to pay for its imports of these basic
requirements. Because of the concentration of Japanese exports in highly visible
products, Japan has had difficult relations with its trading partners,
particularly the U.S., where the trade imbalance is the greatest. It is possible
that trade sanctions or other protectionist measures could impact Japan
adversely in both the short and the long term. The Japanese securities markets
are less regulated than those in the United States. Evidence has emerged from
time to time of distortion of market prices to serve political or other
purposes. Shareholders' rights are not always equally enforced.
Hong Kong is a British colony which will transfer sovereignty to the Peoples
Republic of China in 1997. China has espoused policies antagonistic to free
enterprise capitalism and democracy. There can be no guarantee that property
rights will continue to be safeguarded in Hong Kong after 1997, although
recently, China has moved toward free enterprise, and has established stock
exchanges of its own.
Some Southeast Asian countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is the risk that
certain Southeast Asian countries may restrict the free conversion of their
currencies into other currencies. Further, certain Southeast Asian currencies
may not be internationally traded. Any devaluations in currencies in which the
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund's net asset value.
Special Considerations Affecting Emerging Markets
Investing in the securities of issuers domiciled in emerging markets, including
certain Asian markets such as Taiwan, Malaysia and Indonesia, may entail special
risks relating to the potential political and economic instability and the risks
of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment, convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading volume in issuers compared to
the volume of trading in U.S. securities could cause price to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities in these markets. In addition, securities
traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
less reliable than in more developed markets. In such emerging securities
markets there may be share registration and delivery delays or failures.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the investment adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The investment adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly. For the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 99%.
Investment Limitations
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940 or assets exempted by the
SEC) in an open-end investment company with substantially the same investment
objectives):
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any
one industry, except that the Fund may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of companies
whose business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will not
acquire more than 10% of the outstanding voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940 or assets exempted by the SEC) in an open-end investment
company with substantially the same investment objectives). Shareholders will be
notified before any material changes in these limitations become effective.
Investing in 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.
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.
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.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
<PAGE>
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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
<PAGE>
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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc. Fund Ownership
As of November 7, 1997, Officers and Directors of the Fund, as a group, owned
9,398 (1.04%) of the Fund's outstanding shares.
As of November 7, 1997, the following shareholders of record owned 5% or more of
the outstanding voting stock of the Fund's Class A Shares: First National Bank
of Decatur, Decatur, Illinois, owned approximately 45,924 shares (5.10%) and
Federated International Growth Fund, Pittsburgh, Pennsylvania, owned
approximately 462,302 shares (51.32%).
As of November 7, 1997, the following shareholder of record owned 5% or more of
the outstanding voting stock of the Fund's Class B Shares: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers,
owned approximately 43,987 shares (9.59%).
As of November 7, 1997, the following shareholders of record owned 5% or more of
the outstanding voting stock of the Fund's Class C Shares: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers,
owned approximately 20,612 shares (30.34%) and Bear Stearns Securities Corp.,
Brooklyn, New York, owned approximately 10,875 shares (16.01%).
<PAGE>
Directors Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION *# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Corporation and ___ investment companies in the
Fund Complex
Chairman and Director
Thomas G. Bigley $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John T. Conroy, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
William J. Copeland $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
James E. Dowd $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director ___ investment companies in the Fund Complex
Edward L. Flaherty, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Peter E. Madden $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John E. Murray, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Wesley W. Posvar $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
Marjorie P. Smuts $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1997.
#The aggregate compensation is provided for the Corporation, which is comprised
of 8 portfolios.
+The information is provided for the last calendar year end.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in each prospectus. For fiscal year ended November 30, 1997 and
for the period from February 28, 1996 (date of initial public investment) to
November 30, 1996, the Adviser earned $_____ and $48,769, respectively, all of
which was voluntarily waived.
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.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: 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 its 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.
For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Fund paid
$____ and $69,033, respectively, in brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
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 each
prospectus. From January 31, 1996 to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal year ended
November 30, 1997 and for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996, the Administrators earned $____ and
$141,023, respectively.
Custodian and Portfolio Accountant
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Foreign instruments purchased by the Fund are held by
foreign banks participating in a network coordinated by State Street Bank.
Federated Services Company, Pittsburgh, PA, 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
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, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
Purchasing Shares
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
Distribution Plan and Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $____ and $____, respectively, in distribution services
fees, none of which was waived. Class A Shares have no present intention of
paying or accruing distribution services fees during the fiscal year ending
November 30, 1998. In addition, for the fiscal year ended November 30, 1997, the
Fund's Class A Shares, Class B Shares and Class C Shares paid shareholder
services fees in the amounts of $____, $____ and $____, respectively, none of
which was waived.
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 Shareholder 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 charge. Shares may also be sold without a sales charge 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.
<PAGE>
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
Dividend income is recorded on the ex-dividend date except that 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 for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange
or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: 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 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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. In determining the
applicability of the Contingent Deferred Sales Charge, the 12 month holding
requirement for your new Class B Shares received through an exchange will
include the period for which your original Class B Shares were held. However,
for purposes of meeting the $10,000 minimum account value requirement, Class B
Share accounts values will not be aggregated.
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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
<PAGE>
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 Fund's average annual total returns for Class A Shares, Class B Shares
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from February 28, 1996 (date of initial public investment) to November
30, 1997, were ___%, ___%, and ___% respectively, and ___%, ___%, and ___%,
respectively.
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
charge, 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 yields for Class A Shares, Class B Shares, and Class C Shares for the
thirty-day period ended November 30, 1997 were ___%, ___%, and ___%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), a composite index of common stocks in industry, transportation,
and financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the S & P 500 assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "pacific region funds" category in advertising and
sales literature.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o Ibbotson Associates International Bond Index, which provides a detailed
breakdown of local market and currency returns since 1960.
o Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o Morningstar, Inc. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o Data and mutual fund rankings published or prepared by CDA/Wiesenberger
Investment Company Services that ranks and/or compares mutual funds by
overall performance, investment objectives, assets, expense levels,
periods of existence and/or other factors.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Dow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because it
represents the top corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o CNBC/Financial News Composite Index.
o The World Bank Publication of Trends in Developing Countries (TIDE).
TIDE provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
o Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
o Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope are
database retrieval services for information including, but not limited
to, international financial and economic data.
o International Financial Statistics, which is produced by the
International Monetary Fund.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction
and Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.
and Standard & Poor's Ratings Group.
o Wilshire Associates, which is an on-line database for international
financial and economic data including performance measures for a wide
range of securities.
o International Finance Corporation (IFC) Emerging Markets Data Base,
which provides detailed statistics on stock and bond markets in
developing countries, including IFC market indices.
o Various publications from the Organization for Economic Cooperation
and Development (OECD).
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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 Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' global portfolios.
<PAGE>
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country --supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
- --------------
*source: Investment Company Institute
Federated Emerging Markets Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated Emerging Markets Fund (the "Fund") represent interests
in a diversified portfolio of World Investment Series, Inc. (the "Corporation"),
an open-end management investment company (a mutual fund). The investment
objective of the Fund is to provide long-term growth of capital. Any income
received from the portfolio is incidental. The Fund pursues its investment
objective by investing primarily in a professionally managed portfolio of
securities of issuers and companies domiciled in or having primary operations in
emerging markets.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in these shares involves investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
31, 1998, with the Securities and Exchange Commission. 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 1-800-341-7400.. To obtain
other information or to 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 are
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 NOR HAS THE SECURITIES AND EXCHANGE PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Table of Contents
<PAGE>
Synopsis
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in a portfolio of common
stocks of emerging market companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in foreign securities, lending
portfolio securities, investing in restricted and illiquid securities, investing
in securities on a when-issued and delayed delivery basis, writing call options
and entering into repurchase agreements.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
<PAGE>
Investment Information
Investment Objective
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of securities of issuers and
companies located in countries having emerging markets. Under normal market
conditions, the Fund intends to invest at least 65% of its total assets in
equity securities of issuers and companies located in countries having emerging
markets.
The Fund expects to diversify investments across emerging markets in Latin
America, Asia, Europe, the Middle East and Africa. The Fund intends to allocate
its investments among at least three countries at all times and does not expect
to concentrate investments in any particular industry.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
Emerging Markets. In managing the Fund's portfolio, the Fund's investment
adviser considers countries having emerging markets to be all countries that are
generally considered to have developing or emerging markets or economies.
Furthermore, the Fund's investment adviser considers emerging market countries
to be all countries considered by the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation, as well as countries that are classified by the United
Nations or otherwise regarded by their authorities, as developing.
Generally included in emerging markets are all countries in the world except
Australia, Canada, Japan, New Zealand, the United States, and most western
European countries. The Fund will focus on countries which the investment
adviser believes to have strongly developing economies and markets. Under normal
circumstances the Fund will invest at least 65% of its total assets in, among
others, the following countries: Argentina, Bolivia, Botswana, Brazil, Chile,
China, Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece, Hong
Kong, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Korea, Malaysia,
Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, South Africa, Sri Lanka, Swaziland,
Taiwan, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. The Fund
may invest in countries other than those defined above, if, in the opinion of
the Fund's investment adviser, they are considered to be emerging markets. While
the investment adviser considers the above-mentioned countries eligible for
investment, the Fund will not be invested in all such markets at all times.
Furthermore, the Fund may not pursue investment in such countries due to lack of
adequate custody of the Fund's assets, overly burdensome restrictions and
repatriation, lack of an organized and liquid market, or unacceptable political
or other risks.
Emerging markets companies are defined as (i) those for which the principal
securities trading market is an emerging market country, as described above;
(ii) those which are organized under the laws of, or with a principal office in,
an emerging market country; or (iii) those, wherever organized or traded, who
derive (directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit from its most current year from
goods produced, services performed, or sales made in such emerging market
countries.
Acceptable Investments. The equity securities in which the Fund may invest
include common stock, preferred stock (either convertible or non-convertible),
sponsored or unsponsored depositary receipts or shares, and warrants, including
other substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities, including convertible securities, denominated in currencies other
than U.S. dollars; enter into forward commitments, repurchase agreements and
foreign currency transactions; maintain reserves in foreign or U.S. money market
instruments and cash; and purchase options and financial futures contracts.
Common and Preferred Stock. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
Depositary Receipts. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored securities representing underlying international
securities such as American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), Global Depositary Certificates ("GDCs"), International
Depositary Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs typically
are issued by a United States bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and
RDCs are typically issued by foreign banks or trust companies, although they
also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, IDRs, and RDCs are collectively
known as "Depositary Receipts." Depositary Receipts may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Debt Securities. In pursuit of the Fund's objective of long-term growth of
capital, the Fund may invest up to 35% of its total assets in debt securities.
Capital appreciation in debt securities may arise as a result of favorable
changes in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities will
be incidental to the Fund's objective of long-term growth of capital. These debt
obligations consist of U.S. and foreign government securities and corporate debt
securities, including, but not limited to, Samurai and Yankee bonds, Eurobonds
and depositary receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service ("Fitch") or by 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.
Convertible Securities. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests. Please see
"Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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. Securities that
can be traded without 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.
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.
Temporary Investments. For temporary defensive purposes, when the investment
adviser determines that market conditions warrant (up to 100% of total assets)
and to maintain liquidity (up to 35% of total assets), the Fund may invest in
U.S. and foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize short-term profit or loss.
Foreign Currency Transactions. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot 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 seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
Futures and Options on Futures. The Fund may enter into futures contracts
involving foreign currency, securities, and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits exclusive of the margin
needed for foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's assets,
provided further that in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In addition, the Fund may not sell futures contracts if the value of
such futures contracts exceeds the total market value of the Fund's portfolio
securities. Futures contracts and options thereon sold by the Fund are generally
subject to segregation and coverage requirements established by either the
Commodities Futures Trading Commission ("CFTC") or the Securities and Exchange
Commission ("SEC"), with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes such
investment is more efficient, liquid, or cost-effective than investing directly
in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
Risks of Futures and Options Transactions. When the Fund uses futures and
options on futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the investment adviser could be
incorrect in its expectations about the direction or extent of market factors
such as stock price movements. In these events, the Fund may lose money on the
futures contract or option.
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.
Swap Agreements. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments, its share price and yield. The Fund may
invest up to 35% of its assets in swap agreements that the adviser determines to
be liquid.
Swap agreements are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. As a result,
swaps can be highly volatile and may have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements to reduce its exposure through
offsetting transactions. When the Fund enters into a swap agreement, assets of
the Fund equal to the value of the swap agreement will be segregated by the
Fund.
Risk Characteristics of Foreign Securities. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund diversifies
its investments broadly among foreign countries which may include both developed
and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Currency Risks. Because the majority of securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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;
o the likelihood that securities of foreign issuers may be less liquid
or more volatile;
o foreign brokerage commissions may be higher; - unreliable mail service
between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund.
Investors are advised that when such policies are instituted, the Fund will
abide by them.
Risk Considerations in Emerging Markets. Investing in securities of issuers in
emerging market countries involves exposure to significantly higher risk than
investing in countries with developed markets. Emerging market countries may
have economic structures that are generally less diverse and mature and
political systems that can be expected to be less stable than those of developed
countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or,
in certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or prohibitions
on the repatriation of assets, and may have less protection of property rights
than developed countries.
The economies of emerging market countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in
emerging market countries may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in emerging market countries
typically offer less regulatory protection for investors.
Risk Factors Relating to Investing in High Yield Securities. The debt securities
in which the Fund invests are usually not in the three highest rating categories
of a nationally recognized statistical rating organization (AAA, AA, or A for
S&P or Fitch and Aaa, Aa, or A for Moody's), but are in the lower rating
categories or are unrated, but are of comparable quality and have speculative
characteristics or are speculative. Lower-rated bonds or unrated bonds are
commonly referred to as "junk bonds." A description of the rating categories is
contained in the Appendix of this prospectus.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
<PAGE>
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Net Asset Value
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
<PAGE>
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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares qualify for reduced sales charges. See "Reducing or Eliminating the Sales
Charge." 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 higher
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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50.
(Financial institutions may impose different minimum investment requirements on
their customers.)
In connection with any sale, Federated Securities Corp., may from time, to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<PAGE>
Sales Charge as Dealer
Sales Charge as a PercentageConcession
a Percentage of Net as a Percentage
Amount of of Offering Amount of Public
Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000but 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; or
o using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
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 for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the other Federated Funds 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, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $50,000 of
shares of Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced 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 any 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.
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 may no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales 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 wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. 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 sending 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, Massachusetts 02266-8600. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
Special Purchase Features
Systematic Investment Program. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales 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 as listed herein 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 other Class B Shares in 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 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. For more
information, see "Contingent Deferred Sales Charge."
Class C Shares. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other 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 other
Class C Shares in the Federated Funds.) To the extent that a shareholder
exchanges Shares for Class C 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. For more information, see "Contingent Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for more 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 as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any Federated Funds, 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.
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 exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated 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. Investors who redeem Shares through a financial intermediary may be
chargd a service fee by that financial intermediary. Redemption requests must be
received in proper form and can be made as described below. Redemption proceeds
will normally be sent the following day. However, in order to protect
shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
Redeeming Shares through a Financial Institution. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
Redeeming Shares by Telephone. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Shares at the time of purchase or the net asset value of
the redeemed Shares at the time of redemption in accordance with the following
schedule:
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
------------------ ------------
First 5.50%
Second 4.75%
Third 4.00%
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for less than six years with respect
to Class B Shares and less than one full year from the date of purchase with
respect to Class C Shares 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 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 Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. 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 the shareholder is
entitled to such elimination.
Account and Share Information
Certificates and Confirmations. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid.
Dividends. Dividends are declared and paid annually to all shareholders invested
in the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales 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 year's dividend.
Capital Gains. Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Corporation Information
Management of the Corporation
Board of Directors. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs and
for exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by Federated
Global Research Corp., the Fund's investment adviser, subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.25% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion.
Adviser's Background. Federated Global Research Corp., incorporated in Delaware
on May 12, 1995, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors. 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 $110 billion invested across over 300
funds under management and/or administration by its subsidiaries, as of December
31, 1996, Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955. Federated
funds are presently at work in and through 4,500 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.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Jolanta M. Wysocka has been the Fund's portfolio manager since February- 1996.
Mrs. Wysocka joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Ms. Wysocka served as Senior Investment Officer and
Emerging Markets Portfolio Manager at PIMCO Advisers L.P./Parametric Portfolio
Associates from 1993 to 1995. She served as President of Kinetic Capital
Management, Inc. from 1991 to 1995. Ms. Wysocka served as Vice President,
Research for Ko Securities, Inc. from 1990 to 1991. Ms. Wysocka received her
masters degree in computer science from the Institute of Technology Zielona
Gora, Poland.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
distributor may be paid a fee in an amount computed at an annual rate of up to
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, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/ dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of 0.75% of Class B Shares'
average daily net assets, it will take the distributor a number of years to
recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
Other Payments to Financial Institutions. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to 0.50% of the net asset value of Class A Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing 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 Fund's 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may 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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Due to differences in the book and tax treatment of fixed income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
<PAGE>
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.
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 the 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 imminent default in payment of interest or principal.
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated PRIME-1 (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.
<PAGE>
Addresses
Federated Emerging Markets Fund Class A Shares
Class B Shares
Class C Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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 Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
Federated Emerging Markets
(A Portfolio of World Investment Series, Inc.)
Class A Shares, Class B Shares, Class C Shares
Prospectus
An Open-End, Diversified Management Investment Company
January 31, 1998
981 487 804
981 487 887
981 487 879
G01472-02 (1/98)
Federated Emerging Markets 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 Emerging Markets Fund (the "Fund") dated January 31, 1998. This
Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement of Additonal Information, if
you have received it electronically, free of charge by calling
1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund(s)
and is a subsidiary of Federated Investors.
Cusip 981487804
981487887
981487879
G01472-03 (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
Sovereign Debt Obligations 1
When-Issued and Delayed Delivery
Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 3
Risks 6
Foreign Currency Transactions 8
Special Considerations Affecting
Emerging Markets 10
Additional Risk Considerations 11
Portfolio Turnover 11
Investment Limitations 11
World Investment Series, Inc.
Management 13
Fund Ownership 17
Directors' Compensation 18
Investment Advisory Services 19
Adviser to the Fund 19
Advisory Fees 19
Other Related Services 19
Brokerage Transactions 19
Other Services 19
Fund Administration 19
Custodian 20
Transfer Agent and Dividend
Disbursing Agent 20
Independent Auditors 20
Purchasing Shares 20
Distribution Plan and Shareholder
Services Agreement 20
Conversion to Federal Funds 20
Purchases by Sales Representatives,
Directors,and Employees of the Fund 21
Determining Net Asset Value 21
Determining Market Value of Securities21
Trading in Foreign Securities 21
Redeeming Shares 21
Redemption in Kind 22
Elimination of the Contingent
Deferred Sales Charge 22
Tax Status 22
The Fund's Tax Status 22
Foreign Taxes 23
Shareholders' Tax Status 23
Total Return 23
Yield 23
Performance Comparisons 24
Economic and Market Information 26
About Federated Investors 26
Mutual Fund Market 26
Institutional Clients 26
Bank Marketing 26
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 26
<PAGE>
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 the above-mentioned Shares.
Investment Objective and Policies
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in securities of issuers and
companies domiciled in or having primary operations in emerging markets. The
investment objective cannot be changed without approval of shareholders.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential. PERCS, or similar instruments marketed under
different names, offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less risky
and less volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price limits gains
when the common stock rises.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Sovereign Debt Obligations
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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 pendng court action.
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.
<PAGE>
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund may
be able to achieve these objectives possibly more effectively and at a lower
cost by using futures transactions instead of forward foreign currency
exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively
new. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. To reduce this
risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the opinion of the investment
adviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
Special Considerations Affecting Emerging Markets
Investing in equity securities of companies in emerging markets may entail
greater risks than investing in equity securities in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
the securities of companies in emerging markets, may entail special risks
relating to the potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, the Fund could lose its
entire investment in any such country.
Settlement mechanisms in emerging markets may be less efficient and reliable
than in more developed markets. In such emerging securities markets there may be
share registration and delivery delays or failures.
Most Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
any may continue to have negative effects on the economies and securities
markets of certain Latin American countries.
Political, Social and Economic Risks. Even though opportunities for investment
may exist in emerging markets, any change in the leadership or policies of the
governments of those countries or in the leadership or policies of any other
government which exercises a significant influence over those countries, may
halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and thereby eliminate any investment opportunities which
may currently exist.
Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of Latin American countries previously expropriated
large quantities of real and personal property similar to the property which
will be represented by the securities purchased by the Fund. The claims of
property owners against those governments were never finally settled. There can
be no assurance that any property represented by securities purchased by the
Fund will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, the Fund could lose its entire investment in
such countries. The Fund's investments would similarly be adversely affected by
exchange control regulation in any of those countries.
Certain countries in which the Fund may invest may have groups that advocate
radical religious or revolutionary philosophies or support ethnic independence.
Any disturbance on the part of such individuals could carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of the Fund's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extraconsititutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which the Fund
invests and adversely affect the value of the Fund's assets.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the investment adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The investment adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly. For the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 32%.
Investment Limitations
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the SEC) in an open-end investment company with substantially the
same investment objectives):
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any
one industry, except that the Fund may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of companies
whose business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will not
acquire more than 10% of the outstanding voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, as amended, or assets exempted by the SEC) in an open-end
investment company with substantially the same investment objectives).
Shareholders will be notified before any material changes in these limitations
become effective.
Investing in 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.
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.
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.
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 associations 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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
<PAGE>
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee 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; Director or Trustee of the Funds.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning;; Director or Trustee 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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
<PAGE>
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; 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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
Fund Ownership
As of November 7, 1997, the following shareholders of record owned 5% or more
of the outstanding Class A Shares of the Fund: Union Planters National Bank,
Memphis, Tennessee, owned approximately 326,572 shares (8.06%); Charles Schwab &
Co., San Francisco, California, owned approximately 616,681 shares (15.22%); and
Frojack Co., Grand Forks, North Dakota, owned approximately 403,859 shares
(9.97%).
As of November 7, 1997, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 234,817 shares (13.22%).
As of November 7, 1997, the following shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 92,997 shares (26.91%).
<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
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 ___ other investment companies in the Fund Complex
Thomas G. Bigley $____ $____ for the Corporation and
Director ___ other investment companies in the Fund Complex
John T. Conroy, Jr. $____ $____ for the Corporation and
Director ___ other investment companies in the Fund Complex
William J. Copeland $____ $_____ for the Corporation and
Director ___ other investment companies in the Fund Complex
James E. Dowd $____ $____ for the Corporation and
Director ___other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $____ $____ for the Corporation and
Director ___ other investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director ___ other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $____ $_____ for the Corporation and
Director ___ other investment companies in the Fund Complex
Peter E. Madden $____ $____ for the Corporation and
Director ___ other investment companies in the Fund Complex
John E. Murray, Jr. $____ $____ for the Corporation and
Director ___other investment companies in the Fund Complex
Wesley W. Posvar $____ $____ for the Corporation and
Director ___ other investment companies in the Fund Complex
Marjorie P. Smuts $____ $____ for the Corporation and
Director ___other investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1997.
#The aggregate compensation is provided for the Corporation, which was comprised
of 8 portfolios.
+The information is provided for the last calendar year end.
<PAGE>
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.
For the fiscal year ended November 30, 1997 and for the period from February
28, 1996 (date of initial public investment) to November 30, 1996, the Adviser
earned $_____ and $121,495, respectively, all of which was voluntarily
waived.
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.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: 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 its 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. For the
fiscal year ended November 30, 1997 and for the period from February 28, 1996
(date of initial public investment) to November 30, 1996, the Fund paid $_____
and $90,361, respectively, in brokerage commissions.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
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 each
prospectus. From January 31, 1996, to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal year ended
November 30, 1997 and for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996, the Adminstrators earned $_____ and
$141,023, respectively.
Custodian
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank. Federated Services Company, Pittsburgh, PA 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 on 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.
Purchasing Shares
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
Distribution Plan and Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $____ and $____, respectively, in distribution services
fees, none of which were voluntarily waived. Class A Shares have no present
intention of paying or accruing distribution services fees during the fiscal
year ending November 30, 1998. In addition, for the fiscal year ended November
30, 1997, the Fund's Class A Shares, Class B Shares and Class C Shares paid
shareholder services fees in the amount of $____, $____, and $____,
respectively, none of which were voluntarily waived.
<PAGE>
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 Shareholder 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 charge. Shares may also be sold without a sales charge to trusts
or pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
Dividend income is recorded on the ex-dividend date, except that 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 for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange
or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: insititutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges unless the Directors determine in good faith that another method
of valuing such investments is necessary.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Directors, although the actual calculation may be done by
others.
<PAGE>
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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. To the extent that a
shareholder exchanges Shares for Class B 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 12
month holding requirement. However, for purposes of meeting the $10,000 minimum
account value requirement, Class B Share account values will not be aggregated.
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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
Total Return
The Fund's average annual total returns for Class A Shares, Class B Shares,
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from February 28, 1996 (date of initial public investment) to November
30, 1997, were ___%, ___%, and ___%, respectively, and ___%, ___%, and ___%,
respectively.
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
charge, 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 yields for Class A Shares, Class B Shares, and Class C Shares for the
thirty-day period ended November 30, 1997 were ___%, ___%, and ___%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), a composite index of common stocks in industry, transportation,
and financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the S & P 500 assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "latin american region funds" category in
advertising and sales literature.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging
Markets Global Latin America Index. Both indices include 60% of the
market capitalization of the following countries: Argentina, Brazil,
Chile, and Mexico. The indices are weighted by market capitalization and
are calculated without dividends reinvested.
o Lehman Brothers High Yield Index covers the universe of fixed rate,
publicly issued, noninvestment grade debt registered with the SEC. All
bonds included in the High Yield Index must be dollar-denominated and
nonconvertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities
must be rated Ba1 or lower by Moodys Investors Servicem including
defaulted issues. If no Moodys rating is available, bonds must be rated
BB+ or lower by S&P; and if no S&P rating is available, bonds must be
rated below investment grade by Fitch Investor's Service. A small number
of unrated bonds is included in the index; to be eligible they must have
previously held a high yield rating or have been associated with a high
yield issuer, and must trade accordingly.
o Ibbotson Associates International Bond Index, which provides a detailed
breakdown of local market and currency returns since 1960.
o Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o Morningstar, Inc. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o Data and mutual fund rankings published or prepared by CDA/Wiesenberger
Investment Company Services that ranks and/or compares mutual funds by
overall performance, investment objectives, assets, expense levels,
periods of existence and/or other factors.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Dow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because it
represents the top corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o CNBC/Financial News Composite Index.
o The World Bank Publication of Trends in Developing Countries (TIDE).
TIDE provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
o Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
o Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope are
database retrieval services for information including, but not limited
to, international financial and economic data.
o International Financial Statistics, which is produced by the
International Monetary Fund.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction
and Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.
and Standard & Poor's Ratings Group.
o Wilshire Associates, which is an on-line database for international
financial and economic data including performance measures for a wide
range of securities.
o International Finance Corporation (IFC) Emerging Markets Data Base,
which provides detailed statistics on stock and bond markets in
developing countries, including IFC market indices.
o Various publications from the Organization for Economic Cooperation
and Development (OECD).
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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 Funds. 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 Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's services to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp..
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
- -------------
*source: Investment Company Institute
Federated European Growth Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated European Growth Fund (the "Fund") represent interests in
a diversified portfolio of World Investment Series, Inc. (the "Corporation"), an
open-end management investment company (a mutual fund). The investment objective
of the Fund is to provide long-term growth of capital. Any income received from
the portfolio is incidental. The Fund pursues its investment objective by
investing primarily in the equity securities of European companies.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in these shares involves investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
31, 1998, 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 1-800-341-7400. To
obtain other information or to 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Table of Contents
<PAGE>
Synopsis
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in the equity securities of
European companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in foreign securities, lending
portfolio securities, investing in restricted and illiquid securities, investing
in securities on a when-issued and delayed delivery basis, writing call options
and entering into repurchase agreements.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated."
Investment Information
Investment Objective
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of European companies. Under
normal market conditions, the Fund intends to invest at least 65% of its total
assets in equity securities of issuers and companies located in Europe.
The Fund expects the majority of its equity assets to be invested in the more
established or liquid markets of Europe, including Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Spain,
Sweden, Switzerland, and the United Kingdom. The Fund may invest in countries
other than those defined above, if, in the opinion of the Fund's investment
adviser, they are considered to be attractive or liquid. These countries include
Albania, Belarus, Bulgaria, Czech Republic, Estonia, Greece, Hungary, Iceland,
Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania, Russia, Slovakia,
Turkey, Ukraine, and countries of the former Yugoslavia.
While the investment adviser considers the above-mentioned countries eligible
for investment, the Fund will not be invested in all such markets at all times.
Furthermore, the Fund may not pursue investment in such countries due to lack of
adequate custody of the Fund's assets, overly burdensome restrictions and
repatriation, lack of an organized and liquid market, or unacceptable political
or other risks. The Fund intends to allocate its investments among at least
three countries at all times and does not expect to concentrate investments in
any particular industry.
European companies are defined as (i) those for which the principal securities
trading market is Europe, as described above; (ii) those which are organized
under the laws of, or with a principal office in, Europe; or (iii) those,
wherever organized or traded, which derive (directly or indirectly through
subsidiaries) at least 50% of their total assets, capitalization, gross revenue
or profit in their most current year from goods produced, services performed, or
sales made in Europe.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
Acceptable Investments. The equity securities in which the Fund may invest
include common stock, preferred stock (either convertible or non-convertible),
sponsored or unsponsored depositary receipts or shares, and warrants, including
other substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities, including convertible securities, denominated in currencies other
than U.S. dollars; enter into forward commitments, repurchase agreements and
foreign currency transactions; maintain reserves in foreign or U.S. money market
instruments and cash; and purchase options and financial futures contracts.
Common and Preferred Stock. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects, and prevailing and prospective valuation levels. Other
considerations generally include quality and depth of management, government
regulation, and availability and cost of labor and raw materials. Investment
decisions are made without regard to arbitrary criteria as to minimum asset
size, debt-equity ratios or dividend history of portfolio companies.
Depositary Receipts. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored securities representing underlying international
securities such as American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), Global Depositary Certificates ("GDCs"), International
Depositary Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs typically
are issued by a United States bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and
RDCs are typically issued by foreign banks or trust companies, although they
also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, IDRs, and RDCs are collectively
known as "Depositary Receipts." Depositary Receipts may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Debt Securities. In pursuit of the Fund's objective of long-term growth of
capital, the Fund may invest up to 35% of its total assets in debt securities.
Capital appreciation in debt securities may arise as a result of favorable
changes in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities will
be incidental to the Fund's objective of long-term growth of capital. These debt
obligations consist of U.S. and foreign government securities and corporate debt
securities, including, but not limited to, Samurai and Yankee bonds, Eurobonds
and depositary receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service ("Fitch") or by 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.
Convertible Securities. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests. Please see
"Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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. Securities that
can be traded without 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.
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.
Temporary Investments. For temporary defensive purposes, when the investment
adviser determines that market conditions warrant (up to 100% of total assets)
and to maintain liquidity (up to 35% of total assets), the Fund may invest in
U.S. and foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize short-term profit or loss.
Foreign Currency Transactions. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot 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 seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
Futures and Options on Futures. The Fund may enter into futures contracts
involving foreign currency, securities, and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits exclusive of the margin
needed for foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's assets,
provided further that in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In addition, the Fund may not sell futures contracts if the value of
such futures contracts exceeds the total market value of the Fund's portfolio
securities. Futures contracts and options thereon sold by the Fund are generally
subject to segregation and coverage requirements established by either the
Commodities Futures Trading Commission ("CFTC") or the Securities and Exchange
Commission ("SEC"), with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes such
investment is more efficient, liquid, or cost-effective than investing directly
in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
Risks of Futures and Options Transactions. When the Fund uses futures and
options on futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the investment adviser could be
incorrect in its expectations about the direction or extent of market factors
such as stock price movements. In these events, the Fund may lose money on the
futures contract or option.
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.
Swap Agreements. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments, its share price and yield.
Swap agreements are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. As a result,
swaps can be highly volatile and may have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements to reduce its exposure through
offsetting transactions. When the Fund enters into a swap agreement, assets of
the Fund equal to the value of the swap agreement will be segregated by the
Fund.
Risk Characteristics of Foreign Securities. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund diversifies
its investments broadly among foreign countries which may include both developed
and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Currency Risks. Because the majority of securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar the value of
Fund assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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;
o the likelihood that securities of foreign issuers may be less liquid
or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund.
Investors are advised that when such policies are instituted, the Fund will
abide by them.
Risk Considerations of European Companies. Greater Europe includes both the
industrialized nations of Western Europe and the less wealthy or developed
countries in Southern and Eastern Europe. Within this diverse area, the Fund
seeks to benefit from accelerating economic growth transformation and
deregulation taking hold. These developments involve, among other things,
increased privatizations and corporate restructurings, the reopening of equity
markets and economies in Eastern Europe, further broadening of the European
Community, and the implementation of economic policies to promote
non-inflationary growth. The Fund invests in companies it believes are well
placed to benefit from these and other structural and cyclical changes now
underway in this region of the world. The Fund will invest, under normal market
conditions, at least 65% of its assets in the equity securities of European
companies.
The securities markets of many European countries are relatively small, with the
majority of market capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries. Consequently, the
Fund's investment portfolio may experience greater price volatility and
significantly lower liquidity than a portfolio invested in equity securities of
U.S. companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the U.S. Securities
settlements may in some instances be subject to delays and related
administrative uncertainties.
Risk Factors Relating to Investing in High Yield Securities. The debt securities
in which the Fund invests are usually not in the three highest rating categories
of a nationally recognized statistical rating organization (AAA, AA, or A for
S&P or Fitch and Aaa, Aa, or A for Moody's), but are in the lower rating
categories or are unrated, but are of comparable quality and have speculative
characteristics or are speculative. Lower-rated bonds or unrated bonds are
commonly referred to as "junk bonds." A description of the rating categories is
contained in the Appendix of this prospectus.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower- yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
<PAGE>
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Net Asset Value
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King 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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares are not subject to a sales charge. See "Investing in Class A Shares."
Certain purchases of Class A Shares qualify for reduced sales charges. See
"Reducing or Eliminating the Sales Charge." 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 also bear a higher 12b-1 fee
than Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the higher 12b-1 fee.
Class C Shares. Class C Shares are sold without an initial sales 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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50.
(Financial institutions may impose different minimum investment requirements on
their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
Sales Charge as Dealer
Sales Charge as a PercentageConcession
a Percentage of Net as a Percentage
Amount of of Offering Amount of Public
Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales 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 Class A 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; or
o using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
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 for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
Shares of two or more Federated Funds, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $30,000 in
Class A Shares of one of the other Federated Funds with a sales charge, and
$20,000 in this Fund, the sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $50,000 of
shares of the Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced 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 any 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.
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 may no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales 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 wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. 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 sending 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, Massachusetts 02266-8600. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
Special Purchase Features
Systematic Investment Program. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales 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 other Class B Shares in the Federated Funds.) Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class B Shares
received through an exchange will include the period for which your original
Class B Shares were held. For more information, see "Contingent Deferred Sales
Charge."
Class C Shares. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other 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 other
Class C Shares in the Federated Funds.) In determining the applicability of the
contingent deferred sales charge, the required holding period for your new Class
C Shares received through an exchange will include the period for which your
original Class C Shares were held. For more information, see "Contingent
Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 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 as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any Federated Funds, 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.
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 exchanges for Federated Funds may be given
in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Shareholder
Services Company, 500 Victory Road--2nd Floor, North Quincy, Massachusetts
02171.
Telephone Instructions. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated 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. Investors who redeem shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below. Redemption
proceeds will normally be sent the following business day. However, in order to
protect shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
Redeeming Shares through a Financial Institution. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
Redeeming Shares by Telephone. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Shares at the time of purchase or the net asset value of
the redeemed Shares at the time of redemption in accordance with the following
schedule:
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
----------------- ------------
First 5.50%
Second 4.75%
Third 4.00%
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for less than six years with respect
to Class B Shares and less than one full year from the date of purchase with
respect to Class C Shares 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 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 Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. 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 the shareholder is
entitled to such elimination. Account and Share Information
Certificates and Confirmations. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid.
Dividends. Dividends are declared and paid annually to all shareholders invested
in the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales 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 year's dividend.
Capital Gains. Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Corporation Information
Management of the Corporation
Board of Directors. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs and
for exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by Federated
Global Research Corp., the Fund's investment adviser, subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.00% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion.
Adviser's Background. Federated Global Research Corp., incorporated in Delaware
on May 12, 1995, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors. 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 $110 billion invested across over 300
funds under management and/or administration by its subsidiaries, as of December
31, 1996, Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955. Federated
funds are presently at work in and through 4,500 financial institutions
nationwide.
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.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Frank Semack has been the Fund's portfolio manager since its inception. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Semack served as an Investment Analyst at Omega
Advisers, Inc. from 1993 to 1994. He served as a Portfolio Manager/Associate
Director of Wardley Investment Services, Ltd. from 1980 to 1993. Mr. Semack
received his M.Sc. in economics from the London School of Economics.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties. Distribution of Shares
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
distributor may be paid a fee in an amount computed at an annual rate of up to
.25% for Class A Shares and up to .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, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of .75% of Class B Shares'
average daily net assets, it will take the distributor a number of years to
recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the 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 .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
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
Other Payments to Financial Institutions. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to .50% of the net asset value of Class A Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing 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 Fund's 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of November 7, 1997, Federated International Growth Fund owned 30.54% of
voting securities of the Fund's Class A Shares, and therefore, may for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Due to differences in the book and tax treatment of fixed income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
<PAGE>
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.
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
edge." 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 the 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 identifiable 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 imminent default in payment of interest or principal.
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o 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.
<PAGE>
Addresses
Federated European Growth Fund
Class A Shares
Class B Shares
Class C Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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 Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
Federated European Growth 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
January 31, 1998
Federated Investors
(LOGO)
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
981 487 86 1
981 487 85 3
981 487 84 6
G01469-02 (1/98
Federated European Growth 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 European
Growth Fund (the "Fund") dated January 31, 1998. This Statement is not a
prospectus itself. You may request a copy of either prospectus or a paper copy
of this Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 981487861
Cusip 981487853
Cusip 981487846
G01469-03 (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
Sovereign Debt Obligations 1
When-Issued and Delayed
Delivery Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 3
Risks 6
Foreign Currency Transactions 8
Additional Risk Considerations 10
Special Considerations Affecting
Europe 10
Portfolio Turnover 10
Investment Limitations 10
World Investment Series, Inc.
Management 13
Fund Ownership 17
Directors Compensation 18
Investment Advisory Services 18
Adviser to the Fund 18
Advisory Fees 19
Other Related Services 19
Brokerage Transactions 19
Other Services 19
Fund Administration 19
Custodian and Portfolio Accountant 19
Transfer Agent 20
Independent Auditors 20
Purchasing Shares 20
Distribution Plan and Shareholder
Services Agreement 20
Conversion to Federal Funds 20
Purchases by Sales Representatives,
Directors, and Employees
of the Fund 20
Determining Net Asset Value 21
Determining Market Value of
Securities 21
Trading in Foreign Securities 21
Redeeming Shares 21
Redemption in Kind 22
Elimination of the Contingent
Deferred Sales Charge 22
Tax Status 22
The Fund's Tax Status 22
Foreign Taxes 22
Shareholders' Tax Status 23
Total Return 23
Yield 23
Performance Comparisons 23
Economic and Market Information 25
About Federated Investors 25
Mutual Fund Market 26
Institutional Clients 26
Bank Marketing 26
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 26
Financial Statements 26
<PAGE>
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 the above-mentioned Shares.
Investment Objective and Policies
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of European
companies. The investment objective cannot be changed without approval of
shareholders.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential. PERCS, or similar instruments marketed under
different names, offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less risky
and less volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price limits gains
when the common stock rises.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Sovereign Debt Obligations
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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.
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.
<PAGE>
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 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.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the investment adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Special Considerations Affecting Europe
The countries that are members of the European Union (Belgium, Denmark, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Austria, Sweden, Finland, and the United Kingdom) eliminated certain import
tariffs and quotas, and other trade barriers with respect to one another over
the past several years. The adviser believes that this deregulation should
improve the prospects for economic growth in many European countries. Among
other things, the deregulation could enable companies domiciled in one country
to avail themselves of lower labor costs existing in other countries. In
addition, this deregulation could benefit companies domiciled on one country by
opening additional markets for their goods and services in other countries.
Since, however, it is not clear at this time what the exact form or effect of
these European Union reforms will be on business in Western Europe or the
emerging European markets, it is impossible to predict the long-term impact of
the implementation of these programs on the securities owned by the Fund.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The investment adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly. For the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 58%.
<PAGE>
Investment Limitations
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940 or assets exempted by the
SEC) in an open-end investment company with substantially the same investment
objectives):
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any
one industry, except that the Fund may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of companies
whose business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will not
acquire more than 10% of the outstanding voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940 or assets exempted by the SEC) in an open-end investment
company with substantially the same investment objectives). Shareholders will be
notified before any material changes in these limitations become effective.
Investing in 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.
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.
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.
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 associations 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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
<PAGE>
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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; 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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
Fund Ownership
As of November 7, 1997, the following shareholders of record owned 5% or more
of the outstanding voting stock of the Fund's Class A Shares: Edward C.
Gonzales, Trustee, Federated Investors, Pittsburgh, Pennsylvania, owned
approximately 195,745 shares (15.53%); Charles Schwab & Co., Inc., San
Francisco, California, owned approximately 67,305 shares (5.34%); and Federated
International Growth Fund, Pittsburgh, Pennsylvania, owned approximately 384,873
shares (30.54%).
As of November 7, 1997, there were no shareholders of record who owned 5% or
more of the outstanding voting stock of the Fund's Class B Shares.
As of November 7, 1997, the following shareholders of record owned 5% or more of
the outstanding voting stock of the Fund's Class C Shares: Bear Stearns
Securities Corp., Brooklyn, New York, owned approximately 4,029 shares
(7.02%).
<PAGE>
Directors Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
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 ___ investment companies in the Fund Complex
Thomas G. Bigley $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John T. Conroy, Jr. $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
William J. Copeland $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
James E. Dowd $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director ___ investment companies in the Fund Complex
Edward L. Flaherty, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Peter E. Madden $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Gregor F. Meyer $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John E. Murray, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Wesley W. Posvar $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Marjorie P. Smuts $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1997.
#The aggregate compensation is provided for the Corporation, which is comprised
of 8 portfolios.
+The information is provided for the last calendar year end.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in each prospectus. For the fiscal year ended November 30, 1997
and for the period from February 28, 1996 (date of initial public investment) to
November 30, 1996, the Adviser earned $_____ and $27,135, respectively, all of
which was voluntarily waived.
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.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: 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 its 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.
For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Fund paid
$_____ and $14,206, respectively, in brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
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 each
prospectus. From January 31, 1996 to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal year ended
November 30, 1997 and for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996, the Administrators earned $_____ and
$141,023, respectively.
Custodian and Portfolio Accountant
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Foreign instruments purchased by the Fund are held by
foreign banks participating in a network coordinated by State Street Bank.
Federated Services Company, Pittsburgh, PA, 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
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, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
Purchasing Shares
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
Distribution Plan and Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $____ and $____, respectively, in distribution services
fees, none of which was waived. Class A Shares have no present intention of
paying or accruing distribution services fees during the fiscal year ending
November 30, 1998. In addition, for the fiscal year ended November 30, 1997, the
Fund's Class A Shares, Class B Shares and Class C Shares paid shareholder
services fees in the amounts of $____, $____ and $____, respectively, none of
which was waived.
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 Shareholder 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 charge. Shares may also be sold without a sales charge to trusts
or pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
Dividend income is recorded on the ex-dividend date except that 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 for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange
or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: 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 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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. In determining the
applicability of the Contingent Deferred Sales Charge, the 12 month holding
requirement for your new Class B Shares received through an exchange will
include the period for which your original Class B Shares were held. However,
for purposes of meeting the $10,000 minimum account value requirement, Class B
Share accounts values will not be aggregated.
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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
<PAGE>
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 Fund's average annual total returns for Class A Shares, Class B Shares
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from February 28, 1996 (date of initial public investment) to November
30, 1997, were ___%, ___% and ___%, respectively, and ___%, ___%, and ___%,
respectively.
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
charge, 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 yields for Class A Shares, Class B Shares, and Class C Shares for the
thirty-day period ended November 30, 1997 were ___% , ___%, and ___%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), a composite index of common stocks in industry, transportation,
and financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the S & P 500 assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "latin american region funds" category in
advertising and sales literature.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging
Markets Global Latin America Index. Both indices include 60% of the
market capitalization of the following countries: Argentina, Brazil,
Chile, and Mexico. The indices are weighted by market capitalization and
are calculated without dividends reinvested.
o Ibbotson Associates International Bond Index, which provides a detailed
breakdown of local market and currency returns since 1960.
o Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o Morningstar, Inc. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o Data and mutual fund rankings published or prepared by CDA/Wiesenberger
Investment Company Services that ranks and/or compares mutual funds by
overall performance, investment objectives, assets, expense levels,
periods of existence and/or other factors.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Dow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because it
represents the top corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o CNBC/Financial News Composite Index.
o The World Bank Publication of Trends in Developing Countries (TIDE).
TIDE provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
o Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
o Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope are
database retrieval services for information including, but not limited
to, international financial and economic data.
o International Financial Statistics, which is produced by the
International Monetary Fund.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction
and Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.
and Standard & Poor's Ratings Group.
o Wilshire Associates, which is an on-line database for international
financial and economic data including performance measures for a wide
range of securities.
o International Finance Corporation (IFC) Emerging Markets Data Base,
which provides detailed statistics on stock and bond markets in
developing countries, including IFC market indices.
o Various publications from the Organization for Economic Cooperation
and Development (OECD).
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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 Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country --supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
- -------------
*source: Investment Company Institute
Federated International Small Company Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated International Small Company Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in a professionally managed
portfolio of equity securities of foreign companies that have a market
capitalization at the time of purchase of $1.5 billion or less.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in these shares involves investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
31, 1998, with the Securities and Exchange Commission. 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 1-800-341-7400. To obtain
other information or to 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 are
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Synopsis
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in a portfolio of equity
securities of small foreign companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in foreign securities, lending
portfolio securities, investing in restricted and illiquid securities, investing
in securities on a when-issued and delayed delivery basis, writing call options
and entering into repurchase agreements.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
Investment Information
Investment Objective
The investment objective of the Fund is to provide long-term growth of capital.
Any income received from the portfolio is incidental. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in a
professionally managed and diversified portfolio of equity securities of small
foreign companies. Under normal market conditions, the Fund intends to invest at
least 65% of its total assets in equity securities of companies that have a
market capitalization at the time of purchase of $1.5 billion or less, where
market capitalization is calculated by multiplying the total number of
outstanding shares of common stock of the company by the market price of the
stock. The Fund applies a U.S. size standard on an international basis.
Therefore, a small company investment outside the U.S. might in some countries
rank among the largest companies in terms of capitalization. These companies
will be located in at least three foreign countries.
The Fund expects to diversify investments in markets outside of the United
States, including markets in Asia, Europe, Latin America, the Indian
sub-continent, the Middle East and Africa. The Fund may invest in regions other
than those defined above if, in the opinion of the Fund's investment adviser,
they offer opportunities to pursue the Fund's investment objective.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.
Small Capitalization Companies. Small capitalization companies are those
companies that have a market capitalization of $1.5 billion or less at the time
of purchase. Small capitalization companies are positioned for rapid growth in
revenues or earnings and assets, characteristics which may provide for
significant capital appreciation. Small companies often pay no dividends and
current income is not a factor in the selection of stocks. Smaller companies
often have limited product lines, markets, or financial resources, and they may
be dependent upon one or a few key people for management. (See "Risk
Considerations of Small Capitalization Companies").
The Fund has the flexibility to invest in any region of the world. It can invest
in companies based in emerging markets, typically in the Far East, Latin America
and Eastern Europe, as well as in firms operating in developed economies, such
as those of Canada, Japan and Western Europe. The Fund applies a U.S. size
standard on a global basis. Therefore, a small company investment outside the
U.S. might rank above the lowest 20% by market capitalization in local markets
and, in fact, might in some countries rank among the largest companies in terms
of capitalization.
Acceptable Investments. The equity securities in which the Fund may invest
include common stock, preferred stock (either convertible or non-convertible),
sponsored or unsponsored depositary receipts or shares, and warrants, including
other substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into forward
commitments, repurchase agreements and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments and cash; and purchase
options and financial futures contracts.
Common and Preferred Stock. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
In selecting securities, the investment adviser typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
Depositary Receipts. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored securities representing underlying international
securities such as American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), Global Depositary Certificates ("GDCs"), International
Depositary Receipts ("IDRs"), and Russian Depositary Certificates ("RDCs") or
securities convertible into foreign equity securities. ADRs and ADSs typically
are issued by a United States bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), GDRs, GDCs, IDRs and
RDCs are typically issued by foreign banks or trust companies, although they
also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. ADRs, ADSs, CDRs, EDRs, GDRs, GDCs, IDRs, and RDCs are collectively
known as "Depositary Receipts." Depositary Receipts may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Debt Securities. In pursuit of the Fund's objective of long-term growth of
capital, the Fund may invest up to 35% of its total assets in debt securities.
Capital appreciation in debt securities may arise as a result of favorable
changes in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities will
be incidental to the Fund's objective of long-term growth of capital. These debt
obligations consist of U.S. and foreign government securities and corporate debt
securities, including, but not limited to, Samurai and Yankee bonds, Eurobonds
and depositary receipts. The issuers of such debt securities may or may not be
domiciled in emerging countries.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service ("Fitch") or by 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 the prospectus for a description
of these ratings.
Convertible Securities. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
Please see "Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies. The Fund may invest its
assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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. Securities that
can be traded without 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.
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.
Temporary Investments. For temporary defensive purposes, when the investment
adviser determines that market conditions warrant (up to 100% of total assets)
and to maintain liquidity (up to 35% of total assets), the Fund may invest in
U.S. and foreign debt instruments as well as cash or cash equivalents, including
foreign and domestic money market instruments, short-term government and
corporate obligations, and repurchase agreements.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize short-term profit or loss.
Foreign Currency Transactions. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot 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 seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the investment adviser
will consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
Futures and Options on Futures. The Fund may enter into futures contracts
involving foreign currency, securities, and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits exclusive of the margin
needed for foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's assets,
provided further that in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In addition, the Fund may not sell futures contracts if the value of
such futures contracts exceeds the total market value of the Fund's portfolio
securities. Futures contracts and options thereon sold by the Fund are generally
subject to segregation and coverage requirements established by either the
Commodities Futures Trading Commission ("CFTC") or the Securities and Exchange
Commission ("SEC"), with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the investment adviser believes such
investment is more efficient, liquid, or cost-effective than investing directly
in the securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the investment adviser's ability to predict pertinent market
movements; (2) there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by the Fund and the
prices of the futures and options thereon relating to the securities purchased
or sold by the Fund. The use of futures and related options may reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements but they can also reduce the opportunity for gain by offsetting the
positive effect of favorable price movements in positions. No assurance can be
given that the investment adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objectives and regulatory and federal tax considerations.
Risks of Futures and Options Transactions. When the Fund uses futures and
options on futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the investment adviser could be
incorrect in its expectations about the direction or extent of market factors
such as stock price movements. In these events, the Fund may lose money on the
futures contract or option.
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.
Swap Agreements. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments, its share price and yield.
Swap agreements are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. As a result,
swaps can be highly volatile and may have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements to reduce its exposure through
offsetting transactions. When the Fund enters into a swap agreement, assets of
the Fund equal to the value of the swap agreement will be segregated by the
Fund.
Risk Characteristics of Foreign Securities. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund diversifies
its investments broadly among foreign countries which may include both developed
and developing countries.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Currency Risks. Because the majority of securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund.
If the value of a foreign currency rises against the U.S. dollar, the value of
Fund assets denominated in the currency will increase; correspondingly, if the
value of a foreign currency declines against the U.S. dollar the value of Fund
assets denominated in that currency will decrease. Under the United States
Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax").
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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;
o the likelihood that securities of foreign issuers may be less liquid or
more volatile; - foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries; o increased risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o 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. U.S. Government Policies. In the past, U.S. government
policies have discouraged or restricted certain investments abroad by investors
such as the Fund. Investors are advised that when such policies are instituted,
the Fund will abide by them.
Risk Considerations of Small Capitalization Companies. There is typically less
publicly available information concerning foreign and smaller companies than for
domestic and larger, more established companies. Some small companies have
limited product lines, distribution channels and financial and managerial
resources. Also, because smaller companies normally have fewer shares
outstanding than larger companies and trade less frequently, it may be more
difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. Some of the companies
in which the Fund may invest may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel with
varying degrees of experience.
As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time. However, because the
Fund invests primarily in small capitalization stocks, there are some additional
risks factors associated with investments in the Fund. In particular, stocks in
the small capitalization sector may be more volatile in price than larger
capitalization stocks. This is because, among other things, small companies have
less certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, the stocks of small companies may, to some degree, fluctuate
independently of the stocks of large companies. That is, the stocks of small
companies may decline in price as the prices of large company stocks rise or
vice versa. Therefore, investors should expect that the Fund will be more
volatile than, and may fluctuate independently of broad stock market indices.
Risk Considerations in Emerging Markets. Investing in securities of issuers in
emerging market countries involves exposure to significantly higher risk than
investing in countries with developed markets. Emerging market countries may
have economic structures that are generally less diverse and mature and
political systems that can be expected to be less stable than those of developed
countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present the
risk of nationalization of businesses, expropriation, confiscatory taxation or,
in certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or prohibitions
on the repatriation of assets, and may have less protection of property rights
than developed countries.
The economies of emerging market countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in emerging
market countries may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially resulting in a
lack of liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically offer
less regulatory protection for investors.
Risk Factors Relating to Investing in High Yield Securities. The debt securities
in which the Fund invests are usually not in the three highest rating categories
of a nationally recognized statistical rating organization (AAA, AA, or A for
S&P or Fitch and Aaa, Aa, or A for Moody's), but are in the lower rating
categories or are unrated, but are of comparable quality and have speculative
characteristics or are speculative. Lower-rated bonds or unrated bonds are
commonly referred to as "junk bonds." A description of the rating categories is
contained in the Appendix of this prospectus.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's investment adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each issuer
as well as by monitoring broad economic trends and corporate and legislative
developments.
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Net Asset Value
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King 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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares qualify for reduced sales charges. See "Reducing or Eliminating the Sales
Charge." 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 higher
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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50.
(Financial institutions may impose different minimum investment requirements on
their customers.)
In connection with any sale, Federated Securities Corp., may from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge as Dealer
Sales Charge as a PercentageConcession
a Percentage of Net as a Percentage
Amount of of Offering Amount of Public
Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
</TABLE>
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.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
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 for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the other Federated Funds 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, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $50,000 of
shares of Federated Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales 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 any 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.
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 may no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales 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 wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn.: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. 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 sending 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, Massachusetts 02266-8600. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
Special Purchase Features
Systematic Investment Program. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales 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 as listed herein 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 other Class B Shares in 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 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 in 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 other
Class C Shares in the Federated Funds.) To the extent that a shareholder
exchanges Shares for Class C 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. For more information, see "Contingent Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for more 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 as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any Federated Funds, 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.
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 exchanges for the Federated Funds or
certain Federated Funds may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated 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. Investors who redeem Shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below. Redemption
proceeds will normally be sent the following day. However, in order to protect
shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
Redeeming Shares through a Financial Institution. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
Redeeming Shares by Telephone. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund
accounts within six full years of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's distributor. Any
applicable contingent deferred sales charge will be imposed on the lesser of the
net asset value of the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption in accordance with the
following schedule:
<PAGE>
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for less than six years with respect
to Class B Shares and less than one full year from the date of purchase with
respect to Class C Shares 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 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 Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. 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 the shareholder is
entitled to such elimination.
Account and Share Information
Confirmations and Account Statements. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
Dividends. Dividends are declared and paid annually to all shareholders invested
in the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales 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 year's dividend.
Capital Gains. Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Corporation Information
Management of the Corporation
Board of Directors. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs and
for exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by Federated
Global Research Corp., the Fund's investment adviser, subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.25% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion.
Adviser's Background. Federated Global Research Corp., incorporated in Delaware
on May 12, 1995, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors. 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 $110 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,500 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.
Drew J. Collins has been the Fund's portfolio manager its inception. Mr. Collins
joined Federated Investors in 1995 as a Senior Vice President
of the Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the University of Pennsylvania.
Tracy P. Stouffer has been the Fund's portfolio manager since its inception. Ms.
Stouffer joined Federated Investors in 1995 as a Vice
President of the Fund's investment adviser. Ms. Stouffer served as Vice
President/Portfolio Manager of international equity funds at Clariden Asset
Management (NY) Inc. from 1988 to 1995. Ms. Stouffer is a Chartered Financial
Analyst and received her M.B.A. in marketing from the University of Western
Ontario, Canada.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
distributor may be paid a fee in an amount computed at an annual rate of up to
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, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of 0.75% of Class B Shares'
average daily net assets, it will take the distributor a number of years to
recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
Other Payments to Financial Institutions. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to 0.50% of the net asset value of Class A Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing 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 Fund's 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may 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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of November 7, 1997, Merrill Lynch Pierce Fenner & Smith (as record owner
holding Class C Shares for its clients), owned 48.81% of voting securities of
the Fund's Class C Shares, and therefore, may for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares.
No federal income tax is due on any dividends earned in an IRA or qualified
retirement plan until distributed.
Due to differences in the book and tax treatment of fixed income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
<PAGE>
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.
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 the 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 identifiable 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 imminent default in payment of interest or principal.
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-1 (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.
<PAGE>
Addresses
Federated International Small Company Fund
Class A Shares
Class B Shares
Class C Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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 Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
Federated International Small Company 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
981487 83 8
981487 82 0
981487 81 2
G01473-02 (1/98)
Federated International Small Company 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 of Federated International Small Company Fund (the "Fund") dated
January 31, 1998. This Statement is not a prospectus itself. You may request
a copy of a prospectus or a paper copy of this Statement of Additional
Information, if you have received it electronically, free of charge by
calling 1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 19987
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund(s)
and is a subsidiary of Federated Investors.
Cusip 981487838
981487820
981487812
G01473-03 (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
Sovereign Debt Obligations 1
When-Issued and Delayed Delivery
Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 3
Risks 6
Foreign Currency Transactions 8
Special Considerations Affecting
Emerging Markets 10
Additional Risk Considerations 10
Portfolio Turnover 10
Investment Limitations 11
World Investment Series, Inc.
Management 13
Fund Ownership 17
Directors' Compensation 18
Investment Advisory Services 19
Adviser to the Fund 19
Advisory Fees 19
Other Related Services 19
Brokerage Transactions 19
Other Services 19
Fund Administration 19
Custodian 20
Transfer Agent and Dividend
Disbursing Agent 20
Independent Auditors 20
Purchasing Shares 20
Distribution Plan and Shareholder
Services Agreement 20
Conversion to Federal Funds 20
Purchases by Sales Representatives,
Directors,and Employees of the Fund 21
Determining Net Asset Value 21
Determining Market Value of Securities21
Trading in Foreign Securities 21
Redeeming Shares 21
Redemption in Kind 22
Elimination of the Contingent
Deferred Sales
Charge 22
Tax Status 22
The Fund's Tax Status 22
Foreign Taxes 23
Shareholders' Tax Status 23
Total Return 23
Yield 23
Performance Comparisons 24
Economic and Market Information 26
About Federated Investors 26
Mutual Fund Market 26
Institutional Clients 26
Bank Marketing 26
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 26
Financial Statements 26
<PAGE>
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 the above-mentioned Shares.
Investment Objective and Policies
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in a portfolio of equity securities
of small foreign companies. The investment objective cannot be changed without
approval of shareholders.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises. Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Sovereign Debt Obligations
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the "Directors").
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Directors. The Directors may consider the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
Futures Contracts
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest rates.
A rise in rates generally means a drop in price. Conversely, a drop in rates
generally means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund could
enter into contracts to deliver securities at a predetermined price (i.e.,
"go short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the anticipated holding period.
The Fund would "go long" (i.e., agree to purchase securities in the future
at a predetermined price) to hedge against a decline in market interest
rates. The Fund may also invest in securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid,
or cost-effective than investing directly in the securities underlying the
index.
Stock Index Options
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in
an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on
stock indices will be subject to the ability of the investment adviser to
predict correctly movements in the direction of the stock market generally
or of a particular industry.
Put Options on Financial Futures Contracts
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract of
the type underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver the futures
contract in return for payment of the strike price. If the Fund neither
closes out nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for the contract
will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the Fund
grants to the purchaser of the put the right to receive from the Fund, at
the strike price, a short position in such futures contract, even though the
strike price upon exercise of the option is greater than the value of the
futures position received by such holder. If the value of the underlying
futures position is not such that exercise of the option would be profitable
to the option holder, the option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it whether
or not the option is exercised. It will generally be the policy of the Fund,
in order to avoid the exercise of an option sold by it, to cancel its
obligation under the option by entering into a closing purchase transaction,
if available, unless it is determined to be in the Fund's interest to
deliver the underlying futures position. A closing purchase transaction
consists of the purchase by the Fund of an option having the same term as
the option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing a
closing purchase transaction may be higher than the premium received when
the option was sold, depending in large part upon the relative price of the
underlying futures position at the time of each transaction.
Call Options on Financial and Stock Index Futures Contracts
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge its
portfolio against an increase in market interest rates, a decrease in stock
prices, or when the investment adviser believes such investment is more
efficient, liquid or cost-effective than investing directly in the futures
contract or the underlying securities or when such futures contracts or
securities are unavailable for investment upon favorable terms. When the
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures contract)
at the fixed strike price at any time during the life of the option if the
option is exercised. As stock prices fall or market interest rates rise and
cause the price of futures to decrease, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the comparative
market of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a long (or buyer's)
position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss or
minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If this
limitation is exceeded at any time, the Fund will take prompt action to
close out a sufficient number of open contracts to bring its open futures
and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the Fund
but is instead settlement between the Fund and the broker of the amount one
would owe the other if the futures contract expired. In computing its daily
net asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
Purchasing Put and Call Options on Portfolio Securities
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
Writing Covered Put and Call Options on Portfolio Securities
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer of
a put option, the Fund has the obligation to purchase a security from the
purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or greater
than the exercise price of the underlying securities.
Over-the-Counter Options
The Fund may purchase and write over-the-counter options ("OTC options") on
portfolio securities or in securities indexes in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by the Fund or when the securities indexes are not traded on
an exchange.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while OTC options may not.
Risks
Options
Certain hedging vehicles have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the
extent the adviser's view as to certain market movements is incorrect, the
risk that the use of such hedging strategies could result in losses greater
than if they had not been used. Use of put and call options may result in
losses to the Fund, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Fund's position. In addition,
futures and options markets may both be liquid in all circumstances and
certain over-the-counter options may have not markets. As a result, in
certain markets, the Fund might not be able to close out a transaction
without incurring substantial losses, if at all. Although the use of futures
and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time
they tend to limit any potential gain which might result from an increase in
value of such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential financial risk
than would purchase of options, where the exposure is limited to the cost of
the initial premium. Losses resulting from the use of hedging strategies
would reduce net asset value, and possibly income, and such losses can be
greater than if the hedging strategies had not been utilized.
Combined Transactions
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transaction
(including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single hedging
strategy, as part of a single or combined strategy when, in the opinion of
the investment adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present
in each of its component transactions. Although combined transactions are
normally entered into based on the investment adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.
Swaps, Caps, Floors and Collars
Among the hedging strategies into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps,
floors, and collars. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may
be obligated to pay. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rating payments of fixed rate
payments with respect to a notional amount of principal. A currency swap is
an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index
swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds
a predetermined interest rate or amount. The purchase of a floor entitles
the purchaser to receive payments on a notional principal amount from the
party selling such floor to the extent that specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap
and a floor that preserves a certain return within a predetermined range of
interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these swaps,
caps, floors, and collars are entered into for good faith hedging purposes,
the investment adviser and the Fund believe such obligations do not
constitute senior securities under the Investment Company Act of 1940, as
amended, and, accordingly, will not treat them as being subject to its
borrowing restrictions. There is no minimal acceptable rating for a swap,
cap, floor, or collar to be purchased or held in the Fund's portfolio. If
there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Risks of Hedging Strategies Outside the U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected
by: (i) other complex foreign political, legal and economic factors, (ii)
lesser availability than in the U.S. of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S., (iv) the
imposition of different exercise and settlement terms and procedures and the
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts
Many hedging strategies, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either
the full amount of any obligation by the Fund to pay or deliver securities
or assets must be covered at all times by the securities, instruments or
currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, a currency contract
which obligates the Fund to buy or sell currency will generally require the
Fund to hold an amount of that currency or liquid securities denominated in
that currency equal to the Fund's obligations or to segregate liquid high
grade assets equal to the amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OTC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and hedging
strategies. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other hedging strategies may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation
would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
Foreign Currency Transactions
Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price at
which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in connection
with its portfolio investments. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts in order
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. However, forward foreign currency exchange contracts
may limit potential gains which could result from a positive change in such
currency relationships. The investment adviser believes that it is important
to have the flexibility to enter into forward foreign currency exchange
contracts whenever it determines that it is in the Fund's best interest to
do so. The Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in the
case of a "cross-hedge" denominated in a currency or currencies that the
investment adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund will not enter
into a forward foreign currency exchange contract with a term longer than
one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against
an adverse movement in the value of a foreign currency, the option will not
limit the movement in the value of such currency. For example, if the Fund
was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction with
that purchase, were to purchase a foreign currency call option to hedge
against a rise in value of the currency, and if the value of the currency
instead depreciated between the date of purchase and the settlement date,
the Fund would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency needed for
settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund may
be able to achieve these objectives possibly more effectively and at a lower
cost by using futures transactions instead of forward foreign currency
exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively
new. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. To reduce this
risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the opinion of the investment
adviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
Special Considerations Affecting Emerging Markets
Investing in the securities of issuers domiciled in emerging markets may entail
special risks relating to the potential political and economic instability and
the risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment, convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, the Fund
could lost its entire investment in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading volume in issuers compared to
the volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perception,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities in these markets. In addition, securities
traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
less reliable than in more developed markets. In such emerging securities
markets there may be share registration and delivery delays or failures.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the investment adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The investment adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly. For the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 174%.
Investment Limitations
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, as amended, or assets
exempted by the Securities and Exchange Commission) in an open-end investment
company with substantially the same investment objectives):
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the following
will not be deemed to be pledges of the Fund's assets: margin deposits for
the purchase and sale of financial futures contracts and related options,
and segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any
one industry, except that the Fund may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and limitations or
the Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will not
acquire more than 10% of the outstanding voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, as amended, or exempted by the Securities and Exchange
Commission) in an open-end investment company with substantially the same
investment objectives). Shareholders will be notified before any material
changes in these limitations become effective.
Investing in 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.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
Investing in Options
The Fund will not purchase put or call options on securities or futures
contracts, if more than 5% of the value of the Fund's total assets would be
invested in premiums on open option positions.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
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.
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 associations 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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company .
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the
Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee 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 ; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation ; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee 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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; and World Investment Series,
Inc. Fund Ownership
As of November 7, 1997, the following shareholders of record owned 5% or more
of the outstanding Class A Shares of the Fund: Charles Schwab & Co., Inc., San
Francisco, California, owned approximately 1,315,912 Shares (20.52%) ; ; Frojack
Co., Grand Forks, North Dakota, owned approximately 389,961 Shares (6.08%) and
Merrill Lynch Pierce Fenner & Smith, for the sole benefit of its customers,
Jacksonville, Florida, owned approximately 888,988 Shares (13.86%).
As of November 7, 1997 , the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
for the sole benefit of its customers, owned approximately 1,888,118 Shares
(22.30%).
As of November 7, 1997, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
, for the sole benefit of its customers, owned approximately 954,160 Shares
(48.81%).
Directors' Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
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 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund
John T. Conroy, Jr. $1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
William J. Copeland $1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
James E. Dowd $1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director 6 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,120.27 $119,615 for the Corporation and
Director 56other investment companies in the Fund Complex
Peter E. Madden $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Corporation which was comprised
of 7 portfolios, as of November 30, 1996.
+The information is provided for the last calendar year end.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
For the fiscal year ended November 30, 1997, and the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Adviser
earned $____ and $131,036, all of which was voluntarily waived.
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.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include 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 may be used by the Adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
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. For the fiscal year ended November 30, 1997 and the
period from February 28, 1996 (date of initial public investment) to November
30, 1996, the Fund paid $_____ and $325,108 in brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
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 each
prospectus. From January 31, 1996 to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal year ended
November 30, 1997 and the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Administrators earned $_____ and $141,023,
respectively.
Custodian
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank. Federated Services Company, Pittsburgh, PA 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 on 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,
PA.
Purchasing Shares
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
Distribution Plan and Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $_____ and $____, respectively, in distribution services
fees, none of which were voluntarily waived. Class A Shares have no present
intention of paying or accruing distribution services fees during the fiscal
year ending November 30, 1998. In addition, for the fiscal year ended November
30, 1997, the Fund's Class A Shares, Class B Shares and Class C Shares paid
shareholder services fees in the amount of $_____, $____ and $_____, none of
which were voluntarily waived.
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 Shareholder 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 charge. Shares may also be sold without a sales charge to trusts
or pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
Dividend income is recorded on the ex-dividend date, except that 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 for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange
or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: 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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. To the extent that a
shareholder exchanges Shares for Class B 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 12
month holding requirement. However, for purposes of meeting the $10,000 minimum
account value requirement, Class B Share account values will not be aggregated.
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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
Total Return
The Fund's average annual total returns for Class A Shares, Class B Shares,
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from February 28, 1996 (date of initial public investment) to November
30, 1996, were ___%, ___%, and ____% and 15.88%, 16.50% and 20.90%,
respectively.
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
charge, 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 yields for Class A Shares, Class B Shares, and Class C Shares for the
30-day period ended November 30, 1997 were ____%, ___%, and ___%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), a composite index of common stocks in industry, transportation,
and financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the S & P 500 assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "Latin American region funds" category in
advertising and sales literature.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging
Markets Global Latin America Index. Both indices include 60% of the
market capitalization of the following countries: Argentina, Brazil,
Chile, and Mexico. The indices are weighted by market capitalization and
are calculated without dividends reinvested.
o Lehman Brothers High Yield Index covers the universe of fixed rate,
publicly issued, noninvestment grade debt registered with the SEC. All
bonds included in the High Yield Index must be dollar-denominated and
nonconvertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities
must be rated Ba1 or lower by Moody's Investors Service, including
defaulted issues. If no Moody's rating is available, bonds must be rated
BB+ or lower by S&P; and if no S&P rating is available, bonds must be
rated below investment grade by Fitch Investor's Service. A small number
of unrated bonds is included in the index; to be eligible they must have
previously held a high yield rating or have been associated with a high
yield issuer, and must trade accordingly.
o Ibbotson Associates International Bond Index, which provides a detailed
breakdown of local market and currency returns since 1960.
o Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o Morningstar, Inc. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o Data and mutual fund rankings published or prepared by CDA/Wiesenberger
Investment Company Services that ranks and/or compares mutual funds by
overall performance, investment objectives, assets, expense levels,
periods of existence and/or other factors.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Dow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because it
represents the top corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o CNBC/Financial News Composite Index.
o The World Bank Publication of Trends in Developing Countries (TIDE).
TIDE provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
o Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
o Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope are
database retrieval services for information including, but not limited
to, international financial and economic data.
o International Financial Statistics, which is produced by the
International Monetary Fund.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction
and Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.
and Standard & Poor's Ratings Group.
o Wilshire Associates, which is an on-line database for international
financial and economic data including performance measures for a wide
range of securities.
o International Finance Corporation (IFC) Emerging Markets Data Base,
which provides detailed statistics on stock and bond markets in
developing countries, including IFC market indices.
o Various publications from the Organization for Economic Cooperation
and Development (OECD).
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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 Funds. 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. The traders handle trillions of dollars in
annual trading volume.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the management
of Federated Investors' international and global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
- -------------
*source: Investment Company Institute
Federated Latin American Growth Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated Latin American Growth Fund (the "Fund") represent
interests in a diversified portfolio of World Investment Series, Inc. (the
"Corporation"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide long-term growth of capital. Any
income received from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Latin
American companies.
The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in these shares involves investment risks,
including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
31, 1998, 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 1-800-341-7400. To
obtain other information or to 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 are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Table of Contents
<PAGE>
Synopsis
The Corporation was established under the laws of the state of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking
long-term growth of capital by investing primarily in equity securities of Latin
American companies.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as investment adviser or principal underwriter (the "Federated Funds") can
be found under "Exchange Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, investing in non-U.S. issuers, entering
into repurchase agreements, investing in when-issued securities, lending
portfolio securities, and entering into futures contracts and related options.
These risks are described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated."
Investment Information
Investment Objective
The Fund seeks to provide long-term growth of capital. Any income received from
the portfolio is incidental. The investment objective of the Fund cannot be
changed without the approval of the shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in equity
securities of Latin American companies. Under normal market conditions, the Fund
will invest at least 65% of its total assets in equity securities of Latin
American companies. For purposes of this prospectus, Latin America is defined as
Mexico, Central America, South America, and the Spanish-speaking islands of the
Caribbean.
Latin American companies are defined as (i) those organized under the laws of,
or with a principal office located in, a Latin American country or (ii) those
for which the principal securities trading market is in Latin America or (iii)
those, wherever organized or traded, which derived (directly or indirectly
through subsidiaries) at least 50% of their total assets, capitalization, gross
revenue or profit in their most current fiscal year from goods produced,
services performed, or sales made in Latin America.
Although the Fund may invest in securities of issuers located in any country in
Latin America, the Fund expects to focus its investments in the most developed
capital markets of Latin America, which currently include: Argentina, Bolivia,
Brazil, Chile, Colombia, Mexico, Peru, Uruguay, and Venezuela. The Fund may
invest in other countries of Latin America when their markets become
sufficiently developed, in the opinion of the Adviser. The Fund intends to
allocate its investments among at least three countries at all times and does
not expect to concentrate investments in any particular industry.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Directors without the approval of the shareholders of the Fund.
Shareholders will be notified before any material change in these policies
becomes effective.
Acceptable Investments. The equity securities in which the Fund may invest
include common stock, preferred stock (either convertible or non-convertible),
sponsored or unsponsored depositary receipts or shares, and warrants, including
other substantially similar forms of equity with comparable risk characteristics
as well as other forms which may be developed in the future. Securities may be
purchased on securities exchanges, traded over-the-counter, or have no organized
market. The Fund may also purchase corporate and government fixed income
securities, including convertible securities, denominated in currencies other
than U.S. dollars; enter into forward commitments, repurchase agreements and
foreign currency transactions; maintain reserves in foreign or U.S. money market
instruments and cash; and purchase options and financial futures contracts.
Common and Preferred Stock. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
In selecting securities, the Adviser typically evaluates industry trends, a
company's financial strength, its competitive position in domestic and export
markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
Depositary Receipts. The Fund may invest in foreign issuers by purchasing
sponsored or unsponsored securities representing underlying international
securities such as American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), Global Depositary Certificates ("GDCs"), and International
Depositary Receipts ("IDRs") or securities convertible into foreign equity
securities. ADRs and ADSs typically are issued by a United States bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), GDRs, GDCs, and IDRs are typically issued by foreign banks or
trust companies, although they also may be issued by United States banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. ADRs, ADSs, CDRs, EDRs, GDRs,
GDCs, and IDRs are collectively known as "Depositary Receipts." Depositary
Receipts may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored Depositary
Receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
Debt Securities. In pursuit of the Fund's objective of long-term growth of
capital, the Fund may invest up to 35% of its total assets in debt securities.
Capital appreciation in debt securities may arise as a result of favorable
changes in the creditworthiness of issuers, relative interest rate levels, or
relative foreign exchange rates. Any income received from debt securities is
incidental to the Fund's objective of long-term growth of capital. These debt
obligations consist of U.S. and foreign government securities and corporate debt
securities, including, but not limited to, Yankee bonds, Eurobonds and
depositary receipts. The issuers of such debt securities may or may not be
domiciled in Latin America.
The Fund may also invest in certain debt obligations customarily referred to as
"Brady Bonds," that have been created through the exchange of existing
commercial bank loans to Latin American public and private entities for new
bonds in connection with debt restructurings under a debt restructuring plan
announced by former U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady
Plan"). Brady Bonds have been issued only recently and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily the U.S. dollar)
and are actively traded in the over-the-counter secondary market for Latin
American debt instruments.
Brady Bonds are neither issued nor guaranteed by the U.S. government.
The debt securities in which the Fund may invest may be rated, at the time of
purchase, as low as C by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or Moody's Investors Service, Inc.
("Moody's"), or, if unrated, are of comparable quality as determined by the
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.
Convertible Securities. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities (which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests. Please see
"Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
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. 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 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.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
Lending of Portfolio Securities. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned at all times.
Temporary Investments. For temporary defensive purposes, when the Adviser
determines that market conditions warrant (up to 100% of total assets) and to
maintain liquidity (up to 35% of total assets), the Fund may invest in U.S. and
foreign debt instruments as well as cash or cash equivalents, including foreign
and domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved if the value
of the security declines before settlement. Although the Fund enters into
forward commitments with the intention of acquiring the security, it may dispose
of the commitment prior to settlement and realize short-term profit or loss.
Foreign Currency Transactions. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot 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 Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the value of the Fund's assets
denominated in that currency at the time the contract was initiated, but as
consistent with their other investment policies and as not otherwise limited in
their ability to use this strategy.
Options. The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange or
traded over-the- counter. The Fund may use options to manage interest rate and
currency risks. The Fund may also write covered call options and secured put
options to seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
Futures and Options on Futures. The Fund may enter into futures contracts
involving foreign currency, securities, and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits exclusive of the margin
needed for foreign currency hedging, on the Fund's futures and related options
positions would not exceed 5% of the net liquidation value of the Fund's assets,
provided further that in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In addition, the Fund may not sell futures contracts if the value of
such futures contracts exceeds the total market value of the Fund's portfolio
securities. Futures contracts and options thereon sold by the Fund are generally
subject to segregation and coverage requirements established by either the
Commodities Futures Trading Commission ("CFTC") or the Securities and Exchange
Commission ("SEC"), with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges, to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the Adviser believes such investment is
more efficient, liquid, or cost-effective than investing directly in the
securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. The Fund may also invest in
options on securities index futures contracts when the Adviser believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.
The use of futures and related options involves special consideration and risks,
for example, (1) the ability of the Fund to utilize futures successfully will
depend on the Adviser's ability to predict pertinent market movements; (2) there
might be imperfect correlation, or even no correlation, between the change in
market value of the securities held by the Fund and the prices of the futures
and options thereon relating to the securities purchased or sold by the Fund.
The use of futures and related options may reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements but they
can also reduce the opportunity for gain by offsetting the positive effect of
favorable price movements in positions. No assurance can be given that the
Adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
New futures contracts, options thereon, and other financial products and risk
management techniques continue to be developed. The Fund may use these
investments and techniques to the extent consistent with its investment
objective and regulatory and federal tax considerations.
Risks of Futures and Options Transactions. When the Fund uses futures and
options on futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the Adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock price
movements. In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
Swap Agreements. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments, its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements to reduce its exposure
through offsetting transactions. When the Fund enters into a swap agreement,
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
Risk Characteristics of Foreign Securities. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund 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 the securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar, the value
of Fund assets denominated in that currency will decrease. Under the United
States Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income. (See "Federal
Income Tax".)
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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;
o the likelihood that securities of foreign issuers may be less liquid
or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries; o increased risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests.
U.S. Government Policies. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund.
Investors are advised that when such policies are instituted, the Fund will
abide by them.
Investing in Latin America. The Adviser believes that investment opportunities
may result from recent trends in Latin America encouraging greater market
orientation and less governmental intervention in economic affairs. Investors,
however, should be aware that the Latin American economies have experienced
considerable difficulties in the past decade. Although there have been
significant improvements in recent years, the Latin American economies continue
to experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by world
prices for oil and other commodities. There is no assurance that recent economic
initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and the Fund, as
well as the value of securities in the Fund's portfolio.
Most Latin American countries have experienced substantial, and in some periods,
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including the
Fund) may be requested to participate in the rescheduling of such debt and to
extend further loans to governmental entities. There is no bankruptcy proceeding
by which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.
Risk Factors Relating to Investing in High Yield Securities. The debt securities
in which the Fund invests are usually not in the three highest rating categories
of a nationally recognized statistical rating organization (AAA, AA, or A for
S&P or Fitch and Aaa, Aa, or A for Moody's), but are in the lower rating
categories or are unrated, but are of comparable quality and have speculative
characteristics or are speculative. Lower-rated bonds or unrated bonds are
commonly referred to as "junk bonds." A description of the rating categories is
contained in the Appendix of this prospectus.
Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments.
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Net Asset Value
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King 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 5.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares are not subject to a sales charge. See "Investing in Class A Shares."
Certain purchases of Class A Shares qualify for reduced sales charges. See
"Reducing or Eliminating the Sales Charge." 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 also bear a higher 12b-1 fee
than Class A Shares. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the higher 12b-1 fee.
Class C Shares. Class C Shares are sold without an initial sales 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 higher 12b-1 fee. Class C Shares have no
conversion feature.
How to Purchase Shares
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50.
(Financial institutions may impose different minimum investment requirements on
their customers.)
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
Investing in Class A Shares
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
Sales Charge as Dealer
Sales Charge as a PercentageConcession
a Percentage of Net as a Percentage
Amount of of Offering Amount of Public
Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
* See sub-section entitled "Dealer Concession."
No sales 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; or
o using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
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 for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
Federated Funds, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in Class A Shares of one
of the other Federated Funds 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, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $50,000 of
shares of Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced 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 any 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.
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 may no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales 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 their net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales
Charge--Class C Shares."
Purchasing Shares through a Financial Institution. An investor may call his
financial institution (such as a bank or an investment dealer) to place an order
to purchase Shares. Orders placed through a financial institution are considered
received when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may charge
additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
Purchasing Shares by Wire. Once an account has been established, Shares may be
purchased by wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales charge must be received within three
business days following the order. Payment for purchases on which no sales
charge is imposed must be received before 3:00 p.m. (Eastern time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attn: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. 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 sending 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, Massachusetts 02266-8600. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received).
Special Purchase Features
Systematic Investment Program. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales 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 other Class B Shares in the Federated Funds.) Exchanges are made
at net asset value without being assessed a contingent deferred sales charge on
the exchanged Shares. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Class B Shares
received through an exchange will include the period for which your original
Class B Shares were held. For more information, see "Contingent Deferred Sales
Charge."
Class C Shares. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other 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 other
Class C Shares in the Federated Funds.) In determining the applicability of the
contingent deferred sales charge, the required holding period for your new Class
C Shares received through an exchange will include the period for which your
original Class C Shares were held. For more information, see "Contingent
Deferred Sales Charge."
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 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 as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any Federated Funds, 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.
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 exchanges for the Federated Funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee. Shareholders of the Fund may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his broker
or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Shareholder
Services Company, 500 Victory Road--2nd Floor, North Quincy, Massachusetts
02171.
Telephone Instructions. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated 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. Investors who redeem shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below. Redemption
proceeds will normally be sent the following day. However, in order to protect
shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
Redeeming Shares through a Financial Institution. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
Redeeming Shares by Telephone. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp.
Proceeds will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. 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, 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, other than retirement accounts subject to required minimum
distributions. 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 B Shares. Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Shares at the time of purchase or the net asset value of
the redeemed Shares at the time of redemption in accordance with the following
schedule:
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
- ------------------------------- ------------
First 5.50%
Second 4.75%
Third 4.00%
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 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. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares; (3) Shares held for less than six years with respect
to Class B Shares and less than one full year from the date of purchase with
respect to Class C Shares 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 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 Fund reserves the right to discontinue
or modify the elimination of the contingent deferred sales charge. Shareholders
will be notified of a discontinuation. 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 the shareholder is
entitled to such elimination.
Account and Share Information
Certificates and Confirmations. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid.
Dividends. Dividends are declared and paid annually to all shareholders invested
in the Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales 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 year's dividend.
Capital Gains. Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem Shares in any account, except retirement
plans, and pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the required minimum
value of $1,500 for Class B Shares and Class C Shares. This requirement does not
apply, however, if the balance falls below the required minimum value because of
changes in the net asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
Corporation Information
Management of the Corporation
Board of Directors. The Corporation is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs and
for exercising all the Corporation's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by Federated
Global Research Corp., the Fund's investment adviser, subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.25% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion.
Adviser's Background. Federated Global Research Corp., incorporated in Delaware
on May 12, 1995, is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors. 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 $110billion invested across over 300
funds under management and/or administration by its subsidiaries, as of December
31, 1996, Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955. Federated
funds are presently at work in and through 4,500 financial institutions
nationwide.
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 until 1995.
He was the Executive Vice President and Director of Equities at Oppenheimer
Management Corporation from 1989 to 1991.
Drew J. Collins has been the Fund's portfolio manager since its inception. Mr.
Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and S. Bleichroeder, Inc.
from 1994 to 1995. He served as an Assistant Vice President/Portfolio Manager
for international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Pennsylvania.
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated Investors in 1995 as a Vice President of the
Fund's investment adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received his
M.B.A. in Finance from Duke University.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
Distribution of Shares
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
Distribution Plan and Shareholder Services. Under a distribution plan adopted in
accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the
distributor may be paid a fee in an amount computed at an annual rate of up to
.25% for Class A Shares and up to .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, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
With respect to Class B Shares, because distribution fees to be paid by the Fund
to the distributor may not exceed an annual rate of .75% of Class B Shares'
average daily net assets, it will take the distributor a number of years to
recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the 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 .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
("Shareholder Services"). Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform Shareholder Services directly or will
select financial institutions to perform Shareholder Services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.
Other Payments to Financial Institutions. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to .50% of the net asset value of Class A Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
Federated Securities Corp. and Federated Shareholder Services may offer to pay a
fee from their own assets to financial institutions as financial assistance for
providing substantial marketing and sales support. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's Adviser or its affiliates.
Administration of the Fund
Administrative Services. Federated 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 Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Directors' fees incurred as a result of issues related
solely to Class A Shares, Class B Shares, or Class C Shares.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
Shareholder Information
Voting Rights
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All shares of each fund or
class in the Corporation have equal voting rights, except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Maryland corporation, the Corporation is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Corporation's or the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Code applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. However, the Fund may invest
in the stock of certain foreign corporations which would constitute a Passive
Foreign Investment Company ("PFIC"). Federal income taxes may be imposed on the
Fund upon disposition of PFIC investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Corporation's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Due to differences in the book and tax treatment of fixed income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Furthermore,
shareholders who elect to deduct their portion of the Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns.
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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/ or compare the performance of Class A
Shares, Class B Shares, and Class C Shares to certain indices.
<PAGE>
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.
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.
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o 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.
<PAGE>
Addresses
Federated Latin American Growth Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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 Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
<PAGE>
Federated Latin American Growth 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
January 31, 1998
Federated Investors
(LOGO)
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
CUSIP 981487 79 6
CUSIP 981487 78 8
CUSIP 981487 77 0
G01471-02 (1/98)
Federated Latin American Growth 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 Latin American Growth Fund (the "Fund") dated January 31, 1998.
This Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling
1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 981487796
Cusip 981487788
Cusip 981487770
G01471-03 (1/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
Sovereign Debt Obligations 1
When-Issued and Delayed Delivery
Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options 3
Risks 6
Foreign Currency Transactions 8
Special Considerations Affecting
Latin America 10
Additional Risk Considerations 11
Portfolio Turnover 11
Investment Limitations 11
World Investment Series, Inc.
Management 14
Fund Ownership 18
Directors Compensation 19
Investment Advisory Services 19
Adviser to the Fund 19
Advisory Fees 20
Other Related Services 20
Brokerage Transactions 20
Other Services 20
Fund Administration 20
Custodian and Portfolio Accountant 20
Transfer Agent 21
Independent Auditors 21
Purchasing Shares 21
Distribution Plan and Shareholder
Services Agreement 21
Conversion to Federal Funds 21
Purchases by Sales Representatives, Directors,
and Employees of the Fund 21
Determining Net Asset Value 22
Determining Market Value of Securities22
Trading in Foreign Securities 22
Redeeming Shares 22
Redemption in Kind 23
Elimination of the Contingent Deferred
Sales Charge 23
Tax Status 23
The Fund's Tax Status 23
Foreign Taxes 23
Shareholders' Tax Status 24
Total Return 24
Yield 24
Performance Comparisons 24
Economic and Market Information 26
About Federated Investors 26
Mutual Fund Market 27
Institutional Clients 27
Bank Marketing 27
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 27
Financial Statements 27
<PAGE>
General Information About the Fund
The Fund is a portfolio of World Investment Series, Inc. (the "Corporation"),
which was established as a corporation under the laws of the state of Maryland
on January 25, 1994.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.
Investment Objective and Policies
The investment objective of the Fund is to provide long-term growth of capital.
Any income realized from the portfolio is incidental. The Fund pursues its
investment objective by investing primarily in equity securities of Latin
American companies. The investment objective cannot be changed without the
approval of shareholders.
Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential. PERCS, or similar instruments marketed under
different names, offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less risky
and less volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price limits gains
when the common stock rises.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock
at a specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Sovereign Debt Obligations
The Fund may purchase sovereign debt instruments issued or guaranteed by foreign
governments or their agencies, including debt of countries with emerging markets
or developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of emerging market or developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors. The Fund may also invest in debt obligations of supranational entities,
which include international organizations designed or supported by governmental
entities to promote economic reconstruction or development, and international
banking institutions and related government agencies. Examples of these include,
but are not limited to, the International Bank for Reconstruction and
Development (World Bank), European Investment Bank and Inter-American
Development Bank.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the
Corporation's Board of Directors (the "Directors").
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Directors. The
Directors may consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Directors.
Futures and Options
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid, and cost-effective exposure to certain markets by
buying and selling futures contracts and options on futures contracts.
Futures Contracts
The Fund may engage in futures contracts. A futures contract is a firm
commitment by two parties, the seller who agrees to make delivery of the
specific type of security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going long") at a
certain time in the future. However, a securities index futures contract is
an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index was originally written. No physical delivery of the underlying
securities in the index is made.
The purpose of the acquisition or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities caused
by unanticipated changes in interest rates or market conditions without
necessarily buying or selling the securities. For example, in the fixed
income securities market, price generally moves inversely to interest rates.
A rise in rates generally means a drop in price. Conversely, a drop in rates
generally means a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, the Fund could
enter into contracts to deliver securities at a predetermined price (i.e.,
"go short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the anticipated holding period.
The Fund would "go long" (i.e., agree to purchase securities in the future
at a predetermined price) to hedge against a decline in market interest
rates. The Fund may also invest in securities index futures contracts when
the investment adviser believes such investment is more efficient, liquid,
or cost-effective than investing directly in the securities underlying the
index.
Stock Index Options
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in
an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on
stock indices will be subject to the ability of the investment adviser to
predict correctly movements in the direction of the stock market generally
or of a particular industry.
Put Options on Financial Futures Contracts
The Fund may purchase listed or over-the-counter put options on financial
futures contracts. The Fund would use these options only to protect
portfolio securities against decreases in value resulting from market
factors such as anticipated increase in interest rates, or when the
investment adviser believes such investment is more efficient, liquid or
cost-effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract of
the type underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver the futures
contract in return for payment of the strike price. If the Fund neither
closes out nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for the contract
will be lost.
The Fund may write listed or over-the counter put options on financial
futures contracts to hedge its portfolio or when the investment adviser
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying securities or
when such futures contracts or securities are unavailable for investment
upon favorable terms. When the Fund writes a put option on a futures
contract, it receives a cash premium which can be used in whatever way is
deemed most advantageous to the Fund. In exchange for such premium, the Fund
grants to the purchaser of the put the right to receive from the Fund, at
the strike price, a short position in such futures contract, even though the
strike price upon exercise of the option is greater than the value of the
futures position received by such holder. If the value of the underlying
futures position is not such that exercise of the option would be profitable
to the option holder, the option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it whether
or not the option is exercised. It will generally be the policy of the Fund,
in order to avoid the exercise of an option sold by it, to cancel its
obligation under the option by entering into a closing purchase transaction,
if available, unless it is determined to be in the Fund's interest to
deliver the underlying futures position. A closing purchase transaction
consists of the purchase by the Fund of an option having the same term as
the option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing a
closing purchase transaction may be higher than the premium received when
the option was sold, depending in large part upon the relative price of the
underlying futures position at the time of each transaction.
Call Options on Financial and Stock Index Futures Contracts
In addition to purchasing put options on futures, the Fund may write listed
call options or over-the-counter call options on financial and stock index
futures contracts (including cash-settled stock index options), to hedge its
portfolio against an increase in market interest rates, a decrease in stock
prices, or when the investment adviser believes such investment is more
efficient, liquid or cost-effective than investing directly in the futures
contract or the underlying securities or when such futures contracts or
securities are unavailable for investment upon favorable terms. When the
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures contract)
at the fixed strike price at any time during the life of the option if the
option is exercised. As stock prices fall or market interest rates rise and
cause the price of futures to decrease, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund may then substantially offset the realized decrease in
value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the comparative
market of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a long (or buyer's)
position in the underlying futures contract.
The Fund generally will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus the unrealized loss or
minus the unrealized gain on those open positions, adjusted for the
correlation between the hedged securities and the futures contracts. If this
limitation is exceeded at any time, the Fund will take prompt action to
close out a sufficient number of open contracts to bring its open futures
and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the Fund
but is instead settlement between the Fund and the broker of the amount one
would owe the other if the futures contract expired. In computing its daily
net asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
Purchasing Put and Call Options on Portfolio Securities
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
Writing Covered Put and Call Options on Portfolio Securities
The Fund may write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As the writer of
a put option, the Fund has the obligation to purchase a security from the
purchaser of the option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or greater
than the exercise price of the underlying securities.
<PAGE>
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 and,
accordingly, will not treat them as being subject to its borrowing
restrictions. There is no minimal acceptable rating for a swap, cap, floor,
or collar to be purchased or held in the Fund's portfolio. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Risks of Hedging Strategies Outside the U.S.
When conducted outside the U.S., hedging strategies may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected
by: (i) other complex foreign political, legal and economic factors, (ii)
lesser availability than in the U.S. of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S., (iv) the
imposition of different exercise and settlement terms and procedures and the
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts
Many hedging strategies, in addition to other requirements, require that the
Fund segregate liquid high grade assets with its custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency. In general, either
the full amount of any obligation by the Fund to pay or deliver securities
or assets must be covered at all times by the securities, instruments or
currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer
necessary to segregate them. For example, a call option written by the Fund
will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, a currency contract
which obligates the Fund to buy or sell currency will generally require the
Fund to hold an amount of that currency or liquid securities denominated in
that currency equal to the Fund's obligations or to segregate liquid high
grade assets equal to the amount of the Fund's obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OTC issued and exchange
listed index options, will generally provide for cash settlement. As a
result, when the Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when the Fund sells a call
option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OTC
issued and exchange listed options sold by the Fund other than those above
generally settle with physical delivery, and the Fund will segregate an
equal amount of assets equal to the full value of the option. OTC options
settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possibly daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the Fund's net
obligation, if any.
Strategic transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and hedging
strategies. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other hedging strategies may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation
would need to be segregated.
The Fund's activities involving hedging strategies may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
(See "Tax Status")
Foreign Currency Transactions
Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between the price at
which the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions in connection
with its portfolio investments. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts in order
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. However, forward foreign currency exchange contracts
may limit potential gains which could result from a positive change in such
currency relationships. The investment adviser believes that it is important
to have the flexibility to enter into forward foreign currency exchange
contracts whenever it determines that it is in the Fund's best interest to
do so. The Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in the
case of a "cross-hedge" denominated in a currency or currencies that the
investment adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund will not enter
into a forward foreign currency exchange contract with a term longer than
one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against
an adverse movement in the value of a foreign currency, the option will not
limit the movement in the value of such currency. For example, if the Fund
was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction with
that purchase, were to purchase a foreign currency call option to hedge
against a rise in value of the currency, and if the value of the currency
instead depreciated between the date of purchase and the settlement date,
the Fund would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency needed for
settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options
unless and until, in the opinion of the investment adviser, the market for
them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund may
be able to achieve these objectives possibly more effectively and at a lower
cost by using futures transactions instead of forward foreign currency
exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively
new. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. To reduce this
risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the opinion of the investment
adviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss, such as when there is no movement in the
price of the underlying currency or futures contract.
Special Considerations Affecting Latin America
Investing in securities of Latin American issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Fund could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.
The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to volume of trading
in the securities of U.S. issuers could cause prices to be erratic for reasons
apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The Fund invests in securities denominated in currencies of Latin American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Fund at a higher rate
than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt. Investment in sovereign debt
can involve a high degree of risk. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which defaulted sovereign debt
may be collected in whole or in part.
Economic growth was strong in the 1960's and 1970's, but slowed dramatically
(and in some instances was negative) in the 1980's as a result of poor economic
policies, higher international interest rates, and the denial of access to new
foreign capital. Although a number of Latin American countries are currently
experiencing lower rates of inflation and higher rates of real growth in gross
domestic product than they have in the past, other Latin American countries
continue to experience significant problems, including high inflation rates and
high interest rates. Capital flight has proven a persistent problem and external
debt has been forcibly rescheduled. Political turmoil, high inflation, capital
repatriation restrictions, and nationalization have further exacerbated
conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented economic
policies, such as the North American Free Trade Agreement ("NAFTA"),
privatization, trade reform and fiscal and monetary reform are among the recent
steps taken to renew economic growth. External debt is being restructured and
flight capital (domestic capital that has left home country) has begun to
return. Inflation control efforts have also been implemented. Latin American
equity markets can be extremely volatile and in the past have shown little
correlation with the U.S. market. Currencies are typically weak, but most are
now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
Additional Risk Considerations
The Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories. However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the investment adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Directors' appraisal of the
risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The investment adviser does not anticipate that portfolio
turnover will result in adverse tax consequences. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%; however, the relative performance of the
Fund's investments may make a realignment of the Fund's portfolio desirable from
time to time. The frequency of such portfolio realignments will be determined by
market conditions. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly. For the period from February 28, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 38%.
Investment Limitations
The following investment limitations are fundamental (except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940 or assets exempted by the
SEC) in an open-end investment company with substantially the same investment
objectives):
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any
one industry, except that the Fund may invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of companies
whose business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements collateralized
by such securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will not
acquire more than 10% of the outstanding voting securities of any one
issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval (except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940 or assets exempted by the SEC) in an open-end investment
company with substantially the same investment objectives). Shareholders will be
notified before any material changes in these limitations become effective.
Investing in 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.
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.
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.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
<PAGE>
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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board. As used in the table above, "The Funds" and "Funds" mean the
following investment companies:111 Corcoran Funds; Automated Government Money
Trust; 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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
Fund Ownership
As of November 7, 1997, the following shareholders of record owned 5% or more
of the outstanding voting stock of the Fund's Class A Shares: Charles Schwab &
Co., Inc., San Francisco, California, owned approximately 79,276 shares (7.40%);
Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, for the sole benefit
of its customers, owned approximately 59,841 shares (5.58%); and Federated
International Growth Fund, Pittsburgh, Pennsylvania, owned approximately 119,139
shares (11.12%).
As of November 7, 1997, there were no shareholders of record who owned 5% or
more of the outstanding voting stock of the Fund's Class B Shares.
As of November 7, 1997, the following shareholders of record owned 5% or more of
the outstanding voting stock of the Fund's Class C Shares: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, for the sole benefit of its customers,
owned approximately 32,123 shares (20.01%); NFSC for the exclusive benefit of
John T S Williams, Houston, Texas, owned 13,820 shares (8.61%); Eric R.
Weidmann, c/o Belleville Shoe Mfg., Belleville, Illinois, owned approximately
8,287 shares (5.16%); and NFSC for the exclusive benefit of Terry L. Sullivan
and Nardena Sullivan, Fort Myers, Florida, owned approximately 8,807 shares
(5.49%).
Directors Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
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 ___ investment companies in the Fund Complex
Thomas G. Bigley $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John T. Conroy, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
William J. Copeland $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
James E. Dowd $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Corporation and
President and Director ___ investment companies in the Fund Complex
Edward L. Flaherty, Jr. $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
Peter E. Madden $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
John E. Murray, Jr. $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
Wesley W. Posvar $____ $____ for the Corporation and
Director ___investment companies in the Fund Complex
Marjorie P. Smuts $____ $____ for the Corporation and
Director ___ investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1997.
#The aggregate compensation is provided for the Corporation, which is comprised
of 8 portfolios.
+The information is provided for the last calendar year end.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Global Research Corp. (the
"Adviser"). It is a subsidiary of Federated Investors. All the voting securities
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Corporation, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in each prospectus. For the fiscal year ended November 30, 1997
and for the period from February 28, 1996 (date of initial public investment) to
November 30, 1996, the Adviser earned $_____ and $54,798, respectively, of which
$_____ and $52,073, respectively, were voluntarily waived.
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.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: 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 its 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.
For the fiscal year ended November 30, 1997 and for the period from February 28,
1996 (date of initial public investment) to November 30, 1996, the Fund paid
$_____ and $26,393, respectively, in brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Fund's portfolio. The Adviser is not
obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
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 each
prospectus. From January 31, 1996 to March 1, 1996, Federated Administrative
Services, also a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal year ended
November 30, 1997 and for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996, the Administrators earned $_____ and
$140,012, respectively.
Custodian and Portfolio Accountant
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Foreign instruments purchased by the Fund are held by
foreign banks participating in a network coordinated by State Street Bank.
Federated Services Company, Pittsburgh, PA, 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
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, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
Purchasing Shares
Except under certain circumstances described in each prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in each prospectus under "How To Purchase Shares."
Distribution Plan and Shareholder Services Agreement
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $____ and ____, respectively, in distribution services fees,
none of which was waived. Class A Shares have no present intention of paying or
accruing distribution services fees during the fiscal year ending November 30,
1998. In addition, for the fiscal year ended November 30, 1997, the Fund's Class
A Shares, Class B Shares and Class C Shares paid shareholder services fees in
the amounts of $____, $____ and $____, respectively, none of which was
waived.
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 Shareholder 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 charge. Shares may also be sold without a sales charge to trusts
or pension or profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in each prospectus.
Dividend income is recorded on the ex-dividend date except that 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 for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange
or the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and
o for all other securities, at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: 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 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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the fiscal year end. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. In determining the
applicability of the Contingent Deferred Sales Charge, the 12 month holding
requirement for your new Class B Shares received through an exchange will
include the period for which your original Class B Shares were held. However,
for purposes of meeting the $10,000 minimum account value requirement, Class B
Share accounts values will not be aggregated.
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 invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company ("PFIC"). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
<PAGE>
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 Fund's average annual total returns for Class A Shares, Class B Shares
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from February 28, 1996 (date of initial public investment) to November
30, 1997, were ___%, ___%, and ___%, respectively, and ___%, ___%, and ___%,
respectively.
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
charge, 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 yields for Class A Shares, Class B Shares, and Class C Shares for the
thirty-day period ended November 30, 1997 were ___%, ___%, and ___%,
respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
The performance of each of the classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or any class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P
500), a composite index of common stocks in industry, transportation,
and financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the S & P 500 assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its
Lipper ranking in the "latin american region funds" category in
advertising and sales literature.
o Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far
East Index ("EAFE Index"). The EAFE Index is an unmanaged index of more
than 1,000 companies of Europe, Australia, and the Far East.
o Morgan Stanley Capital International Latin America Emerging Market
Indices, including the Morgan Stanley Emerging Markets Free Latin
America Index (which excludes Mexican banks and securities companies
which cannot be purchased by foreigners) and the Morgan Stanley Emerging
Markets Global Latin America Index. Both indices include 60% of the
market capitalization of the following countries: Argentina, Brazil,
Chile, and Mexico. The indices are weighted by market capitalization and
are calculated without dividends reinvested.
o Ibbotson Associates International Bond Index, which provides a detailed
breakdown of local market and currency returns since 1960.
o Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The
returns are broken down by local market and currency.
o Morningstar, Inc. , an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o Data and mutual fund rankings published or prepared by CDA/Wiesenberger
Investment Company Services that ranks and/or compares mutual funds by
overall performance, investment objectives, assets, expense levels,
periods of existence and/or other factors.
o Financial Times Actuaries Indices--including the FTA-World Index (and
components thereof), which are based on stocks in major world equity
markets.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Dow Jones Industrial Average ("DJIA") represents share prices of
selected blue-chip industrial corporations. The DJIA indicates daily
changes in the average price of stock of these corporations. Because it
represents the top corporations of America, the DJIA index is a leading
economic indicator for the stock market as a whole.
o CNBC/Financial News Composite Index.
o The World Bank Publication of Trends in Developing Countries (TIDE).
TIDE provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
o Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
o Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope are
database retrieval services for information including, but not limited
to, international financial and economic data.
o International Financial Statistics, which is produced by the
International Monetary Fund.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction
and Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.
and Standard & Poor's Ratings Group.
o Wilshire Associates, which is an on-line database for international
financial and economic data including performance measures for a wide
range of securities.
o International Finance Corporation (IFC) Emerging Markets Data Base,
which provides detailed statistics on stock and bond markets in
developing countries, including IFC market indices.
o Various publications from the Organization for Economic Cooperation
and Development (OECD).
From time to time, the Fund may quote information including but not limited to
data regarding: individual countries, regions, world stock exchanges, and
economic and demographic statistics from sources deemed reliable.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on annual reinvestment of dividends over a specified
period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or 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 Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country --supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33052149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
- -------------
*source: Investment Company Institute
Federated International High Income Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated International High 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. The Fund has a
secondary 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 may invest primarily in lower rated bonds, commonly referred to as
"junk bonds." Investments of this type are subject to a greater risk of loss of
principal and interest than investments in higher rated securities. Purchasers
should carefully assess the risks associated with an investment in this Fund.
Investing in emerging markets can involve significant risks due to market,
economic, and foreign currency exchange conditions.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated January 31, 1998 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 1-800-341-7400. 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). The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund are 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1998
<PAGE>
Synopsis
The Corporation was established under the laws of the State of Maryland on
January 25, 1994. The Corporation's address is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Corporation to offer separate series of shares representing interests in
separate portfolios of securities. As of the date of this prospectus, the Board
of Directors (the "Directors") has established three classes of shares for the
Fund, known as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively as the context requires, "Shares").
Shares of the Fund are designed for individuals and institutions seeking a high
level of current income by investing in a portfolio of government and corporate
debt obligations of issuers in emerging market countries and developed foreign
countries.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class B Shares are sold at net asset value. A contingent deferred sales charge
is imposed on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund pays a shareholder services fee at an annual rate not to
exceed 0.25% of average daily net assets. Additionally, information regarding
the exchange privilege offered with respect to the Fund and certain other funds
for which affiliates of Federated Investors serve as investment adviser or
principal underwriter (the "Federated Funds") can be found under "Exchange
Privilege."
Federated Global Research Corp. is the investment adviser (the "Adviser") to the
Fund and receives compensation for its services. The Adviser's address is 175
Water Street, New York, New York 10038-4965.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including, but not limited to, entering into repurchase agreements,
lending portfolio securities, investing in restricted and illiquid securities,
investing in securities on a when-issued and delayed delivery basis, writing
call options and investing in foreign securities.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated" 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.
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. The
Fund may invest up to 100% 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, which
derive (directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit from their 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, and
Venezuela and are expected to be issued by Ecuador and other emerging market
countries. Approximately $163 billion in principal amount of Brady Bonds is
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 (e.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 the 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
Convertible securities include a spectrum of securities which can be
exchanged for or converted into common stock. Convertible securities may
include, but are not limited to: convertible bonds or debentures; convertible
preferred stock; units consisting of usable bonds and warrants; or securities
which cap or otherwise limit returns to the convertible security holder, such as
DECS- (Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common
Stock when issued as a debt security), LYONS- (Liquid Yield Option Notes, which
are corporate bonds that are purchased at prices below par with no coupons and
are convertible into stock), PERCS- (Preferred Equity Redemption Cumulative
Stock (an equity issue that pays a high cash dividend, has a cap price and
mandatory conversion to common stock at maturity), and PRIDES- (Preferred
Redeemable Increased Dividend Securities (which are essentially the same as
DECS; the difference is little more than who initially underwrites the issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
Please see "Risk Factors Relating to Investing in High Yield Securities".
Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
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. 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 even 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.
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.
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. 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.
Futures and Options on Futures
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.
Investment Risks
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:
o less publicly available information about foreign issuers;
o 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;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o 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;
o the likelihood that securities of foreign issuers may be less liquid
or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o 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 portfolio turnover rate is not expected to exceed
200%. 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:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
Hub and Spoke(R) Option
If the Directors determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.
The initial shareholder of the Fund (who is an affiliate of Federated Securities
Corp.) voted to vest authority to use this investment structure in the sole
discretion of the Directors. No further approval of shareholders is required.
Shareholders will receive at least 30 days prior notice of any such investment.
In making its determination, the Directors will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. Although it is expected that the Directors will not
approve an arrangement that is likely to result in higher costs, no assurance is
given that costs will remain the same or be materially reduced if this
investment structure is implemented.
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, Martin Luther King 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 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 PercentageConcession
a Percentage of Net as a Percentage
Amount of of 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; or
o using the reinvestment privilege.
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.
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 1-800-341-7400 for more 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.
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. Investors who redeem Shares through a financial intermediary may be
charged a service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made as described below. Redemption
proceeds will normally be sent the following day. However, in order to protect
shareholders of the Corporation from possible detrimental effects of
redemptions, the Adviser may cause a delay of two to seven days in sending
redemption proceeds during certain periods of market volatility or for certain
shareholders. Dividends are paid up to the day redemption proceeds are sent.
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.
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 transferred 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, other than retirement accounts subject to required minimum
distributions. 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 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 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. 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; (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 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 the last
surviving 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; (3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the Contingent
Deferred Sales Charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in Fund Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
Contingent Deferred Sales Charge through a Systematic Withdrawal Program contact
your financial intermediary or the Fund. 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
Confirmations and Account Statements. Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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.
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 $110 billion invested across more than
300 funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
Portfolio Managers:
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.
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.
Michael W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated Investors in 1996 as an Assistant Vice
President. Mr. Casey served as an International Economist and Portfolio
Strategist for Maria Fiorini Ramirez Inc. from 1990 to 1996. Mr. Casey earned a
Ph.D. concentrating in economics from The New School for Social Research and a
M.Sc from the London School of Economics.
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.
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 Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may 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 administrative personnel and
services as required to support holders of Class A Shares, Class B Shares and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares 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.
<PAGE>
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.
BAA--Debt rated Baa 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.
BA--Debt rated Ba 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.
CAA--Debt rated Caa 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.
CA--The rating Ca 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.
<PAGE>
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 identifiable 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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o 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.
<PAGE>
Addresses
Federated International High 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
<PAGE>
Federated International High Income Fund
(A Portfolio of World Investment Series, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
A Diversified Portfolio of World
Investment Series, Inc., An Open-End,
Management Investment Company
January 31, 1998
Cusip 981487762
Cusip 981487754
Cusip 981487747
G01745-01 (1/98)
Federated International High 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 of Federated International High Income Fund (the "Fund"), a
portfolio of World Investment Series, Inc. (the "Corporation") dated
January 31, 1998. This Statement is not a prospectus. You may request a
copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1998
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Fund(s)
and is a subsidiary of Federated Investors.
Cusip 981487762
981487754
981487747
G01745-02 (1/98)
<PAGE>
I
Table of Contents
<PAGE>
General Information About the Fund 1
Investment Objectives and Policies 1
Sovereign Debt Obligations 1
Convertible Securities 1
Warrants 1
When-Issued and Delayed Delivery
Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 3
Risks 6
Foreign Currency Transactions 8
Special Considerations Affecting Emerging
Markets 10
Additional Risk Considerations 11
Portfolio Turnover 11
Investment Limitations 11
World Investment Series, Inc.
Management 13
Fund Ownership 17
Directors` Compensation 18
Investment Advisory Services 19
Adviser to the Fund 19
Advisory Fees 19
Other Related Services 19
Brokerage Transactions 19
Other Services 20
Fund Administration 20
Custodian and Portfolio Accountant 20
Transfer Agent and Dividend
Disbursing Agent 20
Independent Auditors 20
Purchasing Shares 20
Distribution Plan and Shareholder
Services 20
Conversion to Federal Funds 21
Purchases by Sales Representatives,
Directors, and Employees of the
Fund 21
Determining Net Asset Value 21
Determining Market Value of
Securities 21
Trading in Foreign Securities 21
Redeeming Shares 21
Redemption in Kind 22
Elimination of the Contingent
Deferred Sales Charge 22
Tax Status 22
The Fund's Tax Status 22
Foreign Taxes 22
Shareholders' Tax Status 23
Total Return 23
Yield 23
Performance Comparisons 23
Economic and Market Information 25
About Federated Investors 26
Mutual Fund Market 26
Institutional Clients 26
Bank Marketing 26
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 26
Financial Statements 26
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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.
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
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain level.
DECS convert to common stock at maturity. The amount received is dependent on
the price of the common stock at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the common stock
up to the first call price. They are effectively capped at that point unless the
common stock rises above a second price point, at which time they participate
with unlimited upside potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises. Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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.
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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.
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.
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. For the period from October 2, 1996 (date of initial public
investment) to November 30, 1996, the Fund's portfolio turnover rate was 0%.
Investment Limitations
The following limitations are fundamental [except that no investment limitation
of the Fund shall prevent the Fund from investing substantially all of its
assets (except for assets which are not considered "investment securities" under
the Investment Company Act of 1940, or assets exempted by the Securities and
Exchange Commission) in an open-end investment company with substantially the
same investment objectives]:
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
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. 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, 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 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.
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.
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.
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
Director and Chairman
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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company .
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the
Funds.
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; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, 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 or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Director and President
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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee 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 ; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation ; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21,
1935 Director Public relations/Marketing/Conference Planning; Director or
Trustee 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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Director and Chairman of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; 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, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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 between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; and World Investment Series,
Inc. Fund Ownership
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of November 7, 1997, the following shareholder of record owned 5% or more
of the outstanding Class A Shares of the Fund: North Fork Bank, Mattituck, New
York, owned approximately 64,317 Shares (8.33%).
As of November 7, 1997 , no shareholder of record owned 5% or more of Class B
Shares of the Fund.
As of November 7, 1997 , the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
for the sole benefit of its customers, Jacksonville, Florida, owned
approximately 127,424 Shares (21.19%).;
Directors` Compensation
<TABLE>
<CAPTION>
<S> <C> <C>
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 56 other investment companies in the Fund Complex
Thomas G. Bigley $ 1,018.27 $108,725 for the Corporation and
Director 56other investment companies in the Fund Complex
John T. Conroy, Jr. $ 1,120.27 $119,615 for the Corporation and
Director 56other investment companies in the Fund Complex
William J. Copeland $ 1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
James E. Dowd $ 1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Richard B. Fisher $ 0 $0 for the Corporation and
President and Director 6 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 1,120.27 $119,615 for the Corporation and
Director 56 other investment companies in the Fund Complex
Peter E. Madden $ 1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
John E. Murray, Jr. $ 1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $ 1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $ 1,018.27 $108,725 for the Corporation and
Director 56 other investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Corporation which was comprised
of 7 portfolios, as of November 30, 1996.
+The information is provided for the last calendar year end.
<PAGE>
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 the prospectus.
For the fiscal year ended November 30, 1997, and the period from October 2, 1996
(date of initial public investment) to November 30, 1996, the Adviser earned
$____ and $7,908, all of which was voluntarily waived.
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.
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 Directors.
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. For the fiscal year
ended November 30, 1997 and for the period from October 2, 1996 (date of initial
public investment) to November 30, 1996, the Fund paid $___ and $202 in
brokerage commissions.
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.
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. For the fiscal year ended November 30, 1997 and for the period from
October 2, 1996 (date of initial public investment) to November 30, 1996,
Federated Services Company earned $_____ and $30,328, respectively.
Custodian and Portfolio Accountant
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh, PA,
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,
PA.
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.
For the fiscal year ended November 30, 1997, the Fund's Class B Shares and
Class C Shares paid $______and $____, respectively, in distribution services
fees, none of which were voluntarily waived. Class A Shares have no present
intention of paying or accruing distribution services fees during the fiscal
year ending November 30, 1998. In addition, for the fiscal year ended November
30, 1997 , the Fund's Class A Shares, Class B Shares and Class C Shares paid
shareholder services fees in the amount of $_____, $____ and $____,
respectively, none of which were voluntarily waived.
<PAGE>
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.
Elimination of the Contingent Deferred Sales Charge
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the annual valuation date. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. To the extent that a
shareholder exchanges Shares for Class B 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 12
month holding requirement. However, for purposes of meeting the $10,000 minimum
account value requirement, Class B Share accounts will not be aggregated.
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 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 Fund's average annual total returns for Class A Shares, Class B Shares,
and Class C Shares, for the one-year period ended November 30, 1997 and for the
period from October 2, 1996 (date of initial public investment) to November 30,
1996, were ____%, ___%, and ____%, and (1.63%), (2.67%), and 1.86%,
respectively.
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 yields for Class A Shares, Class B Shares, and Class C Shares for the
30-day period ended November 30, 1997 were ____%, ___%, and ___%,
respectively.
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.
o J.P. Morgan Non-Dollar Bond Index, is a total return, unmanaged
trade-weighted index of over 360 government and high-grade bonds in 12
developed countries. Investments cannot be made in an index.
o J.P. Morgan Emerging Market Bond Index, tracks total returns of external
currency denominated debt instruments of the emerging markets: Brady
Bonds, Loans, Eurobonds, and U.S. Dollar denominated local market
instruments. The index is comprised of 14 emerging market countries.
o J.P. Morgan Global (ex-U.S.) Government Index, is the standard unmanaged
foreign securities index representing major government bond markets.
o Lehman Brothers High Yield Index covers the universe of fixed rate,
publicly issued, noninvestment grade debt registered with the SEC. All
bonds included in the High Yield Index must be dollar-denominated and
nonconvertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities
must be rated Ba1 or lower by Moody's Investors Service, including
defaulted issues. If no Moody's rating is available, bonds must be rated
BB+ or lower by S&P; and if no S&P rating is available, bonds must be
rated below investment grade by Fitch Investor's Service. A small number
of unrated bonds is included in the index; to be eligible they must have
previously held a high yield rating or have been associated with a high
yield issuer, and must trade accordingly.
o Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed
income mutual funds. The highest rating is One, and ratings are
effective for one month.
o Strategic Insight Mutual Fund Research and Consulting, 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.
o Value Line Composite Index, consists of approximately 1,700 common
equity securities. It is based on a geometric average of relative price
changes of the component stocks and does not include income.
o Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines, among
others--provide performance statistics over specified time periods.
o Various publications and annual reports produced by the World Bank and
its affiliates.
o Various publications from the International Bank for Reconstruction and
Development.
o Various publications including, but not limited to, ratings agencies
such as Moody's Investors Service, Inc., Fitch Investors Service, Inc.,
and Standard & Poor's Ratings Group.
o Various publications from the Organization for Economic Cooperation and
Development (OECD).
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, or 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 and global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 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.
- ------
*source: Investment Company Institute
<PAGE>
Bank Marketing
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
Financial Statements
The financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1997 (File Nos. 33-52149 and 811-7141). A copy of the Annual Report for the
Fund may be obtained without charge by contacting the Fund.
(Financial Statements to be filed by Amendment)
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) (i) Copies of Specimen Certificates for Shares of
Capital Stock of Federated 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; (7)
(ii) Copies of Specimen Certificates for Shares of Capital Stock of
Federated International High Income Fund Class A Shares,
Class B Shares, and Class C Shares; (8)
(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)
(iii) Conformed Copy of Exhibit G to the Investment Advisory Contract of
the Registrant; (8)
(iv) Conformed Copy of Exhibit H to the Investment Advisory Contract of
the Registrant; +
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant through and including Exhibit S; (5) (ii)
Conformed Copy of Exhibits T, U, and V to the
Distributor's Contract of the Registrant; (8)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed February 4, 1994. (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)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed July 31, 1996. (File Nos. 33-52149 and
811-7141)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed January 30, 1997. (File Nos. 33-52149
and 811-7141)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed May 21, 1997. (File Nos. 33-52149 and
811-7141)
<PAGE>
(iii) Conformed Copy of Exhibits W,X, and Y to the
Distributor's Contract of the Registrant; (9)
(iv) The Registrant hereby incorporates the conformed
copy of the Specimen Mutual Funds Sales and
Service Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds Service
Agreement from Item 24(b)6 of the Cash Trust
Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File
Nos. 33-38550 and 811-6269)
(7) Not applicable;
(8) (i) Conformed copy of Custodian Agreement of the Registrant; (3)
(ii) Conformed copy of Custodian Fee Schedule; +
(iii) Addendum to Custodian Fee Schedule; +
(9) (i) Conformed copy of Amended and Restated Shareholder Services
Agreement; +
(ii) Conformed copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services, and Custody Services .Procurement; (7) (iii)
The responses described in Item 24(b)6 are hereby
incorporated by reference. (iv) On behalf of Federated
World Utility Fund, the Registrant hereby incorporates
the conformed copy of the Shareholder Services
Sub-Contract between Fidelity and Federated Shareholder
Services from Item 24(b)(9)(iii) of the Federated GNMA
Trust Registration Statement on Form N-1A, filed with
the Commission of March 25, 1996. (File nos. 2-75670 and
811-3375);
(10) Conformed copy of Opinion and Consent of Counsel as to legality of shares
being registered; (2)
(11) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed March 24, 1994. (File Nos. 33-52149 and
811-7141)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 25, 1994. (File Nos. 33-52149 and
811-7141)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed July 31, 1996. (File Nos. 33-52149 and
811-7141) 8 . Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 10 on Form N-1A filed January 30, 1997. (File
Nos. 33-52149 and 811-7141) 9. Response is incorporated by reference to
Registrant's Post-Effective Amendment No. 11 on Form N-1A filed May 21,
1997. (File Nos. 33-52149 and 811-7141)
<PAGE>
(14) Not applicable;
(15) (i) Conformed Copy of Rule 12b-1 Distribution Plan
through and including Exhibit R;(5) (ii) Conformed Copy
of Exhibits S, T, and U to the Rule 12b-1 Distribution
Plan of the Registrant; (8) (iii) Conformed Copy of
Exhibits V,W, and X to the Rule 12b-1 Distribution Plan
of the Registrant; (9)
(16) Copy of Schedule for Computation of Fund Performance Data for World
Utility Fund; (3)
(i) Copy of Schedule for Computation of Fund
Performance Data for Federated Asia Pacific Growth
Fund, Federated Emerging Market Fund, Federated
European Growth Fund, Federated Small Company
Fund, Federated Latin American Growth Fund; (7)
(ii) Copy of Schedule for Computation of Fund Performance Data for
Federated International High Income Fund; (8)
(17) Copy of Financial Data Schedules; (8)
(18) Conformed Copy of Multiple Class Plan; (5) (19) Conformed
copy of Power of Attorney; (8)
+ All exhibits have been filed electronically.
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)
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)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed July 31, 1996. (File Nos. 33-52149 and
811-7141)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed January 30, 1997. (File Nos. 33-52149
and 811-7141)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed May 21, 1997. (File Nos. 33-52149 and
811-7141)
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of November 7, 1997
-------------- ----------------------
Shares of capital stock
($0.001 per Share par value)
Federated World Utility Fund
a) Class A Shares 1,835
b) Class B Shares 1,492
c) Class C Shares 522
d) Class F Shares 513
Federated Asia Pacific Growth Fund
a) Class A Shares 1,608
b) Class B Shares 1,729
c) Class C Shares 1,109
Federated Emerging Markets Fund
a) Class A Shares 4,576
b) Class B Shares 4,160
c) Class C Shares 1,507
Federated European Growth Fund
a) Class A Shares 1,736
b) Class B Shares 1,762
c) Class C Shares 1,127
Federated International Small Company Fund
a) Class A Shares 5,922
b) Class B Shares 10,792
c) Class C Shares 2,414
Federated Latin American Growth Fund
a) Class A Shares 2,580
b) Class B Shares 2,439
c) Class C Shares 1,234
Federated International High Income Fund:
a) Class A Shares 1,172
b) Class B Shares 3,222
c) Class C Shares 1,246
Federated International Growth Fund:
a) Class A Shares 1,652
b) Class B Shares 1,506
c) Class C Shares 1,093
Item 27. Indemnification (1).
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed February 4, 1994. (File Nos. 33-52149 and
811-7141)
<PAGE>
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "FUND INFORMATION - Management of the Corporation"
in Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under "WORLD INVESTMENT SERIES, INC.
MANAGEMENT." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
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; Automated Government Money Trust;
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 Investment Portfolios; Federated Investment Trust; 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.; 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 Obligations Trust II; 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 Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal 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.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief Director
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Laura M. Deger 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
Teresa M. Antoszyk 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
R. Leonard Corton, 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 Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
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
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher 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
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Thomas A. Peters III 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
Richard A. Recker 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
George D. Riedel 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 Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith 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
John A. Staley 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
Richard Suder 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
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
John F. Wallin 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
Edward J. Wojnarowski 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
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant 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
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
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 file a post-effective amendment,
using financial statements which need not be certified, within four
to six months from effective date of Registrant's 1933 Act
Registration Statement, Post-Effective Amendment Number 11.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, WORLD INVESTMENT SERIES, INC.,
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 26th day of November, 1997.
WORLD INVESTMENT SERIES, INC.
BY: /s/Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
November 26, 1997
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/Karen M. Brownlee Attorney In Fact November 26, 1997
Karen M. Brownlee For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
John W. McGonigle* Executive Vice
President, Secretary, and
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
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 5(iv) under Form N-1A
Exhibit 10(i) under Item 601/Reg. S-K
EXHIBIT H
to the
Investment Advisory Contract
WORLD INVESTMENT SERIES, INC.
Federated International Growth Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the World Investment Series, Inc. shall pay to Adviser and Adviser agrees to
accept as full compensation for all services rendered hereunder, an annual
investment advisory fee equal to 1.00 of 1% of the average daily net assets of
the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.00 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of March, 1997.
Attest: Federated Global Research
/s/ Christine Ita McGonigle By: /s/ Edward C. Gonzales
Assistant Secretary Vice President
Attest: World Investment Series, Inc.
/s/ John W. McGonigle By: /s/ J. Christopher Donahue
Secretary Executive Vice President
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY FEE SCHEDULE
Federated Funds
=============================================================================
I. Global Custody Services
=============================================================================
Maintain custody of fund assets. Settle portfolio purchases and sales.
Reporting buy and sell fails. Determining and collecting portfolio income.
Make cash disbursements and reporting cash transactions in local and base
currency. Monitor corporate actions. Withholding foreign taxes. File
foreign tax reclaims. Report portfolio positions.
A. Holding Fees (basis points per portfolio per annum)
B. Trading (US Dollars)
==============---------=========--==================------------------
Countries Holdings Trades Countries Holdings Trades
==============---------=========--==================------------------
Argentina 30.0 $65.00 Korea 13.0 $50.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Australia 3.0 $50.00 Luxembourg 10.0 $75.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Austria 4.0 $50.00 Malaysia 13.0 $70.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Bangladesh 40.0 $175.00 Mauritius 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Belgium 6.0 $50.00 Mexico 10.0 $25.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Bolivia 40.0 $150.00 Morocco 30.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Botswana 40.0 $150.00 Namibia 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Brazil 30.0 $75.00 Netherlands 6.0 $25.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Canada 1.5 $12.00 New Zealand 6.0 $50.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Chile 30.0 $75.00 Norway 3.0 $65.00
----------------------------------------------------------------------
----------------------------------------------------------------------
China 21.0 $150.00 Pakistan 21.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Columbia 40.0 $150.00 Peru 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Cypress 40.0 $150.00 Philippines 13.0 $100.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Czech 30.0 $150.00 Poland 30.0 $150.00
Republic
----------------------------------------------------------------------
----------------------------------------------------------------------
Denmark 3.0 $60.00 Portugal 21.0 $100.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Ecuador 21.0 $100.00 Singapore 6.0 $65.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Egypt 30.0 $125.00 Slovak Republic 30.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Euroclear 3.0 $25.00 South Africa 3.0 $25.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Finland 6.0 $60.00 Spain 6.0 $65.00
----------------------------------------------------------------------
----------------------------------------------------------------------
France 6.0 $60.00 Sri Lanka 13.0 $70.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Germany 3.0 $25.00 Swaziland 40.0 $100.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Ghana 40.0 $150.00 Sweden 3.0 $60.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Greece 30.0 $125.00 Switzerland 3.0 $50.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Hong Kong 6.0 $50.00 Taiwan 13.0 $60.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Hungary 30.0 $150.00 Thailand 10.0 $40.00
----------------------------------------------------------------------
----------------------------------------------------------------------
India 30.0 $175.00 Trinidad and 40.0 $150.00
Tobago
----------------------------------------------------------------------
----------------------------------------------------------------------
Indonesia 13.0 $75.00 Tunisia 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Ireland 3.0 $45.00 Turkey 30.0 $95.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Israel 13.0 $125.00 United Kingdom 3.0 $30.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Italy 6.0 $60.00 Uruguay 21.0 $100.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Jamaica 40.0 $150.00 Venezuela 30.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Japan 3.0 $25.00 Zambia 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Jordan 40.0 $150.00 Zimbabwe 40.0 $150.00
----------------------------------------------------------------------
----------------------------------------------------------------------
Kenya 40.0 $150.00
----------------------------------------------------------------------
=============================================================================
II. Other Transaction Charges
=============================================================================
Per Domestic Fee Schedule.
=============================================================================
III. Special Services
=============================================================================
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
=============================================================================
IV. Out of Pocket Expenses
=============================================================================
A billing for the recovery of applicable out of pocket expenses on
international transactions, e.g., stamp duty, registration fees, telex
messages, etc., will be made as of the end of each month.
=============================================================================
V. Payment
=============================================================================
The above fees will be charged against the fund's custodian DDA thirty (30)
days after the invoice is mailed to the fund's offices.
=============================================================================
VI. Term of the Contract
=============================================================================
The parties agree that this fee schedule shall become effective January 1,
1997.
FEDERATED SERVICES COMPANY STATE STREET BANK AND TRUST CO.
Name: /s/ Douglas L. Hein Name: /s/ Michael E. Hagerty
Title: Sr. Vice President/Fed. Services Co. Title: Vice President
Date: April 15, 1997 Date: April 8, 1997
Exhibit 8(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
GLOBAL CUSTODY
FEE SCHEDULE
Addendum to Global Custody Fee Schedule Executed on January 1, 1997
Federated Funds
Country Holdings Charge Trading Charge
Russia 55 Basis Points $300
FEDERATED SERVICES COMPANY STATE STREET BANK & TRUST CO.
BY: /s/ Arthur Cherry BY: /s/ Michael E. Hagerty
TITLE: President & CEO TITLE: Vice President
DATE: August 25, 1997 DATE: August 13, 1997
--------------------------- -----------------
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amended and Restated
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and entered into as of the first day of March, 1994), by
and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this
form of Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business trust,
having its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance
of Services. FSS hereby accepts such appointments. FSS agrees to provide
or cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description
of the Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund ("Independent Board Members") cast in
person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to
terminate.
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for
such Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any
person, even though also an officer, trustee, partner, employee or
agent of FSS, who may be or become a member of such Fund's Board,
officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such
Fund and not as an officer, trustee, partner, employee or agent or one
under the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Fund that is a Massachusetts business
trust and agrees that the obligations assumed by each such Fund pursuant
to this Agreement shall be limited in any case to such Fund and its assets
and that FSS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund
and to such Fund at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Exhibit
1)
Attest: /s/ John W. McGonigle By: /s/ John F. Donahue
John W. McGonigle John F. Donahue
Secretary Chairman
Federated Shareholder Services
Attest: /s/ John W. McGonigle By: /s/ Glen R. Johnson
Secretary President
<PAGE>
Exhibit 1
Federated World Utility Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
Federated Asia Pacific Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class B Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class B Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated International High Income Fund:
Class A Shares
Class B Shares
Class C Shares
Federated International Growth Fund:
Class A Shares
Class B Shares
Class C Shares
