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. 18 ......................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 19 ....................................... X
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WORLD INVESTMENT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) on ________________
pursuant to paragraph (b)(1)(v) 60 days after filing pursuant to paragraph
(a) (i)
pursuant to paragraph (a) (i) 75 days after filing pursuant to
paragraph (a)(ii) on _________________ pursuant to paragraph (a)(ii) of Rule
485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Prospectus
FEDERATED ASIA PACIFIC GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing primarily in
equity securities of Asian and Pacific Rim companies.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 7
What do Shares Cost? 8
How is the Fund Sold? 11
How to Purchase Shares 12
How to Redeem and Exchange Shares 14
Account and Share Information 17
Who Manages the Fund? 17
Financial Information 19
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long-term growth of capital. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment strategies and policies described
in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies located in Asia and the Pacific Rim.
The adviser intends to focus its investments in the most developed capital
markets of Asia and the Pacific Rim.
In selecting countries in which to invest, the adviser reviews the country's
economic outlook, including its interest and inflation rates, and the political
and foreign exchange risk of investing in a particular country. In selecting
investments for the portfolio the adviser looks for companies which are
positioned for rapid growth in revenues or earnings and assets.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. investing in smaller, developing capital markets in Asian and Pacific Rim
countries,
. fluctuations in the value of equity securities in foreign securities markets;
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies;
. prices of emerging market securities in which the Fund invests can be
significantly more volatile than prices of securities in developed countries;
. the Fund may invest a significant portion of its assets in a particular
geographic region, which makes it subject to greater currency risk and more
susceptible to adverse impact from actions of foreign governments; and
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[Chart appears here -- see Appendix.]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 20.57% (quarter ended December 31, 1998). Its lowest
quarterly return was (25.93%) (quarter ended December 31, 1997).
Average Annual Total Return
<TABLE>
<CAPTION>
Calendar Period 1 Year Start of
Performance/1/
<S> <C> <C>
Class A (12.48%) (14.40%)
Class B (13.05%) (14.46%)
Class C (8.63%) (13.09%)
MSCI-AP 0.53% (13.20%)
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
February 28, 1996. The table shows the Fund's Class A, Class B and Class C
Shares average annual total returns (reduced to reflect applicable sales
charges) compared to the Morgan Stanley Capital International Asia Pacific
Index (MSCI-AP), for the calendar periods ending December 31, 1998. The MSCI-
AP is a market value-weighted index of the performance of securities listed
in the stock exchanges of 15 countries in the Pacific and Asian regions.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards. What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Fees Paid Directly From Your Investment
<S> <C> <C> <C> Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 5.50% None None Maximum Deferred Sales Charge
(Load) (as a percentage of original purchase price or redemption 0.00% 5.50%
1.00%
proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Reimbursements and Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 1.10% 1.10% 1.10%
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses/4/ 4.28% 4.28% 4.28%
Total Annual Fund Operating Expenses 5.88% 6.38%/5/ 6.38%
1 Although not contractually obligated to do so, the adviser waived and
reimbursed and the distributor waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
November 30, 1998.
Reimbursements and Waivers of Fund Expenses 4.03% 3.78% 3.78%
Total Actual Annual Fund Operating Expenses (after reimbursements and waivers)
1.85% 2.60% 2.60%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.00% for the year ended November
30, 1998.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended November 30, 1998. Class A Shares have no present intention
of paying or accruing the distribution (12b-1) fee during the year ending
November 30, 1999.
4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) were 1.60% for
the year ended November 30, 1998.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000
in the Fund's Class A, Class B, and Class C Shares for the time periods
indicated and then redeem all of your Shares at the end of those periods.
Expenses assuming no redemption are also shown. The Example also assumes that
your investment has a 5% return each year and that the Fund's Class A, Class B,
and Class C Shares operating expenses are before reimbursements and waivers as
shown in the Table and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be: <TABLE>
<CAPTION> Share Class 1 Year 3 Years 5 Years 10 Years Class A <S> <C> <C> <C>
<C> Expenses assuming $1,103 $2,195 $3,268 $5,868 redemption Expenses assuming
no $1,103 $2,195 $3,268 $5,868 redemption Class B Expenses assuming $1,184
$2,275 $3,282 $5,874 redemption Expenses assuming no $ 634 $1,875 $3,082 $5,874
redemption Class C Expenses assuming $ 734 $1,875 $3,082 $5,957 redemption
Expenses assuming no $ 634 $1,875 $3,082 $5,957 redemption </TABLE> What
are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies located in Asia and the Pacific Rim.
The adviser intends to focus its investments in the most developed capital
markets of Asia and the Pacific Rim.
In selecting countries in which to invest, the adviser reviews the county's
economic outlook, including its interest and inflation rates, and the political
and foreign exchange risk of investing in a particular country. The adviser uses
the Morgan Stanley Asia Pacific Free Index (Index) as a benchmark in selecting
the weightings of countries contained in the portfolio. The adviser may deviate
from the country weightings in the Index when it believes that performance may
be enhanced by doing so. The adviser then analyzes companies located in each
particular country.
In selecting investments for the portfolio the adviser looks for companies
which are positioned for rapid growth in revenues or earnings and assets. The
adviser evaluates the quality of each company's management, its market share in
domestic and export markets, and the uniqueness of its product line. The adviser
may also meet with company representatives, company suppliers, customers, or
competitors. Based on this information, the adviser evaluates the sustainability
of the company's current growth trends and potential catalysts for increased
growth. Using this type of fundamental analysis, the adviser tries to select
securities that offer the best potential returns consistent with its general
portfolio strategy.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
ASIAN AND PACIFIC RIM FOREIGN SECURITIES
The Fund considers an issuer to be an Asian or Pacific Rim company if:
. it is organized under the laws of, or has a principal office located in,
an Asian or Pacific Rim country;
. the principal trading market for its securities is in an Asian or Pacific
Rim country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in an Asian or Pacific Rim
country.
Asian and Pacific Rim securities are often denominated in foreign currencies.
Along with the risks normally associated with domestic equity securities, Asian
and Pacific Rim securities are subject to currency risks and risks of foreign
investing.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
What are the Specific Risks of Investing in the Fund?
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money. The adviser attempts to manage market risk
by limiting the amount the Fund invests in each company. However,
diversification will not protect the Fund against widespread or prolonged
declines in the stock market. RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
EMERGING MARKET RISKS
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
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.
REGIONAL RISKS
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Asian and
Pacific Rim countries. For example, some of the currencies of Asian and Pacific
Rim countries have experienced steady devaluations relative to the U.S. dollar,
and major adjustments have been made in certain of these currencies
periodically.
Although there is a trend toward less government involvement in commerce,
governments of many Asian and Pacific Rim 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 Asian and
Pacific Rim countries, which could affect private sector companies and the Fund,
as well as the value of securities in the Fund's portfolio.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Shares Offered Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase" below.
3 See "Sales Charge When You Redeem" below.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge as Sales Charge as
a Percentage of a Percentage of
Public Offering NAV
Price
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than 4.50% 4.71%
$100,000
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than $1 2.00% 2.04%
million
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales charge;
. combining concurrent purchases of Shares:
. by you, your spouse, and your children under age 21; or
. of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales
charge;
. as a Federated Life Member (Class A Shares only) and their immediate
family members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C> A CDSC of 0.75% of the redemption amount applies to Class A Shares
redeemed up to 24 months after purchase under certain investment programs where
an investment professional received
an advance payment on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals
who did not receive advanced sales payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
. if your redemption is a required retirement
plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund)
. The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the class
choice on your New Account Form or form of payment (e.g., Federal Reserve wire
or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of
record;
. your redemption will be sent to an address of record that was changed
within the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of
record; or
. if exchanging (transferring) into another fund with a different
shareholder registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is
an ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Alexandre de Bethmann
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio Manager and a
Vice President of the Fund's 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. Mr. de Bethmann received his M.B.A.
in Finance from Duke University.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated in 1995 as a Senior Portfolio Manager and a Senior Vice President of
the Fund's 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 Wharton School of The University of Pennsylvania.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total more than $111 billion in assets as of
December 31, 1998. Federated was established in 1955 and is one of the largest
mutual fund investment managers in the United States with approximately 1,900
employees. More than 4,000 investment professionals make Federated Funds
available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.10% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C>
Year Ended November 30 1998 1997 1996/1/
Net Asset Value, Beginning of Period $ 7.81 $ 10.25 $10.00
Income From Investment Operations:
Net operating loss (0.05) (0.03) 0.00
Net realized and unrealized gain/(loss) on investments and (1.36) (2.41) 0.25
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS (1.41) (2.44) 0.25
Net Asset Value, End of Period $ 6.40 $ 7.81 $10.25
Total Return/2/ (18.05%) (23.80%) 2.50%
Ratios to Average Net Assets:
Expenses 1.85% 1.85% 1.85%4
Net operating loss (0.35%) (0.53%)
Expense waiver/reimbursement/3/ 3.78% 4.77% 7.02%4
Supplemental Data:
Net assets, end of period (000 omitted) $ 6,345 $ 7,297 $4,593
Portfolio turnover 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
4 Computed on an annualized basis.
Financial Highlights Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C>
Year Ended November30 1998 1997 199/1/
Net Asset Value, Beginning of Period $ 7.73 $ 10.19 $10.00
Income From Investment Operations:
Net operating loss (0.07) (0.08) (0.03)
Net realized and unrealized gain/(loss) on investments and (1.37) (2.38) 0.22
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS (1.44) (2.46) 0.19
Net Asset Value, End of Period $ 6.29 $ 7.73 $10.19
Total Return/2/ (18.63%) (24.14%) 1.90%
Ratios to Average Net Assets:
Expenses 2.60% 2.60% 2.60%4
Net operating loss (1.10%) (1.25%) (0.86%)4
Expense waiver/reimbursement/3/ 3.78% 4.77% 7.02%4
Supplemental Data:
Net assets, end of period (000 omitted) $ 4,154 $ 3,606 $2,273
Portfolio turnover 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
4 Computed on an annualized basis.
Financial Highlight Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C>
Year Ended November30 1998 1997 1996/1/
Net Asset Value, Beginning of Period $ 7.74 $ 10.20 $10.00
Income From Investment Operations:
Net operating loss (0.08) (0.12) (0.05)
Net realized and unrealized gain/(loss) on investments and (1.35) (2.34) 0.25
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS (1.43) (2.46) 0.20
Net Asset Value, End of Period $ 6.31 $ 7.74 $10.20
Total Return/2/ (18.48%) (24.12%) 2.00%
Ratios to Average Net Assets:
Expenses 2.60% 2.60% 2.60%/4/
Net operating loss (1.10%) (1.22%) (0.90%)/4/
Expense waiver/reimbursement/3/ 3.78% 4.77% 7.02%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $ 608 $ 511 $ 397
Portfolio turnover 347% 193% 99%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
4 Computed on an annualized basis.
[federated logo]
Federated Asia Pacific Growth Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400. You can obtain information
about the Fund (including the SAI) by visiting or writing the Public Reference
Room of the Securities and Exchange Commission in Washington, DC 20549-6009 or
from the Commission's Internet site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations and
copying charges. [Federated logo] Federated Asia Pacific Growth Fund
Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-70000
1-800-341-7400 www.federatedinvestors.com Investment Company Act File No.
811-7141
Cusip 981487507
Cusip 981487606
Cusip 981487705
G01470-02 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED ASIA PACIFIC GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Asia Pacific Growth Fund
(Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487507
981487606
981487705
G01470-03 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Global Investment Management Corp. (Adviser).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the
Fund may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates)
on $10 million principal amount in exchange for the right to receive the
equivalent of a stated fixed rate of interest on $10 million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount
as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments only
if an interest rate or index goes above (Cap) or below (Floor) a certain level
in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions. Hedging Hedging transactions are intended to reduce specific
risks. For example, to protect the Fund against circumstances that would
normally cause the Fund's portfolio securities to decline in value, the Fund may
buy or sell a derivative contract that would normally increase in value under
the same circumstances. The Fund may attempt to lower the cost of hedging by
entering into transactions that provide only limited protection, including
transactions that (1) hedge only a portion of its portfolio, (2) use derivatives
contracts that cover a narrow range of circumstances or (3) involve the sale of
derivatives contracts with different terms. Consequently, hedging transactions
will not eliminate risk even if they work as intended. In addition, hedging
strategies are not always successful, and could result in increased expenses and
losses to the Fund.
Investment Ratings for Investment Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors. . Foreign companies may not provide information
(including financial statements) as frequently or to as great an extent as
companies in the United States. Foreign companies may also receive less coverage
than United States companies by market analysts and the financial press. In
addition, foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those applicable to
U.S. companies. These factors may prevent the Fund and its Adviser from
obtaining information concerning foreign companies that is as frequent,
extensive and reliable as the information available concerning companies in the
United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material changes in these limitations becomes 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and . for all other securities at fair value as
determined in good faith by the Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce the sales charge you pay.
You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases. Reinvestment Privilege You may reinvest,
within 120 days, your redemption proceeds at the next determined NAV without any
sales charge. Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases: . the Directors, employees and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates; . Employees
of State Street Bank Pittsburgh who started their employment on January 1, 1998,
and were employees of Federated Investors, Inc. (Federated) on December 31,
1997; . any associated person of an investment dealer who has a sales agreement
with the Distributor; and . trusts, pension or profit-sharing plans for these
individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE These
reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the post-purchase death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder; . representing minimum required distributions from an
Individual Retirement Account or other retirement plan in Federated Funds to a
shareholder who has attained the age of 70 1/2; . which are involuntary
redemptions processed by the Fund because the accounts do not meet the minimum
balance requirements; . which are qualifying redemptions of Class B Shares under
a Systematic Withdrawal Program; . of Shares that represent a reinvestment
within 120 days of a previous redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Federated International Growth Fund, Pittsburgh, PA owned approximately
334,350 Class A Shares (39.46%); Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL owned approximately 46,887 Class B Shares (6.98%) and 20,102
Class C Shares (20.14%); Bear Stearns Securities Corp., Brooklyn, NY owned
approximately 10,875 Class C Shares (10.90%); PJH Prime Account, Zurich,
Switzerland owned approximately 10,249 Class C Shares (10.27%); and Resources
Trust Co., Denver, CO owned approximately 5,309 Class C Shares (5.32%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser. As of March 4, 1999, the Fund's Board and Officers as a
group owned approximately 18,515 (2.19%) of the Fund's outstanding Class A
Shares and less than 1% of the Fund's outstanding Class B and C Shares. An
asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Total
Name Aggregate Compensation
Birth Date Compensation From
Address Principal Occupations From Corporation
Position With Corporation for Past Five Years Corporation and Fund Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee of the $0 $0 for the
Birth date: July 28, 1924 Federated Fund Complex, Chairman and Director, Federated Corporation and
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company; Chairman and Director, companies
Pittsburgh, PA Federated Investment Counseling and Federated Global in the Fund Complex
DIRECTOR AND CHAIRMAN Investment Management Corp.; Chairman, Passport Research,
Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: February 3, 1934 Director, Memberof Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 54 other investment
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; companies
DIRECTOR Director, Member of Executive Committee, University in the Fund Complex
of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: June 23, 1937 President, Investment Properties Corporation; Senior Corporation and
Wood/IPC Commercial Dept. Vice President, John R.Wood and Associates, Inc., 54 other investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies
Realtors ventures in Southwest Florida; formerly: President, in the Fund Complex
3255 Tamiami Trial North Naples Property Management, Inc. and Northgate Village
Naples, FL Development Corporation.
DIRECTOR
Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $1,416.84 $47,958.02 for the
Birth date: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Corporation and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: July 4, 1918 Director and Member of the Executive Committee, Michael Corporation and
One PNC Plaza-23rd Floor Baker, Inc.; formerly: Vice Chairman and Director, 54 other investment
Pittsburgh, PA PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan companies
DIRECTOR Homes, Inc. in the Fund Complex
Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh CivicLight Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Inc. Corporation and
571 Hayward Mill Road 54 other investment
Concord, MA Previous Positions: President, Boston Stock Exchange, companies
DIRECTOR Inc.; Regional Administrator, United States Securities in the Fund Complex
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Corporation and
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical 54 other investment
Suite 1111 Center Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, National in the Fund Complex
DIRECTOR Board of Trustees, Leukemia Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: June 18, 1924 Attorney, of Counsel, Miller, Ament, Henny & Corporation and
Miller, Ament, Henny & Kochuba Kochuba; Director ,Emeritus, Eat'N Park Restaurants, 54 other investment
205 Ross Street Inc.; formerly: Counsel, Horizon Financial, F.A., companies
Pittsburgh, PA Western Region; Partner, Meyer and Flaherty. in the Fund Complex
DIRECTOR
Peter E. Madden Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: March 16, 1942 formerly: Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; President, State Street 54 other investment
100 Royal Palm Way Bank and Trust Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
DIRECTOR Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director,Depository Trust Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated Funds; $0 $0 for the
Birth date: April 10, 1945 Management Consultant. Corporation and 26
80 South Road other investment
Westhampton Beach, NY Retired: Chief Executive Officer, PBTC International companies
DIRECTOR Bank; Chief Financial Officer of Retail Banking Sector, in the Fund Complex
Chase Manhattan Bank;Senior Vice President, Marine
Midland Bank; Vice President,Citibank; Assistant Professor
of Banking and Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: December 20, 1932 President, Law Professor, Duquesne University; Corporation and
President, Duquesne University Consulting Partner, Mollica & Murray. 54 other investment
Pittsburgh, PA Previous Positions: Dean and Professor of Law, companies
DIRECTOR University of Pittsburgh School of Law; Dean and in the Fund Complex
Professor of Law, Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: September 14, 1925 President, World Society of Ekistics (metropolitan Corporation and
1202 Cathedral of Learning planning), Athens; Professor, International Politics; 54 other investment
University of Pittsburgh Management Consultant; Trustee, Carnegie Endowment companies
Pittsburgh, PA for International Peace, RAND Corporation, Online in the Fund Complex
DIRECTOR 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; Trustee, Czech Management Center,
Prague. Retired: Professor, United States Military
Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: June 21, 1935 Public Relations/Marketing/Conference Planning. Corporation and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
DIRECTOR Company ofAmerica; business owner. in the Fund Complex
J. Christopher Donahue+ President or Executive Vice President of the Federated ; $0 $0 for the
Birth date: April 11, 1949 Fund Complex Director or Trustee of some of the Funds Corporation and
Federated Investors Tower in the Federated Fund Complex; President and Director, 16 other investment
1001 Liberty Avenue Federated Investors, Inc.; President and Trustee, companies
Pittsburgh, PA Federated Investment Management Company; President and in the Fund Complex
EXECUTIVE VICE PRESIDENT Director, Federated Investment Counseling, and
Federated Global Investment Management Corp.;
President, Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.
Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the
Birth date: October 22, 1930 Federated Fund Complex; President, Executive Vice Corporation and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company, Federated Investment Counseling,
Federated Global Investment Management Corp. and
Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the
Birth date: October 26, 1938 Federated Fund Complex; Executive Vice President, Corporation and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 54 other investment
1001 Liberty Avenue Trustee, Federated Investment Management Company; companies
Pittsburgh, PA Director, Federated Investment Counseling and in the Fund Complex
EXECUTIVE VICE PRESIDENT Federated Global Investment
Management Corp.; Director, Federated Services
Company; Director, Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial Services companies
Pittsburgh, PA Division of Federated Investors, Inc. in the Fund Complex
TREASURER
Henry A. Frantzen Chief Investment Officer of this Fund and various $0 $0 for the
Birth date: November 28, 1942 other Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Executive Vice President, Federated Investment 3 other investment
1001 Liberty Avenue Counseling, Federated Global Investment Management companies
Pittsburgh, PA Corp., Federated Investment Management Company, and in the Fund Complex
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Vice President,
Federated Investors, Inc.; Formerly: Executive
Vice President, Federated Investment
Counseling Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International Equities, Brown
Brothers Harriman & Co.; Managing Director,
BBH Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. Collins $0 $0 for the
Birth date: December 19, 1956 joined Federated Investors in 1995 as a Senior Corporation and
Federated Investors Tower Portfolio Manager and a Senior Vice President of 1 other investment company
1001 Liberty Avenue the Fund's investment adviser. Mr. Collins served in the Fund Complex
Pittsburgh, PA as Vice President/Portfolio Manager of international
VICE PRESIDENT equity portfolio at Arnhold and Bleichroeder, Inc. from
1994 to 1995. He serves 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 Wharton School of
The University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation. INVESTMENT ADVISER The Adviser
conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated. The Adviser shall
not be liable to the Corporation, the Fund, or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $277,106.09 for which the
Funds paid $20,902.73 in brokerage commissions. Investment decisions for
the Fund are made independently from those of other accounts managed by the
Adviser. When the Fund and one or more of those accounts invests in, or disposes
of, the same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the Adviser
to be equitable. While the coordination and ability to participate in volume
transactions may benefit the Fund, it is possible that this procedure could
adversely impact the price paid or received and/or the position obtained or
disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditor for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $122,689 $100,152 $ 48,769
Advisory Fee Reduction $122,689 $100,152 $ 48,769
Brokerage Commissions $350,186 $200,241 $ 69,033
Administrative Fee $185,000 $185,000 $141,023
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $ 27,590 NA NA
Class C Shares $ 3,981 NA NA
Shareholder Services Fee
Class A Shares $ 17,360 NA NA
Class B Share $ 9,197 NA NA
Class C Shares $ 1,327 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return. AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
<TABLE> <CAPTION>
Class Name 1 Year Start of Performance*
<S> <C> <C>
Class A Shares (22.52%) (16.66%)
Class B Shares (23.10%) (16.71%)
Class C Shares (19.29%) (15.37%)
</TABLE>
* Start of performance on February 28, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.
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.
Morgan Stanley Capital International World Indices
Includes, 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.
Ibbotson Associates International Bond Index
Provides a detailed breakdown of local market and currency returns since 1960.
Bear Stearns Foreign Bond Index
Provides simple average returns for individual countries and GNP-weighted index,
beginning in 1975. The returns are broken down by local market and currency.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
CDA/Wiesenberger Investment Company Services
Mutual fund rankings and data that ranks and/or compares mutual funds by overall
performance, investment objectives, assets, expense levels, periods of existence
and/or other factors.
Financial Times Actuaries Indices
Includes the FTA-World Index (and components thereof), which are based on stocks
in major world equity markets.
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.
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.
CNBC/Financial News Composite Index.
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.
Salomon Brothers Global Telecommunications Index
Composed of telecommunications companies in the developing and emerging
countries.
Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope Database
retrieval services for information including, but not limited to, international
financial and economic data.
International Financial Statistics
Produced by the International Monetary Fund.
World Bank
Various publications and annual reports produced by the World Bank and its
affiliates.
International Bank for Reconstruction and Development
Various publications.
Moody's Investors Service, Inc., Fitch IBCA, Inc. and Standard & Poor's
Various publications
Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
International Finance Corporation (IFC) Emerging Markets Data Base Provides
detailed statistics on stock and bond markets in developing countries, including
IFC market indices.
Organization for Economic Cooperation and Development (OECD)
Various publications.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Asia Pacific Growth Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED ASIA PACIFIC GROWTH FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
FEDERATED EUROPEAN GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing primarily in
equity securities of European companies.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 10
How to Purchase Shares 10
How to Redeem and Exchange Shares 12
Account and Share Information 14
Who Manages the Fund? 15
Financial Information 17
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long-term growth of capital. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment strategies and policies described
in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in equity
securities 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.
In selecting portfolio securities, the adviser evaluates a company's financial
strength, competitive position in domestic and export markets, earnings
potential, growth prospects. The adviser also considers significant changes that
may alter the company's business, such as corporate restructuring, market
deregulation and privatizations. The adviser uses a variety of valuation
techniques to identify suitable investments, with a strong emphasis on
fundamental research.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include: . fluctuations in the value of equity securities in foreign
securities markets; . fluctuations in the exchange rate between the U.S. dollar
and foreign currencies; . the foreign markets in which the Fund invests may be
subject to economic or political conditions which are less favorable than those
of the United States and may lack financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies; . the possibility
that certain sectors may underperform other sectors or the market as a whole;
and . the growth stocks in which the Fund invests are typically more volatile
than value stocks and may depend more on price changes than dividends for
returns. The Shares offered by this prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any bank and are not
insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
[CHART APPEARS HERE - SEE APPENDIX.]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 18.74% (quarter ended March 31, 1998). Its lowest quarterly
return was (12.36%)(quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
Calendar Period 1 Year Start of Performance/1/
<S> <C> <C>
Class A 14.96% 19.17%
Class B 15.24% 19.62%
Class C 19.47% 20.50%
MSCI-EUROPE 28.53% 24.91%
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
February 28, 1996. The table shows the Fund's Class A, Class B and Class C
Shares average annual total returns (reduced to reflect applicable sales
charges) compared to the Morgan Stanley Capital International (Europe) Index
(MSCI-EUROPE) for the calendar periods ending December 31, 1998. The MSCI-
EUROPE Index is a market value-weighted index of the performance of over 500
securities listed on the stock exchanges of 15 countries in the European
region.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class
A Class B Class C
Fees Paid Directly From Your
Investment
<S> <C>
<C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable)
0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions)
(as a percentage of offering price)
None None None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None None None
Exchange Fee
None None None
Annual Fund Operating Expenses (Before
Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
Management Fee/2/
1.00% 1.00% 1.00%
Distribution (12b-1) Fee/3/
0.25% 0.75% 0.75%
Shareholder Services Fee
0.25% 0.25% 0.25%
Other Expenses
1.23% 1.23% 1.23%
Total Annual Fund Operating Expenses
2.73% 3.23%/4/ 3.23%
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along
with the net expenses the Fund actually paid for the fiscal year ended
November 30, 1998.
Waivers of Fund Expenses
0.88% 0.63% 0.63%
Total Actual Annual Fund Operating Expenses (after waivers)
1.85% 2.60% 2.60%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this
voluntary waiver at any time. The
management fee paid by the Fund (after the voluntary waiver) was 0.37% for the year ended November 30,
1998.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the fiscal year ended
November 30, 1998. Class A Shares
have no present intention of paying or accruing the distribution (12b-1) fee
during the year ending November 30, 1999. 4 Class B Shares convert to Class A
Shares (which pay lower ongoing expenses) approximately eight years after
purchase. </TABLE> EXAMPLE The following Example is intended to help you
compare the cost of investing in the Fund's Class A Shares, Class B Shares and
Class C Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B,
and Class C Shares for the time periods indicated and then redeem all of your
Shares at the end of those periods. Expenses assuming no redemption are also
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's Class A, Class B, and Class C Shares operating expenses are
before waivers as shown in the table and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A
Expenses assuming redemption $811 $1,351 $1,915 $3,442
Expenses assuming no redemption $811 $1,351 $1,915 $3,442
Class B
Expenses assuming redemption $876 $1,395 $1,888 $3,417
Expenses assuming no redemption $326 $ 995 $1,688 $3,417
Class C
Expenses assuming redemption $426 $ 995 $1,688 $3,531
Expenses assuming no redemption $326 $ 995 $1,688 $3,531
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing primarily in equity
securities 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.
In selecting portfolio securities, the adviser evaluates a company's financial
strength, competitive position in domestic and export markets, earnings
potential, growth prospects. In making its evaluation, the adviser analyzes
general economic condition and outlook of countries in which a company operates,
including its interest rates, foreign exchange rates and trade balance. The
adviser also considers significant changes that may alter a company's business,
such as corporate restructuring, market deregulation and privatizations. The
adviser uses a variety of valuation techniques to identify suitable investments,
with a strong emphasis on fundamental research.
Companies with similar characteristics may be grouped together in broad
categories called business sectors. The adviser may emphasize certain business
sectors in the portfolio that exhibit strong growth potential.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic equity securities, foreign securities
are subject to currency risks and risks of foreign investing.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign- based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity security in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments. SECTOR RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector. RISKS RELATED TO INVESTING
FOR GROWTH
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions. <TABLE> <CAPTION>
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase" below.
3 See "Sales Charge When You Redeem" below.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge as a Sales Charge as
Percentage of Public a Percentage of
Purchase Amount Offering Price NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than
$100,000 4.50% 4.71%
$100,000 but less than
$250,000 3.75% 3.90%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$1 million 2.00% 2.04%
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
-by you, your spouse, and your children under age 21; or
-of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales
charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C> A CDSC of 0.75% of the redemption amount applies to Class A Shares
redeemed up to 24 months after purchase under certain investment programs where
an investment professional received an advance payment on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced
sales payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional must notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
. The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g. Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares You will not be charged a
CDSC on SWP redemptions if: . you redeem 12% or less of your account value in a
single year; . you reinvest all dividends and capital gains distributions;
and . your account has at least a $10,000 balance when you establish the
SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum
balance). You will be subject to a CDSC on redemption amounts that exceed
the 12% annual limit. In measuring the redemption percentage, your account is
valued when you establish the SWP and then annually at calendar year-end. You
can redeem monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Frank Semack
Frank Semack has been the Fund's portfolio manager since its inception. Mr.
Semack joined Federated in 1995 as a Senior Portfolio Manager and a Vice
President of the Fund's Adviser. Mr. Semack served as an Investment Analyst at
Omega Advisers, Inc. from 1993 to 1994. He was a portfolio manager and Associate
Director of Wardley Investment Services (HK) Ltd. between 1980 and 1993. Mr.
Semack received his M.Sc. in economics from the London School of Economics.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated in 1995 as a Senior Portfolio Manager and a Senior Vice President of
the Fund's 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 Wharton School of The University of Pennsylvania.
Amanda Marsted
Amanda Marsted is an Investment Analyst who assists the portfolio managers in
selecting and monitoring the securities in which the Fund invests. Ms. Marsted
joined Federated in October 1997; she was an Equity Analyst with New Frontier
Capital, L.P. from April 1996 through September 1997. From July 1995 to April
1996, she served as a Consultant with the Organisation for Economic Co-Operation
and Development. Ms. Marsted completed her Master of International Affairs from
Columbia University in December 1994.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total more than $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998
1997 1996/1/
<S> <C> <C>
<C>
Net Asset Value, Beginning of Period $ 13.33 $
11.80 $10.00
Income From Investment Operations:
Net investment income 0.04
0.06/2/ 0.14
Net realized and unrealized gain on investments and 2.84
1.93 1.66
foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.88
1.99 1.80
Less
Distributions:
Distributions from net investment income --
(0.09) --
Distributions from net realized gain on investments and (0.42)
(0.37) --
foreign currency
transactions
TOTAL DISTRIBUTIONS (0.42)
(0.46) --
Net Asset Value, End of Period $ 15.79 $
13.33 $11.80
Total Return/3/ 22.13%
17.54% 18.00%
Ratios to Average Net
Assets:
Expenses 1.85%
1.91% 1.75%/5/
Net investment income 0.24%
0.50% 1.60%/5/
Expense waiver/reimbursement/4/ 0.63%
2.79% 11.10%/5/
Supplemental
Data:
Net assets, end of period (000 omitted) $40,543
$17,008 $3,318
Portfolio turnover 175%
119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998
1997 1996/1/
<S> <C> <C>
<C>
Net Asset Value, Beginning of Period $ 13.18
$11.74 $10.00
Income From Investment Operations:
Net investment income/(net operating loss) (0.00)/2/
(0.03)/3/ 0.01
Net realized and unrealized gain on investments and 2.72
1.91 1.73
foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.72
1.88 1.74
Less Distributions:
Distributions from net investment income --
(0.07) --
Distributions from net realized gain on investments and (0.42)
(0.37) --
foreign currency transactions
TOTAL DISTRIBUTIONS (0.42) (0.44)
Net Asset Value, End of Period $ 15.48
$13.18 $11.74
Total Return/4/ 21.14%
16.61% 17.40%
Ratios to Average Net Assets:
Expenses 2.60%
2.66% 2.50%/6/
Net investment income/(net operating loss) (0.51%)
(0.25%) 0.08%/6/
Expense waiver/reimbursement/5/ 0.63%
2.79% 11.10%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $17,952
$5,781 $1,215
Portfolio turnover 175%
119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share amount does not round to $(0.01). 3 Per share information is based
on average shares outstanding. 4 Based on net asset value, which does not
reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
6 Computed on an annualized basis.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C>
<C> <C>
Year Ended November 30 1998
1997 1996/1/
Net Asset Value, Beginning of Period $13.15
$11.73 $10.00
Income From Investment Operations:
Net investment income/(net operating loss) (0.00)/2/
(0.03)/3/ 0.01
Net realized and unrealized gain on investments and 2.70
1.90 1.72
foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.70
1.87 1.73
Less Distributions:
Distributions from net investment income --
(0.08) --
Distributions from net realized gain on investments and (0.42)
(0.37) --
foreign currency transactions
TOTAL DISTRIBUTIONS (0.42) (0.45)
Net Asset Value, End of Period $15.43
$13.15 $11.73
Total Return/4/ 21.03%
16.55% 17.30%
Ratios to Average Net Assets:
Expenses 2.60%
2.66% 2.50%/6/
Net investment income/(net operating loss) (0.51%)
(0.23%) 0.09%/6/
Expense waiver/reimbursement/5/ 0.63%
2.79% 11.06%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $2,426 $
768 $ 176
Portfolio turnover 175%
119% 58%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share amount does not round to $(0.01). 3 Per share information is based
on average shares outstanding. 4 Based on net asset value, which does not
reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
6 Computed on an annualized basis.
Federated European Growth Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400. You can obtain information
about the Fund (including the SAI) by visiting or writing the Public Reference
Room of the Securities and Exchange Commission in Washington, DC 20549-6009 or
from the Commission's Internet site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations and
copying charges.
Federated European Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinv.com
Investment Company Act File No. 811-7141
Cusip 981487861
Cusip 981487853
Cusip 981487846
G01469-02 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED EUROPEAN GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated European Growth Fund (Fund)
and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates by
reference the Fund's Annual Report. Obtain the prospectus or the Annual Report
without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487861
981487853
981487846
G01469-03 (2/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Global Investment Management Corp. (Adviser).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
it is organized under the laws of, or has a principal office located in, another
country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of
its total assets, capitalization, gross revenue or profit from goods produced,
services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy or sell the issuer's equity
securities at a specified price (the exercise price) at a specified future
date (the expiration date). The Fund may buy the designated securities by
paying the exercise price before the expiration date. Warrants may become
worthless if the price of the stock does not rise above or fall below the
exercise price by the expiration date. This increases the market risks of
warrants as compared to the underlying security. Rights are the same as
warrants, except companies typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's current yield
measures the annual income earned on a security as a percentage of its price. A
security's yield will increase or decrease depending upon whether it costs less
(a discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full, faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer
cannot continue to obtain liquidity in this fashion, its commercial paper
may default. The short maturity of commercial paper reduces both the market
and credit risks as compared to other debt securities of the same issuer.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the
Fund may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments. Moreover, depending on the structure of the particular hybrid, it
may carry liquidity risks.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions. Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Investment Ratings for Investment Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Risks of Investing in Emerging Market Countries
. Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
may be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
. 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.
. The Adviser is seeking information regarding the Year 2000 readiness of
issuers or Fund service providers located in emerging markets. The Year 2000
problem is the potential for computer errors or failures because certain
computer systems may be unable to interpret dates after December 31, 1999, or
experience other date-related problems. However, this information may not exist,
or may be incomplete, inaccurate or difficult to obtain. As a result, the
Adviser might not be able to assess accurately or avoid the potential effects of
the Year 2000 problem on these companies, and these problems could result in
material losses to the Fund. Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Related to Company Size
. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material changes in these limitations becomes 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and . for all other securities at fair value as
determined in good faith by the Board. Prices provided by independent
pricing services may be determined without relying exclusively on quoted prices
and may consider institutional trading in similar groups of securities, yield,
quality, stability, risk, coupon rate, maturity, type of issue, trading
characteristics, and other market data or factors. From time to time, when
prices cannot be obtained from an independent pricing service, securities may be
valued based on quotes from broker-dealers or other financial institutions that
trade the securities. The Fund values futures contracts and options at
their market values established by the exchanges on which they are traded at the
close of trading on such exchanges. Options traded in the over-the-counter
market are valued according to the mean between the last bid and the last asked
price for the option as provided by an investment dealer or other financial
institution that deals in the option. The Board may determine in good faith that
another method of valuing such investments is necessary to appraise their fair
market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce the sales charge you pay.
You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases. Reinvestment Privilege You may reinvest,
within 120 days, your redemption proceeds at the next determined NAV without any
sales charge. Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases: . the Directors, employees and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates; . Employees
of State Street Bank Pittsburgh who started their employment on January 1, 1998,
and were employees of Federated Investors, Inc. (Federated) on December 31,
1997; . any associated person of an investment dealer who has a sales agreement
with the Distributor; and . trusts, pension or profit-sharing plans for these
individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE These
reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the post-purchase death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder; . representing minimum required distributions from an
Individual Retirement Account or other retirement plan in Federated Funds to a
shareholder who has attained the age of 70 1/2; . which are involuntary
redemptions processed by the Fund because the accounts do not meet the minimum
balance requirements; . which are qualifying redemptions of Class B Shares under
a Systematic Withdrawal Program; . of Shares that represent a reinvestment
within 120 days of a previous redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage
of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Federated International Growth Fund, Pittsburgh, PA owned approximately
929,653 Class A Shares (38.64%); Resources Trust Company, Englewood, CO owned
approximately 350,305 Class A Shares (14.56%); Merrill Lynch Pierce Fenner &
Smith, Jacksonville, FL owned approximately 127,630 Class A Shares (5.30%) and
71,237 Class B Shares (5.46%); and Salomon Smith Barney Inc. owned approximately
26,469 Class C Shares (10.42%). Shareholders owning 25% or more of
outstanding Shares may be in control and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned
approximately less than 1% of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and
Position With Corporation for Past Five Years Corporation Fund Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or $ 0 $0 for the
Birth date: July 28, 1924 Trustee of the Federated Fund Complex, Corporation and
Federated Investors Tower Chairman and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Chairman and Trustee, companies
Pittsburgh, PA Federated Investment Management in the Fund Complex
DIRECTOR AND CHAIRMAN Company; Chairman and
Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: February 3, 1934 Fund Complex; Director, Member of Corporation and
15 Old Timber Trail Executive Committee, Children's Hospital 54 other investment
Pittsburgh, PA of Pittsburgh; formerly: Senior Partner, companies
DIRECTOR Ernst & Young LLP; Director, MED 3000 in the Fund Complex
Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth date: June 23, 1937 Fund Complex; President, Investment Corporation and
Wood/IPC Commercial Dept. Properties Corporation; Senior Vice 54 other investment
John R. Wood Associates, Inc. President, John R. Wood and Associates, companies
Realtors Inc., Realtors; Partner or Trustee in in the Fund Complex
3255 Tamiami Trial North Naples, private real estate ventures in Southwest
FL Florida; formerly: President, Naples
DIRECTOR Property Management, Inc. and Northgate
Village Development Corporation.
Nicholas Constantakis Director or Trustee of the Federated $1,416.84 $47,958.02 for the
Birth date: September 3, 1939 Fund Complex; formerly: Partner, Corporation and
175 Woodshire Drive Andersen Worldwide SC. 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth date: July 4, 1918 Fund Complex; Director and Member of Corporation and
One PNC Plaza-23rd Floor the Executive Committee, Michael Baker, 54 other investment
Pittsburgh, PA Inc.; formerly: Vice Chairman and Director, companies
DIRECTOR PNC Bank, N.A., and PNC Bank Corp.; in the Fund Complex
Director, Ryan Homes, Inc.
Previous Positions: Director, United
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth date: May 18, 1922 Fund Complex; Attorney-at-law; Director, Corporation and
571 Hayward Mill Road The Emerging Germany Fund, Inc. 54 other investment
Concord, MA companies
DIRECTOR Previous Positions: President, Boston in the Fund Complex
Stock Exchange, Inc.; Regional
Administrator, United States Securities
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: October 11, 1932 Fund Complex; Professor of Medicine, Corporation and
3471 Fifth Avenue University of Pittsburgh; Medical Director, 54 other investment
Suite 1111 University of Pittsburgh Medical Center companies
Pittsburgh, PA Downtown; Hematologist, Oncologist, and in the Fund Complex
DIRECTOR Internist, University of Pittsburgh Medical
Center; Member, National Board of
Trustees, Leukemia Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth date: June 18, 1924 Fund Complex; Attorney, of Counsel, Corporation and
Miller, Ament, Henny & Kochuba Miller, Ament, Henny & Kochuba; Director, 54 other investment
205 Ross Street Emeritus, Eat'N Park Restaurants, Inc.; companies
Pittsburgh, PA formerly: Counsel, Horizon Financial, F.A., in the Fund Complex
DIRECTOR Western Region; Partner, Meyer and
Flaherty.
Peter E. Madden Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: March 16, 1942 Fund Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and companies
Palm Beach, FL Trust Company and State Street in the Fund Complex
DIRECTOR Corporation.
Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the $ 0 $0 for the
Birth date: April 10, 1945 Federated Funds; Managment Consultant. Corporation and
80 South Road 26 other investment
Westhampton Beach, NY Retired: Chief Executive Officer, PBTC companies
DIRECTOR International Bank; Chief Financial Officer in the Fund Complex
of Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: December 20, 1932 Fund Complex; President, Law Professor, Corporation and
President, Duquesne University Duquesne University; Consulting Partner, 54 other investment
Pittsburgh, PA Mollica & Murray. companies
DIRECTOR in the Fund Complex
Previous Positions: Dean and Professor of
Law, University of Pittsburgh School of
Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: September 14, 1925 Fund Complex; President, World Society Corporation and
1202 Cathedral of Learning of Ekistics (metropolitan planning), 54 other investment
University of Pittsburgh Athens; Professor, International Politics; companies
Pittsburgh, PA Management Consultant; Trustee, in the Fund Complex
DIRECTOR 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; Trustee, Czech Management
Center, Prague.
Retired: Professor, United States Military
Academy; Professor, United States Air
Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth date: June 21, 1935 Fund Complex; Public Corporation and
4905 Bayard Street Relations/Marketing/Conference Planning. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: National in the Fund Complex
Spokesperson, Aluminum Company of
America; business owner.
J. Christopher Donahue+ President or Executive Vice President of $ 0 $0 for the
Birth date: April 11, 1949 the Federated Fund Complex; Director or Corporation and
Federated Investors Tower Trustee of some of the Funds in the 16 other investment
1001 Liberty Avenue Federated Fund Complex; President and companies
Pittsburgh, PA Director, Federated Investors, Inc.; in the Fund Complex
EXECUTIVE VICE PRESIDENT President and Trustee, Federated
Investment Management Company; President
and Director, Federated Investment
Counseling and Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
Edward C. Gonzales Trustee or Director of some of the Funds $0 $0 for the
Birth date: October 22, 1930 in the Federated Fund Complex; Corporation and
Federated Investors Tower President, Executive Vice President and 1 other investment companies
1001 Liberty Avenue Treasurer of some of the Funds in the in the Fund Complex
Pittsburgh, PA Federated Fund Complex; Vice Chairman,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.; Vice President,
Federated Investment Management
Company, Federated Investment
Counseling, Federated Global Investment
Management Corp. and Passport Research,
Ltd.; Executive Vice President and
Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary of $0 $0 for the
Birth date: October 26, 1938 the Federated Fund Complex; Executive Corporation and
Federated Investors Tower Vice President, Secretary, and Director, 54 other investment
1001 Liberty Avenue Federated Investors, Inc.; Trustee, companies
Pittsburgh, PA Federated Investment Management in the Fund Complex
EXECUTIVE VICE PRESIDENT Company; Director, Federated Investment
Counseling and Federated Global Investment
Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; $0 $0 for the
Birth date: June 17, 1954 Vice President - Funds Financial Services Corporation and
Federated Investors Tower Division, Federated Investors, Inc.; 54 other investment
1001 Liberty Avenue Formerly: various management positions companies
Pittsburgh, PA within Funds Financial Services Division of in the Fund Complex
TREASURER Federated Investors, Inc.
Henry A. Frantzen Chief Investment Officer of this Fund and $0 $0 for the
Birth date: November 28, 1942 various other Funds in the Federated Corporation and
Federated Investors Tower Fund Complex; Executive Vice President, 3 other investment companies
1001 Liberty Avenue Federated Investment Counseling, in the Fund Complex
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company, and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Vice President,
Federated Investors, Inc.; Formerly:
Executive Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. $0 $0 for the
Birth date: December 19, 1956 Collins joined Federated Investors in 1995 Corporation and
Federated Investors Tower as a Senior Portfolio Manager and a Senior 1 other investment company
1001 Liberty Avenue Vice President of the Fund's investment in the Fund Complex
Pittsburgh, PA adviser. Mr. Collins served as Vice
VICE PRESIDENT 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 Wharton School of The
University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $119,532.11 for which the
Funds paid $416.90 in brokerage commissions. Investment decisions for the
Fund are made independently from those of other accounts managed by the Adviser.
When the Fund and one or more of those accounts invests in, or disposes of, the
same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the Adviser
to be equitable. While the coordination and ability to participate in volume
transactions may benefit the Fund, it is possible that this procedure could
adversely impact the price paid or received and/or the position obtained or
disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum
Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditor for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $441,392 $141,895 $ 27,135
Advisory Fee Reduction $203,004 $141,895 $ 27,135
Brokerage Commissions $467,356 $123,241 $ 14,206
Administrative Fee $185,000 $185,000 $141,023
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $ 86,339 NA NA
Class C Shares $ 12,377 NA NA
Shareholder Services Fee
Class A Shares $ 77,432 NA NA
Class B Share $ 28,780 NA NA
Class C Shares $ 4,126 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
Class Name 1 Year Start of Performance*
Class A Shares 15.38% 18.62%
Class B Shares 15.64% 19.09%
Class C Shares 20.03% 20.05%
* Start of performance on February 28, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.
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.
Morgan Stanley Capital International World Indices
Includes, 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.
Ibbotson Associates International Bond Index
Provides a detailed breakdown of local market and currency returns since 1960.
Bear Stearns Foreign Bond Index
Provides simple average returns for individual countries and GNP-weighted index,
beginning in 1975. The returns are broken down by local market and currency.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
CDA/Wiesenberger Investment Company Services
Mutual fund rankings and data that ranks and/or compares mutual funds by overall
performance, investment objectives, assets, expense levels, periods of existence
and/or other factors.
Financial Times Actuaries Indices
Includes the FTA-World Index (and components thereof), which are based on stocks
in major world equity markets.
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.
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.
CNBC/Financial News Composite Index.
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.
Salomon Brothers Global Telecommunications Index
Composed of telecommunications companies in the developing and emerging
countries.
Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope
Database retrieval services for information including, but not limited to,
international financial and economic data.
International Financial Statistics
Produced by the International Monetary Fund.
World Bank
Various publications and annual reports produced by the World Bank and its
affiliates.
International Bank for Reconstruction and Development
Various publications.
Moody's Investors Service, Inc., Fitch IBCA, Inc. and Standard & Poor's
Various publications
Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
International Finance Corporation (IFC) Emerging Markets Data Base
Provides detailed statistics on stock and bond markets in developing countries,
including IFC market indices.
Organization for Economic Cooperation and Development (OECD)
Various publications.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated European Growth Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED EUROPEAN GROWTH FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
FEDERATED EMERGING MARKETS FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing primarily in
equity securities of issuers and companies located in countries having emerging
markets.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 7
What do Shares Cost? 8
How is the Fund Sold? 11
How to Purchase Shares 11
How to Redeem and Exchange Shares 13
Account and Share Information 16
Who Manages the Fund? 17
Financial Information 18
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long- term growth of capital.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment strategies and policies
described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The fund pursues its investment objective by investing at least 65% of its
assets in equity securities of issuers and companies located in countries having
emerging markets. Emerging markets are those which have gross domestic product
per capita lower than $10,000 per year.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. investments in securities of emerging market countries,
. fluctuations in the value of equity securities in foreign securities markets;
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies; and
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
[CHART APPEARS HERE-SEE APPENDIX.]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 13.79% (quarter ended March 31, 1997). Its lowest quarterly
return was (25.24%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
Calendar Period 1 Year Start of Performance1
<S> <C> <C>
Class A (29.14%) (7.38%)
Class B (29.74%) (7.61%)
Class C (26.37%) (6.23%)
IFCIC (22.01%) (12.81%)
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
February 28, 1996.
The table shows the Fund's Class A, Class B and Class C Shares average annual
total returns (reduced to reflect applicable sales charges) compared to the
International Financial Corporation Investable Composite Index (IFCIC), a
broad- based index, for the calendar periods ending December 31, 1998. IFCIC
is an unmanaged market cap-weighted index of over 1,000 securities in 26
emerging market countries.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
<S> <C> <C> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or 0.00% 5.50% 1.00%
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None None None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 1.25% 1.25% 1.25%
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 1.34% 1.34% 1.34%
Total Annual Fund Operating Expenses 3.09% 3.59%/4/ 3.59%
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended November 30, 1998. Waivers
of Fund Expenses 0.50% 0.25% 0.25% Total Actual Annual Fund Operating
Expenses (after waivers) 2.59% 3.34% 3.34%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 1.00% for the year ended November
30, 1998.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended November 30, 1998. Class A Shares have no present
intention of paying or accruing the distribution (12b-1) fee during the year
ending November 30, 1999.
4 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. </TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your Shares
at the end of those periods. Expenses assuming no redemption are also shown. The
Example also assumes that your investment has a 5% return each year and that the
Fund's Class A, Class B, and Class C Shares operating expenses are before
waivers as shown in the Table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A
Expenses assuming redemption $845 $1,451 $2,081 $3,765
Expenses assuming no redemption $845 $1,451 $2,081 $3,765
Class B
Expenses assuming redemption $912 $1,500 $2,059 $3,744
Expenses assuming no redemption $362 $1,100 $1,859 $3,744
Class C
Expenses assuming redemption $462 $1,100 $1,859 $3,854
Expenses assuming no redemption $362 $1,100 $1,859 $3,854
</TABLE>
What are the Fund's Investment Strategies?
The fund pursues its investment objective by investing at least 65% of its
assets in equity securities of issuers and companies located in countries having
emerging markets. Emerging markets are those which have gross domestic product
per capita lower than $10,000 per year.
The adviser weighs several factors in selecting investments for the portfolio.
First, the adviser analyzes a country's general economic condition and outlook,
including its interest rates, foreign exchange rates and trade balance. In
connection with this analysis, the adviser also considers how developments in
other countries in the region or the world might affect these factors. Using its
analysis, the adviser tries to identify countries with favorable
characteristics, such as a strengthening economy, favorable inflation rate or
sound budget policy.
The adviser then evaluates available investments in these countries by
examining the issuer's liquidity, industry representation, performance relative
to its industry, and profitability as well its products, the quality of its
management, and its competitive position in the marketplace. Under normal market
conditions, the adviser manages the Fund so that its portfolio contains over 200
stocks. Under normal market conditions, the adviser expects to be invested in
more than 20 countries.
Companies may be grouped together in broad categories called economic sectors.
The adviser may emphasize certain economic sectors in the portfolio that exhibit
stronger growth potential or higher profit margins. The adviser allocates the
portfolio among five economic sectors: consumer, financial, industrial,
resources, and utilities. The adviser tries to select securities that offer the
best potential returns consistent with its general portfolio strategy.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic equity securities, foreign securities
are subject to currency risks and risks of foreign investing. Trading in certain
foreign markets is also subject to liquidity risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
EMERGING MARKET RISKS
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
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.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions. <TABLE> <CAPTION>
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase" below.
3 See "Sales Charge When You Redeem" below.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than 4.50% 4.71%
$100,000
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than $1 2.00% 2.04%
million
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase under
certain investment programs where an investment professional received an
advance payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
-by you, your spouse, and your children under age 21; or
-of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
ACDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
Class B Shares
<S> <C>
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced
sales payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should
notify the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
. The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire and check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check. You will
become the owner of Shares and your Shares will be priced at the next calculated
NAV after the Fund receives your wire or your check. If your check does not
clear, your purchase will be canceled and you could be liable for any losses or
fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened: . an electronic transfer to your account at a financial
institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Jolanta M. Wysocka
Jolanta M. Wysocka has been the Fund's portfolio manager since its inception in
February 1996. Ms. Wysocka joined Federated Investors in 1995 as a Portfolio
Manager and a Vice President of the Fund's 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 received her
master's degree in computer science from the Institute of Technology, Zielona
Gora, Poland.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated in 1995 as a Senior Portfolio Manager and a Senior Vice President of
the Fund's 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 Wharton School of The University of Pennsylvania.
Christopher Matyszewski
Christopher Matyszewski is an Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Matyszewski joined Federated in June 1997; he was a Securities Trader for
Brandes Investment from September 1994 through January 1996. From January 1993
through March 1994, Mr. Matyszewski served as a Medical Mission Coordinator with
Operation Smile International. Mr. Matyszewski earned his Masters of
International Management from The American Graduate School for International
Management.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total more than $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.25% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.64 $ 11.10 $ 10.00
Income From Investment Operations:
Net investment income 0.03 0.01 0.02
Net realized and unrealized gain/(loss) on investments and
foreign currency (3.27) 0.53/2/ 1.08
TOTAL FROM INVESTMENT OPERATIONS (3.24) 0.54 1.10
Net Asset Value, End of Period $ 8.40 $ 11.64 $ 11.10
Total Return/3/ (28.02%) 4.86% 11.00%
Ratios to Average Net Assets:
Expenses 2.59% 2.14% 1.97%/5/
Net investment income 0.30% 0.13% 0.31%/5/
Expense waiver/reimbursement/4/ 0.25% 0.65% 3.34%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $32,002 $48,525 $17,327
Portfolio turnover 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.50 $ 11.04 $10.00
Income From Investment Operations:
Net operating loss (0.08) (0.04) (0.02)
Net realized and unrealized gain/(loss) on investments and
foreign currency (3.19) 0.50/2/ 1.06
TOTAL FROM INVESTMENT OPERATIONS (3.27) 0.46 1.04
Net Asset Value, End of Period $ 8.23 $ 11.50 $11.04
Total Return/3/ (28.56%) 4.17% 10.40%
Ratios to Average Net Assets:
Expenses 3.34% 2.89% 2.72%/5/
Net operating loss (0.45%) (0.69%) (0.71%)/5/
Expense waiver/reimbursement/4/ 0.25% 0.65% 3.34%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $10,884 $19,951 $3,747
Portfolio turnover 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.50 $11.05 $10.00
Income From Investment Operations:
Net operating loss (0.09) (0.04) (0.02)
Net realized and unrealized gain/(loss) on investments and
foreign currency (3.18) 0.49/2/ 1.07
TOTAL FROM INVESTMENT OPERATIONS (3.27) 0.45 1.05
Net Asset Value, End of Period $ 8.23 $11.50 $11.05
Total Return/3/ (28.62%) 4.07% 10.50%
Ratios to Average Net Assets:
Expenses 3.34% 2.89% 2.72%/5/
Net operating loss (0.45%) (0.65%) (0.77%)/5/
Expense waiver/reimbursement/4/ 0.25% 0.65% 3.34%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $ 1,872 $3,943 $ 847
Portfolio turnover 163% 102% 32%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments
and foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Federated Emerging Markets Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400. You can obtain information
about the Fund (including the SAI) by visiting or writing the Public Reference
Room of the Securities and Exchange Commission in Washington, DC 20549-6009 or
from the Commission's Internet site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations and
copying charges. Federated Emerging Markets Fund Federated Investors Funds
5800 Corporate Drive Pittsburgh, PA 15237-7000 1-800-341-7400 Federated
Securities Corp., Distributor
Investment Company Act File No. 811-7141
Cusip 981487804
Cusip 981487887
Cusip 981487879
G01472-02 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED EMERGING MARKETS FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Emerging Markets Fund
(Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487804
981487887
981487879
G01472-03 (2/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Global Investment Management Corp. (Adviser).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the
Fund may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material changes in these limitations becomes 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce the sales charge you pay.
You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your redemption proceeds at the next
determined NAV without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
. the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
. any associated person of an investment dealer who has a sales agreement with
the Distributor; and
. trusts, pension or profit-sharing plans for these individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
. following the post-purchase death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Advance Payments as a Percentage
Amount of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Charles Schwab & Co. Inc., San
Francisco, CA owned approximately 552,971 Class A Shares (15.65%); Frojack Co.,
Frand Forks, ND owned approximately 402,495 Class A Shares (11.39%); Union
Planters National Bank, Memphis, TN owned approximately 378,361 Class A Shares
(10.71%); The Provident Bank, Cincinnati, OH, owned approximately 294,841 Class
A Shares (8.34%); and Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL
owned approximately 148,120 Class B Shares (12.87%) and 34,931 Class C Shares
(15.94%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee $ 0 $0 for the
Birth date: July 28, 1924 of the Federated Fund Complex, Chairman and Corporation and
Federated Investors Tower Director, Federated Investors, Inc.; Chairman 54 other investment
1001 Liberty Avenue and Trustee, Federated Investment Management companies
Pittsburgh, PA Company; Chairman and Director, Federated in the Fund Complex
DIRECTOR AND CHAIRMAN Investment Counseling and Federated Global
Investment Management Corp.; Chairman, Passport
Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; 54 other investment
Pittsburgh, PA formerly: Senior Partner, Ernst & Young LLP; companies
DIRECTOR Director, MED 3000 Group, Inc.; Director, Member in the Fund Complex
of Executive Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/IPC Commercial Dept. Corporation; Senior Vice President, John R. Wood 54 other investment
John R. Wood Associates, Inc. and Associates, Inc., Realtors; Partner or companies
Realtors Trustee in private real estate ventures in in the Fund Complex
3255 Tamiami Trial North Naples, Southwest Florida; formerly: President, Naples
FL Property Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
Nicholas Constantakis Director or Trustee of the Federated Fund $1,416.84 $47,958.02 for the
Birth date: September 3, 1939 Complex; formerly: Partner, Andersen Worldwide Corporation and
175 Woodshire Drive SC. 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: July 4, 1918 Complex; Director and Member of the Executive Corporation and
One PNC Plaza-23rd Floor Committee, Michael Baker, Inc.; formerly: Vice 54 other investment
Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and PNC companies
DIRECTOR Bank Corp.; Director, Ryan Homes, Inc. in the Fund Complex
Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light
Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: May 18, 1922 Complex; Attorney-at-law; Director, The Emerging Corporation and
571 Hayward Mill Road Germany Fund, Inc. 54 other investment
Concord, MA companies
DIRECTOR Previous Positions: President, Boston Stock in the Fund Complex
Exchange, Inc.; Regional Administrator, United
States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center Downtown; companies
Pittsburgh, PA Hematologist, Oncologist, and Internist, in the Fund Complex
DIRECTOR University of Pittsburgh Medical Center; Member,
National Board of Trustees, Leukemia Society of
America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: June 18, 1924 Complex; Attorney, of Counsel, Miller, Ament, Corporation and
Miller, Ament, Henny & Kochuba Henny & Kochuba; Director ,Emeritus, Eat'N Park 54 other investment
205 Ross Street Restaurants, Inc.; formerly: Counsel, Horizon companies
Pittsburgh, PA Financial, F.A., Western Region; Partner, Meyer in the Fund Complex
DIRECTOR and Flaherty.
Peter E. Madden Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: March 16, 1942 Complex; formerly: Representative, Commonwealth Corporation and
One Royal Palm Way of Massachusetts General Court; President, State 54 other investment
100 Royal Palm Way Street Bank and Trust Company and State Street companies
Palm Beach, FL Corporation. in the Fund Complex
DIRECTOR
Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated $ 0 $0 for the
Birth date: April 10, 1945 Funds; Managment Consultant. Corporation and
80 South Road 26 other investment
Westhampton Beach, NY Retired: Chief Executive Officer, PBTC companies
DIRECTOR International Bank; Chief Financial Officer of in the Fund Complex
Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & Murray. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: Dean and Professor of Law, in the Fund Complex
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of
Law.
Wesley W. Posvar Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: September 14, 1925 Complex; President, World Society of Ekistics Corporation and
1202 Cathedral of Learning (metropolitan planning), Athens; Professor, 54 other investment
University of Pittsburgh International Politics; Management Consultant; companies
Pittsburgh, PA Trustee, Carnegie Endowment for International in the Fund Complex
DIRECTOR 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; Trustee, Czech
Management Center, Prague.
Retired: Professor, United States Military
Academy; Professor, United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: June 21, 1935 Complex; Public Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: National Spokesperson, in the Fund Complex
Aluminum Company of America; business
owner.
J. Christopher Donahue+ President or Executive Vice President of the $ 0 $0 for the
Birth date: April 11, 1949 Federated Fund Complex; Director or Trustee of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 16 other investment
1001 Liberty Avenue President and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President and Trustee, Federated in the Fund Complex
EXECUTIVE VICE PRESIDENT Investment Management Company; President and
Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the Funds in the $ 0 $0 for the
Birth date: October 22, 1930 Federated Fund Complex; President, Executive Corporation and
Federated Investors Tower Vice President and Treasurer of some of the 1 other investment
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice companies
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice in the Fund Complex
EXECUTIVE VICE PRESIDENT President, Federated Investment Management
Company, Federated Investment Counseling,
Federated Global Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary of the $ 0 $0 for the
Birth date: October 26, 1938 Federated Fund Complex; Executive Vice Corporation and
Federated Investors Tower President, Secretary, and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Investment companies
Pittsburgh, PA Management Company; Director, Federated in the Fund Complex
EXECUTIVE VICE PRESIDENT Investment Counseling and Federated Global
Investment Management Corp.; Director, Federated
Services Company; Director, Federated Securities
Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $ 0 $0 for the
Birth date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial companies
Pittsburgh, PA Services Division of Federated Investors, Inc. in the Fund Complex
TREASURER
Henry A. Frantzen Chief Investment Officer of this Fund and $ 0 $0 for the
Birth date: November 28, 1942 various other Funds in the Federated Fund Corporation and
Federated Investors Tower Complex; Executive Vice President, Federated 3 other investment
1001 Liberty Avenue Investment Counseling, Federated Global companies
Pittsburgh, PA Investment Management Corp., Federated in the Fund Complex
CHIEF INVESTMENT OFFICER Investment Management Company, and Passport
Research, Ltd.; Registered Representative,
Federated Securities Corp.; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing
Director, BBH Investment Management
Limited.
Drew J. Collins Vice President of the Corporation. Mr. Collins $ 0 $0 for the
Birth date: December 19, 1956 joined Federated Investors in 1995 as a Senior Corporation and
Federated Investors Tower Portfolio Manager and a Senior Vice President of 1 other investment
1001 Liberty Avenue the Fund's investment adviser. Mr. Collins company
Pittsburgh, PA served as Vice President/Portfolio Manager of in the Fund Complex
VICE PRESIDENT 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 Wharton
School of The University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation. INVESTMENT ADVISER The Adviser
conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $1,116,373.27 for which the
Funds paid $6,828.36 in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditor for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $ 758,455 $775,299 $121,495
Advisory Fee Reduction $ 115,548 $408,722 $121,495
Brokerage Commissions $1,057,866 $777,632 $ 90,361
Administrative Fee $ 185,000 $185,000 $141,023
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $ 119,917 NA NA
Class C Shares $ 22,321 NA NA
Shareholder Services Fee
Class A Shares $ 104,279 NA NA
Class B Share $ 39,972 NA NA
Class C Shares $ 7,440 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
<TABLE>
<CAPTION>
Class Name 1 Year Start of Performance*
<S> <C> <C>
Class A Shares (31.98%) (8.03%)
Class B Shares (32.49%) (8.19%)
Class C Shares (29.33%) (6.82%)
* Start of performance on February 28, 1996.
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.
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.
Morgan Stanley Capital International World Indices
Includes, 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.
Morgan Stanley Capital International Latin America Emerging Market Indices
Includes 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.
Lehman Brothers High Yield Index
Covers the universe of fixed rate, publicly issue, non-investment 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 IBCA, Inc. 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.
Ibbotson Associates International Bond Index
Provides a detailed breakdown of local market and currency returns since 1960.
Bear Stearns Foreign Bond Index
Provides simple average returns for individual countries and GNP-weighted index,
beginning in 1975. The returns are broken down by local market and currency.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
CDA/Wiesenberger Investment Company Services
Mutual fund rankings and data that ranks and/or compares mutual funds by overall
performance, investment objectives, assets, expense levels, periods of existence
and/or other factors.
Financial Times Actuaries Indices
Includes the FTA-World Index (and components thereof), which are based on stocks
in major world equity markets.
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.
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.
CNBC/Financial News Composite Index.
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.
Salomon Brothers Global Telecommunications Index
Composed of telecommunications companies in the developing and emerging
countries.
Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope Database
retrieval services for information including, but not limited to, international
financial and economic data.
International Financial Statistics
Produced by the International Monetary Fund.
World Bank
Various publications and annual reports produced by the World Bank and its
affiliates.
International Bank for Reconstruction and Development
Various publications.
Moody's Investors Service, Inc., Fitch IBCA, Inc. and Standard & Poor's
Various publications
Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
International Finance Corporation (IFC) Emerging Markets Data Base Provides
detailed statistics on stock and bond markets in developing countries, including
IFC market indices.
Organization for Economic Cooperation and Development (OECD)
Various publications.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Emerging Markets Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED EMERGING MARKETS FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Federated Global Equity Income Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking capital appreciation and above-average income by investing
primarily in income producing global equity securities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 8
How to Purchase Shares 8
How to Redeem and Exchange Shares 10
Account and Share Information 12
Who Manages the Fund? 13
Financial Information 15
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide capital appreciation and
above-average income. The Fund is managed to earn a yield equal to or greater
than the Morgan Stanley Capital World Index (Index). While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily, but not
exclusively, in equity securities of US and foreign companies which are
represented in the Index, an index of 1,800 global stocks. With respect to
approximately half of the Fund's portfolio, the adviser rates the future
performance potential of the top 100 companies, on a market capitalization
basis, in the Index. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share. The adviser
then rates the future performance potential of companies which are not
represented in the Index.
The adviser evaluates each company's earnings relative to its current
valuation to narrow the list of attractive companies. The adviser then evaluates
product positioning, management quality, earnings diversification, dividend
yield and sustainability of current growth trends of those companies. The
adviser expects to receive a yield on the stocks selected for the portfolio at
least equal to the yield of the Index. In implementing this strategy, the
adviser will invest in emerging market countries. Using this type of fundamental
analysis, the adviser selects the most promising companies for the Fund's
portfolio. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? All mutual
funds take investment risks. Therefore, it is possible to lose money by
investing in the Fund. The primary factors that may reduce the Fund's returns
include: . fluctuations in the value of equity securities in foreign
securities markets . fluctuations in the exchange rate between the U.S. dollar
and foreign
currencies; and
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. 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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
<S> <C> <C> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption proceeds, as applicable) 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Reimbursements and Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 1.00% 1.00% 1.00%
Distribution (12b-1) Fee 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses/3/ 4.57% 4.57% 4.57%
Total Actual Annual Fund Operating Expenses 6.07% 6.57%/4/ 6.57%
1 Although not contractually obligated to do so, the adviser waived and reimbursed certain amounts. These are shown below along
with the net expenses the Fund actually paid for the fiscal year ended
November 30, 1998.
Reimbursements and Waivers of Fund Expenses 4.07% 4.07% 4.07%
Total Actual Annual Fund Operating Expenses (after reimbursements and waivers) 2.00% 2.50% 2.50%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.00% for the year ended November
30, 1998.
3 The adviser voluntarily reimbursed certain operating expenses of the Fund.
This adviser can terminate this voluntary reimbursement at any time. Total
other expenses paid by the Fund (after the voluntary reimbursement) was 1.50%
for the year ended November 30, 1998.
4 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. </TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000
in the Fund's Class A Shares, Class B Shares and Class C Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
A Shares, Class B Shares and Class C Shares operating expenses are before
reimbursements and waivers as shown in the Table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be: <TABLE> <CAPTION> Share Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> Class A Expenses assuming $1,121 $2,243 $3,342 $5,988
redemption
Expenses assuming $1,121 $2,243 $3,342 $5,988
no redemption
Class B
Expenses assuming $1,202 $2,325 $3,358 $5,995
redemption
Expenses assuming $ 652 $1,925 $3,158 $5,995
no redemption
Class C
Expenses assuming $ 752 $1,925 $3,158 $6,077
redemption
Expenses assuming $ 652 $1,925 $3,158 $6,077
no redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing primarily, but not
exclusively, in equity securities of US and foreign companies which are
represented in the Index, an index of 1,800 global stocks. With respect to
approximately half of the Fund's portfolio, the adviser rates the future
performance potential of the top 100 companies, on a market capitalization
basis, in the Index. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share. The adviser
then rates the future performance potential of companies which are not
represented in the Index.
The adviser evaluates each company's earnings relative to its current
valuation to narrow the list of attractive companies. The adviser then evaluates
product positioning, management quality, earnings diversification, dividend
yield and sustainability of current growth trends of those companies. The
adviser expects to receive a yield on the stocks selected for the portfolio at
least equal to the yield of the Index. In implementing this strategy, the
adviser will invest in emerging market countries. Using this type of fundamental
analysis, the adviser selects the most promising companies for the Fund's
portfolio.
Companies with similar characteristics may be grouped together in broad
categories called business sectors. In determining the amount to invest in a
security, the adviser limits the Fund's exposure to each business sector that
comprises the Index.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic equity securities, foreign securities
are subject to currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal types of equity security in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designate listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions. <TABLE> <CAPTION>
Maximum Sales Charge
Minimum Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A/4/ $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
4 For Class A Shares the contingent deferred sales charge is 2.00% in the first
year declining to 1.00% in the second year and 0.00% thereafter for
shareholders who purchased shares through October 27, 1998. Shares purchased
after October 27, 1998 will be charged a 5.50% sales charge.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than 4.50% 4.71%
$100,000
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than 2.00% 2.04%
$1 million
$1 million or greater 0.00% 0.00%
</TABLE>
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
-by you, your spouse, and your children under age 21; or
-of the same share class of two or more Federated Fund (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class B Shares
<S> <C>
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced sales
payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund, if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund does not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Richard J. Lazarchic
Richard J. Lazarchic has been a portfolio manager of the Fund since inception.
Mr. Lazarchic joined Federated Investors in 1998 as a Portfolio Manager and Vice
President of the Fund's Adviser. From May 1979 through October 1997, Mr.
Lazarchic was employed with American Express Financial Corp., initially as an
Analyst and then as a Vice President/Senior Portfolio Manager. Mr. Lazarchic is
a Chartered Financial Analyst. He received his M.B.A. from Kent State
University.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated Investors in 1995 as a Senior Portfolio Manager and a Senior Vice
President of the Fund's 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 Wharton School of The University of Pennsylvania.
Richard Winkowski
Richard Winkowski is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Winkowski joined Federated Investors in April 1998; he served as a Senior
Research Analyst with Union Bank of Switzerland from October 1997 through March
1998. He was employed with American Express Financial Corp. as a Statistical
Analyst from April 1994 to January 1995 and then as a Portfolio Manager
Assistant until September 1997. Mr. Winkowski earned his B.A. from the
University of Wisconsin.
Peter Thoms
Peter Thoms is an Investment Analyst who assists the portfolio managers in
selecting and monitoring the securities in which the Fund invests. Mr. Thoms
joined Federated Investors in July 1998. From 1993 through mid-1996, Mr. Thoms
was a free-lance travel writer. He completed his M.B.A. at the University of
Virginia in May 1998.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C>
Year Ended November 30 1998/1/
Net Asset Value, Beginning of Period $ 10.00
Income From Investment Operations:
Net investment income 0.01
Net realized and unrealized gain on investments and foreign currency 0.54
TOTAL FROM INVESTMENT OPERATIONS 0.55
Net Asset Value, End of Period $ 10.55
Total Return/2/ 5.50%
Ratios to Average Net Assets:
Expenses 2.00%/4/
Net investment income 0.44%/4/
Expense waiver/reimbursement/3/ 4.07%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $18,858
Portfolio turnover 3%
</TABLE>
1 Reflects operations for the period from October 27, 1998 (start of
performance) to November 30, 1998.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
[logo of Federated]
Federated
Global Equity
Income Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual report to shareholders as
they become available. The annual report discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the annual report and other information
without charge, call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[logo of Federated]
Federated Global Equity Income Fund
Federated Investors Fund
5800 Corporated Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinv.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7141
Cusip 981487697
Cusip 981487689
Cusip 981487671
G02336-01 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED GLOBAL EQUITY INCOME FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Global Equity Income Fund
(Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487697
981487689
981487671
G02336-02 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Fund's investment adviser is Federated
Global Investment Management Corp. (Adviser). The Board of Directors (the
Board) has established three classes of shares of the Fund, known as Class A
Shares, Class B Shares and Class C Shares (Shares). This SAI relates to all
three classes of the above-mentioned Shares.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Non-Principal Investment Strategy
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full, faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Investors regard agency
securities as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely amount
issuers. The credit risk of an issuer's debt security may also vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer
cannot continue to obtain liquidity in this fashion, its commercial paper
may default. The short maturity of commercial paper reduces both the market
and credit risks as compared to other debt securities of the same issuer.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment. The Fund treats
convertible securities as both fixed income and equity securities for purposes
of its investment policies and limitations, because of their unique
characteristics.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5% of
the fair market value of its net assets may be invested in premiums on such
options.
The Fund may:
. Buy put options on foreign currencies, securities, and securities indices, and
on futures contracts involving these items in anticipation of a decrease in the
value of the underlying asset.
. Write covered call options on foreign currencies, securities, and securities
indices and on futures contracts involving these items to generate income from
premiums. 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.
. Write secured put options on foreign currencies, securities, and securities
indices and futures contracts involving these items (to generate income from
premiums). In writing puts, there is a risk that the Fund may be required to
take delivery of the underlying asset when its current market price is lower
than the exercise price. When the Fund writes options on futures contracts, it
will be subject to margin requirements similar to those applied to futures
contracts.
. Buy or write options to close out existing options positions.
The Fund may also write covered call options on foreign currencies,
securities, and securities indices and on futures contracts involving these
items to generate income from premiums. 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.
The Fund may also write secured put options on foreign currencies, securities,
and securities indices and futures contracts involving these items (to
generate income from premiums). In writing puts, there is a risk that the Fund
may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swap agreements provide for interest payments in different
currencies. The parties might agree to exchange the notional principal
amount as well.
Caps and Floors
In these arrangements one party agrees to make payments only under specific
circumstances, usually in return for payment of a fee by the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments. Moreover, depending on the structure of the particular hybrid, it
may expose the Fund to leverage risks or carry liquidity risks.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions. Investment Ratings for Investment Grade Securities. The
Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
INVESTMENT RISKS There are many factors which may affect an investment
in the Fund. The Fund's principal risks are described in its prospectus.
Additional risk factors are outlined below. Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Prepayment Risks
. Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.
. Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase the security is perceived to have an
increased prepayment risk or less market demand. An increase in the spread will
cause the price of the security to decline.
. The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.
Euro Risks
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Emerging Market Risks
. Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
. 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.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held or are issued by companies located in emerging markets. This may
make it more difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security, sell
other securities to raise cash or give up an investment opportunity, any of
which could have a negative effect on the Fund's performance. Infrequent trading
of securities may also lead to an increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Related to Company Size
. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including real estate
partnerships, 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, securities of other investment companies 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 unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following investment limitations, however, may be
changed by the Board 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service; . futures contracts and options are valued at
market values established by the exchanges on which they are traded at the close
of trading on such exchanges. Options traded in the over-the-counter market are
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value; . for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and . for all other securities at
fair value as determined in good faith by the Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined. Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charge that were not
applied to your purchases. Reinvestment Privilege You may reinvest,
within 120 days, your redemption proceeds at the next determined NAV without any
sales charge. Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases: . the Directors, employees and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates; . Employees
of State Street Bank Pittsburgh who started their employment on January 1, 1998,
and were employees of Federated Investors, Inc. (Federated) on December 31,
1997; . any associated person of an investment dealer who has a sales agreement
with the Distributor; and . trusts, pension or profit-sharing plans for these
individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
. as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE These
reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder; . representing minimum required distributions from an
Individual Retirement Account or other retirement plan in Federated Funds to a
shareholder who has attained the age of 70 1/2; . which are involuntary
redemptions processed by the Fund because the accounts do not meet the minimum
balance requirements; . which are qualifying redemptions of Class B Shares under
a Systematic Withdrawal Program; . of Shares that represent a reinvestment
within 120 days of a previous redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount up to 2.00% of the NAV of Class A Shares purchased on or before
October 27, 1998, if the Shares are redeemed within 24 months after purchase;
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares;
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75% Next $5 - $20 million 0.50% Over $20 million 0.25%
</TABLE> For accounts with assets over $1 million, the dealer advance
payments reset annually to the first breakpoint on the anniversary of the first
purchase. Class A Share purchases under this program may be made by Letter
of Intent or by combining concurrent purchases. The above advance payments will
be paid only on those purchases that were not previously subject to a front-end
sales charge and dealer advance payments. Certain retirement accounts may not be
eligible for this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management. Exchanging Securities For Shares You may
contact the Distributor to request a purchase of Shares in an exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Edward D. Jones & Company, Maryland Heights, MD, owned approximately
5,739 Class B Shares (56.03%), Willadean and Robert Carter, Jr., Waynesville,
OH, owned approximately 915 Class B Shares (8.94%), Janet L. Saltsgaver,
Lebanon, OH, owned approximately 890 Class B Shares (8.69%), and Painewebber,
Pittsburgh, PA, owned approximately 8.37 Class B Shares (8.37%); and State
Street Bank & Trust Company, Milwaukee, WI, owned approximately 576 Class C
Shares (47.17%), State Street Bank & Trust Company, St. Louis, MO, owned
approximately 89 Class C Shares (7.28%), Edward D. Jones & Company, Maryland
Heights, MD, owned approximately 444 Class C Shares (36.37%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., Jersey City, NJ, owned
approximately 98 Class C Shares (8.06%). Shareholders owning 25% or more of
outstanding Shares may be in control and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or $ 0 $0 for the
Birth Date: July 28, 1924 Trustee of the Federated Fund Complex, Corporation and
Federated Investors Tower Chairman and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Chairman and Trustee, companies
Pittsburgh, PA Federated Investment Management in the Fund Complex
DIRECTOR AND CHAIRMAN Company; Chairman and Director,
Federated Investment Counseling and
Federated Global Investment Management
Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: February 3, 1934 Fund Complex; Director, Member of Corporation and
15 Old Timber Trail Executive Committee, Children's 54 other investment
Pittsburgh, PA Hospital of Pittsburgh; formerly: companies
DIRECTOR Senior Partner, Ernst & Young LLP; in the Fund Complex
Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 23, 1937 Fund Complex; President, Investment Corporation and
Wood/IPC Commercial Dept. Properties Corporation; Senior Vice 54 other investment
John R. Wood Associates, Inc. President, John R. Wood and Associates, companies
Realtors Inc., Realtors; Partner or Trustee in in the Fund Complex
3255 Tamiami Trial North private real estate ventures in
Naples, FL Southwest Florida; formerly: President,
DIRECTOR Naples Property Management, Inc. and
Northgate Village Development
Corporation.
Nicholas Constantakis Director or Trustee of the Federated $1,416.84 $47,958.02 for the
Birth Date: September 3, 1939 Fund Complex; formerly: Partner, Corporation and
175 Woodshire Drive Andersen Worldwide SC. 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: July 4, 1918 Fund Complex; Director and Member of Corporation and
One PNC Plaza-23rd Floor the Executive Committee, Michael Baker, 54 other investment
Pittsburgh, PA Inc.; formerly: Vice Chairman and companies
DIRECTOR Director, PNC Bank, N.A., and PNC Bank in the Fund Complex
Corp.; Director, Ryan Homes, Inc.
Previous Positions: Director, United
Refinery; Director, Forbes Fund;
Chairman, Pittsburgh Foundation;
Chairman, Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: May 18, 1922 Fund Complex; Attorney-at-law; Corporation and
571 Hayward Mill Road Director, The Emerging Germany Fund, 54 other investment
Concord, MA Inc. companies
DIRECTOR in the Fund Complex
Previous Positions: President, Boston
Stock Exchange, Inc.; Regional
Administrator, United States Securities
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: October 11, 1932 Fund Complex; Professor of Medicine, Corporation and
3471 Fifth Avenue University of Pittsburgh; Medical 54 other investment
Suite 1111 Director, University of Pittsburgh companies
Pittsburgh, PA Medical Center Downtown; Hematologist, in the Fund Complex
DIRECTOR Oncologist, and Internist, University
of Pittsburgh Medical Center; Member,
National Board of Trustees, Leukemia
Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 18, 1924 Fund Complex; Attorney, of Counsel, Corporation and
Miller, Ament, Henny & Kochuba Miller, Ament, Henny & Kochuba; 54 other investment
205 Ross Street Director Emeritus, Eat'N Park companies
Pittsburgh, PA Restaurants, Inc.; formerly: Counsel, in the Fund Complex
DIRECTOR Horizon Financial, F.A., Western
Region; Partner, Meyer and Flaherty.
Peter E. Madden Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: March 16, 1942 Fund Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and companies
Palm Beach, FL Trust Company and State Street in the Fund Complex
DIRECTOR Corporation.
Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the $ 0 $0 for the
Birth Date: April 10, 1945 Federated Fund Complex; Management Corporation and
80 South Road Consultant. 26 other investment
Westhampton Beach, NY companies
DIRECTOR Previous Positions: Chief Executive in the Fund Complex
Officer, PBTC International Bank; Chief
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hostra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: December 20, 1932 Fund Complex; President, Law Professor, Corporation and
President, Duquesne University Duquesne University; Consulting 54 other investment
Pittsburgh, PA Partner, Mollica & Murray. companies
DIRECTOR in the Fund Complex
Previous Positions: Dean and Professor
of Law, University of Pittsburgh School
of Law; Dean and Professor of Law,
Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: September 14, 1925 Fund Complex; President, World Society Corporation and
1202 Cathedral of Learning of Ekistics (metropolitan planning), 54 other investment
University of Pittsburgh Athens; Professor, International companies
Pittsburgh, PA Politics; Management Consultant; in the Fund Complex
DIRECTOR 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; Trustee, Czech Management
Center, Prague.
Previous Positions: Professor, United
States Military Academy; Professor,
United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: June 21, 1935 Fund Complex; Public Corporation and
4905 Bayard Street Relations/Marketing/Conference Planning. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: National in the Fund Complex
Spokesperson, Aluminum Company of
America; business owner.
J. Christopher Donahue+ President or Executive Vice President $ 0 $0 for the Corporation
Birth Date: April 11, 1949 of the Federated Fund Complex; Director and 16 other investment
Federated Investors Tower or Trustee of some of the Funds in the companies
1001 Liberty Avenue Federated Fund Complex; President and in the Fund Complex
Pittsburgh, PA Director, Federated Investors, Inc.;
EXECUTIVE VICE PRESIDENT President and Trustee, Federated
Investment Management Company; President and
Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the $0 $0 for the Corporation
Birth Date: October 22, 1930 Funds in the Federated Fund Complex; and 1 other investment
Federated Investors Tower President, Executive Vice President and companies in the Fund
1001 Liberty Avenue Treasurer of some of the Funds in the Complex
Pittsburgh, PA Federated Fund Complex; Vice Chairman,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary $0 $0 for the Corporation
Birth Date: October 26, 1938 of the Federated Fund Complex; and 54 other investment
Federated Investors Tower Executive Vice President, Secretary, companies in the Fund
1001 Liberty Avenue and Director, Federated Investors, Complex
Pittsburgh, PA Inc.; Trustee, Federated Investment
EXECUTIVE VICE PRESIDENT Management Company; Director, Federated
Investment Counseling and Federated Global
Investment Management Corp.; Director,
Federated Services Company; Director,
Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund $0 $0 for the Corporation
Birth Date: June 17, 1954 Complex; Vice President - Funds and 54 other investment
Federated Investors Tower Financial Services Division, Federated companies in the Fund
1001 Liberty Avenue Investors, Inc.; Formerly: various Complex
Pittsburgh, PA management positions within Funds
TREASURER Financial Services Division of
Federated Investors, Inc.
Henry A. Frantzen Chief Investment Officer of this Fund $0 $0 for the Corporation
Birth Date: November 28, 1942 and various other Funds in the and 3 other investment
Federated Investors Tower Federated Fund Complex; Executive Vice companies in the Fund
1001 Liberty Avenue President, Federated Investment Complex
Pittsburgh, PA Counseling, Federated Global Investment
CHIEF INVESTMENT OFFICER Management Corp., Federated Investment
Management Company and Passport Research,
Ltd.; Registered Representative, Federated
Securities Corp.; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice
President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. $0 $0 for the Corporation
Birth Date: December 19, 1956 Mr. Collins joined Federated Investors and one other
Federated Investors Tower in 1995 as a Senior Portfolio Manager investment company in
1001 Liberty Avenue and a Senior Vice President of the the Fund Complex
Pittsburgh, PA Fund's investment adviser. Mr. Collins
VICE PRESIDENT 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
Wharton School of The University of
Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $1,853,315.24 for which the
Funds paid $4,782.43 in brokerage commissions. Investment
decisions for the Fund are made independently from those of other accounts
managed by the Adviser. When the Fund and one or more of those accounts invests
in, or disposes of, the same security, available investments or opportunities
for sales will be allocated among the Fund and the account(s) in a manner
believed by the Adviser to be equitable. While the coordination and ability to
participate in volume transactions may benefit the Fund, it is possible that
this procedure could adversely impact the price paid or received and/or the
position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditors for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Period ended November 30 1998
<S> <C>
Advisory Fee Earned $14,621
Advisory Fee Reduction $14,621
Brokerage Commissions $19,167
Administrative Fee $15,205
12b-1 Fee
Class A Shares $ 4,342
Class B Share $ 0
Class C Shares $ 0
Shareholder Services Fee
Class A Shares $ 4,342
Class B Share $ 0
Class C Shares $ 0
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the start
of performance period ended November 30, 1998.
Class Name Start of Performance*
Class A Shares (0.28%)
Class B Shares (0.00%)
Class C Shares 4.50%
* START OF PERFORMANCE ON OCTOBER 27, 1998.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
Morgan Stanley Capital International World Indices
Includes, 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.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Organization for Economic Cooperation and Development (OECD)
Various publications.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 279 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Global Equity Income Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED GLOBAL EQUITY INCOME FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
PROSPECTUS
FEDERATED GLOBAL FINANCIAL SERVICES FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing primarily in
equity securities of companies located throughout the world that operate in the
financial services industry.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 10
How to Redeem and Exchange Shares 11
Account and Share Information 14
Who Manages the Fund? 14
Financial Information 16
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long-term growth of capital. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of financial services companies. A "financial
services" company is one which (i) derived at least 50% of either revenues or
earnings from financial services activities, or (ii) devoted at least 50% of its
assets to such activities, based on the company's most recent fiscal year.
Financial service activities include all activities involving or relating to
finance and investments.
Examples of financial services companies include commercial banks and savings
institutions and loan associations and their holding companies; consumer and
industrial finance companies; investment banks; insurance brokerages; securities
brokerage and investment advisory companies; real estate-related companies;
leasing companies; and a variety of firms in all segments of the insurance field
such as multi-line, property and casualty and life insurance holding companies.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include: . the Fund's concentration of investments in one industry; .
fluctuations in the value of equity securities in foreign securities markets; .
the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements comparable
to those applicable to U.S. companies; . the exchange rate between the euro and
the U.S. dollar will have a significant impact on the value of the Fund's
investments because the Fund makes significant investments in securities
denominated in euro; . the possibility that a certain sector may underperform
other sectors or the market as a whole; . fluctuations in the exchange rate
between the U.S. dollar and foreign currencies; and . the market capitalization
of the companies in which the Fund invests, may mean that the companies' stock
is less liquid and subject to price volatility. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
Fees Paid Directly From Your Investment
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering 5.50% None None
price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price 0.00% 5.50% 1.00%
or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None None None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Reimbursements and Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee2 1.00% 1.00% 1.00%
Distribution (12b-1) Fee3 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses4 11.84% 11.84% 11.84%
Total Annual Fund Operating Expenses 13.34% 13.84%5 13.84%
1Although not contractually obligated to do so, the adviser waived and
reimbursed and the distributor waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year
endedNovember 30, 1998.
Reimbursements and Waivers of Fund Expenses 11.74% 11.49% 11.49%
Total Actual Annual Fund Operating Expenses (after reimbursements and waivers) 1.60% 2.35% 2.35%
2The adviser voluntarily waived a portion of the management fee. The adviser can
terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.00% for the year ended November 30,
1998.
3Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended November 30, 1998. Class A Shares has no present intention of paying
or accruing the distribution (12b-1) fee during the year ending November 30,
1999.
4The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 1.35% for the
year ended November 30, 1998.
5Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. </TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000
in the Fund's Class A Shares, Class B Shares and Class C Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
A Shares, Class B Shares and Class C Shares operating expenses are before
reimbursements and waivers as shown in the Table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be: <TABLE> <CAPTION> Share Class 1 Year 3 Years 5 Years 10 Years
Class A Shares <S> <C> <C> <C> <C> Expenses assuming redemption $1,758 $3,880
$5,663 $8,972 Expenses assuming noredemption $1,758 $3,880 $5,663 $8,972 Class B
Shares Expenses assuming redemption $1,873 $4,028 $5,744 $8,996 Expenses
assuming noredemption $1,323 $3,628 $5,544 $8,996 Class C Shares Expenses
assuming redemption $1,423 $3,628 $5,544 $9,034 Expenses assuming noredemption
$1,323 $3,628 $5,544 $9,034 </TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of financial services companies. A "financial
services" company is one which (i) derived at least 50% of either revenues or
earnings from financial services activities, or (ii) devoted at least 50% of its
assets to such activities, based on the company's most recent fiscal year.
Financial service activities include all activities involving or relating to
finance and investments. Examples of financial services companies include
commercial banks and savings institutions and loan associations and their
holding companies; consumer and industrial finance companies; investment banks;
insurance brokerages; securities brokerage and investment advisory companies;
real estate-related companies; leasing companies; and a variety of firms in all
segments of the insurance field such as multi-line, property and casualty and
life insurance holding companies.
The adviser manages the Fund based on the view that an accelerating rate of
global economic interdependence will lead to significant growth in the demand
for financial services. As the financial services industry evolves, the adviser
expects banking and related financial institution consolidation in the developed
countries, increased demand for retail borrowing in developing countries, a
growing need for international trade-based financing, a rising demand for
sophisticated risk management, a proliferating number of liquid securities
markets around the world, and larger concentrations of investable assets.
The adviser believes that careful security selection offers the best potential
for superior long-term investment returns. Using its own quantitative process,
the adviser ranks the future performance potential of companies. The adviser
evaluates management quality and may meet with company representatives, reviews
the company's proprietary products or services, and reviews the company's
financial statements and forecasts of earnings. Using this type of analysis, the
adviser selects the most promising companies for the Fund's portfolio.
INDUSTRY CONCENTRATION
The Fund may invest 25% or more of its assets in securities issued by companies
in the financial services industry.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country; . the principal trading market for its securities is in another
country; or . it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross revenue or profit from
goods produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic fixed income securities, foreign
securities are subject to currency risks and risks of foreign investing.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity security in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF INVESTING IN THE FINANCIAL SERVICES INDUSTRY
Financial services industries may be subject to greater governmental regulation
than many other industries. Therefore, changes in governmental policies and the
need for regulatory approvals may have a material effect on the services offered
by companies in the financial services industries. Government regulation in
certain foreign countries may impose interest rate controls, credit controls and
price controls.
Companies in the financial services sector are subject to rapid business
changes, significant competition, value fluctuations due to the concentration of
loans in particular industries significantly affected by economic conditions
(such as real estate or energy) and volatile performance dependent upon the
availability and cost of capital and prevailing interest rates. Furthermore,
general economic conditions significantly affect these companies. Credit and
other losses resulting from the financial difficulty of borrowers and other
third parties potentially may have an adverse effect on companies in these
industries. SECTOR RISKS Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. Because the Fund
concentrates its investments in the financial services sector, the Fund's
performance will be more susceptible to any economic, business or other
developments which generally affect that sector. For example, a downturn in
financial markets that result in a slowdown of financial activity would reduce
the value of financial service companies more than companies in other business
sectors. This would cause the Fund to underperform other mutual funds that do
not concentrate in the financial services sector. RISKS OF FOREIGN
INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.
EURO RISKS
The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designate listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Shares Offered Minimum Initial/ Maximum Sales Charge
Subsequent Investment
Amounts1
Front-End Sales Contingent
Charge2 Deferred Sales
Charge3
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of Class
B Shares to maximize your return and minimize the sales charges and marketing
fees. Accounts held in the name of an investment professional may be treated
differently. Class B Shares will automatically convert into Class A Shares
after eight full years from the purchase date. This conversion is a non-taxable
event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge as a Sales Charge as a
Percentage of Public Percentage of NAV
Offering Price
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1million 2.00% 2.04%
$1 million or greater1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales charge;
. combining concurrent purchases of Shares:
. by you, your spouse, and your children under age 21; or
. of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or . signing a letter of intent to purchase a specific dollar
amount of Shares within 13 months (call your investment professional or the Fund
for more information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount; . by
exchanging shares from the same share class of another Federated Fund (other
than a money market fund); . through wrap accounts or other investment programs
where you pay the investment professional directly for services; . through
investment professionals that receive no portion of the sales charge; . as a
Federated Life Member (Class A Shares only) and their immediate family members;
or . as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C>
A CDSC of 0.75% of the redemption amount applies to ClassA Shares redeemed up to 24
months after purchase under certain investment programs where an investment
professional received an advance payment on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced sales
payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that have
been exchanged for Shares of this Fund) The CDSC is then calculated using
the share price at the time of purchase or redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within three business days.
You will become the owner of Shares and receive dividends when the Fund receives
your payment. Investment professionals should send payments according to
the instructions in the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and . Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/ EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) On Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund does not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Marc Halperin
Marc Halperin joined the Fund's Adviser as a Portfolio Manager and a Vice
President in 1998 and has been a portfolio manager of the Fund since September
1998. Mr. Halperin served as Associate Director/Portfolio Manager at UOB Asset
Management from 1996 through August 1998. From 1993 through 1995, Mr. Halperin
was Vice President, Asian Equities, at Massachusetts Financial Services Co. Mr.
Halperin earned his M.A. with a major in municipal finance from the University
of Illinois.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated Investors in 1995 as a Senior Portfolio Manager and a Senior Vice
President of the Fund's 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 Wharton School of The University of Pennsylvania.
Ruth Nagle
Ruth Nagle is an Investment Analyst who assists the portfolio managers in
selecting and monitoring the securities in which the Fund invests. Ruth joined
Federated Investors in July 1998; from 1989 through 1995, she served as an
Equity Research Associate with Bartlett & Co. Ms. Nagle completed dual degrees,
an M.B.A. from Case Western Reserve University and a Master of International
Management from the American Graduate School of International Management in
December 1997.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C>
Period Ended November30 1998 1
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net investment income 0.01 2
Net realized and unrealized gain on investments and foreign currency 1.98
TOTAL FROM INVESTMENT OPERATIONS 1.99
Net Asset Value, End of Period $11.99
Total Return3 19.90
Ratios to Average Net Assets:
Expenses 1.60%5
Net investment income 0.85%5
Expense waiver/reimbursement4 11.49%5
Supplemental Data:
Net assets, end of period (000 omitted) $4,094
Portfolio turnover 12%
</TABLE>
1Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or contingent deferred
sales charge, if applicable. 4 This voluntary expense decrease is reflected in
both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C>
Period Ended November30 1998 1
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net investment income 0.00 2
Net realized and unrealized gain on investments and foreign currency 1.98
TOTAL FROM INVESTMENT OPERATIONS 1.98
Net Asset Value, End of Period $11.98
Total Return3 19.80
Ratios to Average Net Assets:
Expenses 2.35%5
Net investment income 0.10%5
Expense waiver/reimbursement4 11.49%5
Supplemental Data:
Net assets, end of period (000 omitted) $1,911
Portfolio turnover 12%
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998. 2 Per share amount does not round to
$0.01. Per share information is based on average shares outstanding. 3 Based on
net asset value, which does not reflect the sales charge or contingent deferred
sales charge, if applicable. 4 This voluntary expense decrease is reflected in
both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C>
Period Ended November30 1998 1
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net investment income 0.00 2
Net realized and unrealized gain on investments and foreign currency 1.98
TOTAL FROM INVESTMENT OPERATIONS 1.98
Net Asset Value, End of Period $11.98
Total Return3 19.80
Ratios to Average Net Assets:
Expenses 2.35%5
Net investment income 0.10%5
Expense waiver/reimbursement4 11.49%5
Supplemental Data:
Net assets, end of period (000 omitted) $ 343
Portfolio turnover 12%
</TABLE>
1 Reflects operations for the period from September 30, 1998 (date of initial
public investment) to November 30, 1998. 2 Per share amount does not round to
$0.01. Per share information is based on
average shares outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable. 4 This voluntary expense
decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
[FEDERATED LOGO]
Federated Global Financial Services Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual report to shareholders as
they become available. The annual report discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[FEDERATED LOGO]
Federated Global Financial Services Fund
Federated Investors Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7141
Cusip 981487663
Cusip 981487655
Cusip 981487648
G02455-01 (3/99)
Federated is a registered mark of Federated Investors, Inc.
1999 (C)Federated Investors, Inc. [RECYCLED PAPER LOGO]
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED GLOBAL FINANCIAL SERVICES FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Global Financial Services
Fund (Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI
incorporates by reference the Fund's Annual Report. Obtain the prospectus or the
Annual Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487663
981487655
981487648
G02455-02 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Fund's investment adviser is Federated
Global Investment Management Corp. (Adviser).
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Non-Principal Investment Strategy
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full, faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks. OTC contracts also expose the Fund to credit risks in the event
that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
. The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the Fund may be required
to take delivery of the underlying asset when its current market price is lower
than the exercise price.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for the Fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Investment Ratings for Investment Grade Securities. The Adviser will determine
whether a security is investment grade based upon the credit ratings given by
one or more nationally recognized rating services. For example, Standard and
Poor's, a rating service, assigns ratings to investment grade securities (AAA,
AA, A, and BBB) based on their assessment of the likelihood of the issuer's
inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
. The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Prepayment Risks
. Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.
. Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase the security is perceived to have an
increased prepayment risk or less market demand. An increase in the spread will
cause the price of the security to decline.
. The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
Euro Risks
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest more than 25% of its total assets in securities of
issuers having their principal business activities in one industry, except
the financial services industry.
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 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, securities of other investment companies 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 unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following investment limitations, however, may be
changed by the Board 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and . for all other securities at fair value as
determined in good faith by the Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfil the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charge that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your redemption proceeds at the next
determined NAV without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
. the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
. any associated person of an investment dealer who has a sales agreement with
the Distributor; and
. trusts, pension or profit-sharing plans for these individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
. as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount up to 0.75% of the NAV of Class A Shares if the Shares are redeemed
within 24 months after purchase; or
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of March 4, 1999, no shareholders owned of record, beneficially, or both, 5%
or more of outstanding Shares of the Fund.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From Corporation
Address Principal Occupations From and Fund Complex
Position With Corporation for Past Five Years Corporation
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or $ 0 $0 for the
Birth Date: July 28, 1924 Trustee of the Federated Fund Complex, Corporation and
Federated Investors Tower Chairman and Director, Federated 54 other investment companies
1001 Liberty Avenue Investors, Inc.; Chairman and Trustee, in the Fund Complex
Pittsburgh, PA Federated Investment Management Company;
DIRECTOR AND CHAIRMAN Chairman and Director, Federated
Investment Counseling and Federated
Global Investment Management Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: February 3, 1934 Fund Complex; Director, Member of Corporation and
15 Old Timber Trail Executive Committee, Children's Hospital 54 other investment companies
Pittsburgh, PA of Pittsburgh; formerly: Senior Partner, in the Fund Complex
DIRECTOR Ernst & Young LLP; Director, MED 3000
Group, Inc.; Director, Member of
Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 23, 1937 Fund Complex; President, Investment Corporation and
Wood/IPC Commercial Dept. Properties Corporation; Senior Vice 54 other investment companies
John R. Wood Associates, Inc. President, John R. Wood and Associates, in the Fund Complex
Realtors Inc., Realtors; Partner or Trustee in
3255 Tamiami Trial North private real estate ventures in
Naples, FL Southwest Florida; formerly: President,
DIRECTOR Naples Property Management, Inc. and
Northgate Village Development
Corporation.
Nicholas Constantakis Director or Trustee of the Federated $1,416.84 $47,958.02 for the
Birth Date: September 3, 1939 Fund Complex; formerly: Partner, Corporation and
175 Woodshire Drive Andersen Worldwide SC. 29 other investment companies
Pittsburgh, PA in the Fund Complex
DIRECTOR
William J. Copeland Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: July 4, 1918 Fund Complex; Director and Member of the Corporation and
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, 54 other investment companies
Pittsburgh, PA Inc.; formerly: Vice Chairman and in the Fund Complex
DIRECTOR Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.
Previous Positions: Director, United
Refinery; Director, Forbes Fund;
Chairman, Pittsburgh Foundation;
Chairman, Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: May 18, 1922 Fund Complex; Attorney-at-law; Director, Corporation and
571 Hayward Mill Road The Emerging Germany Fund, Inc. 54 other investment companies
Concord, MA in the Fund Complex
DIRECTOR Previous Positions: President, Boston
Stock Exchange, Inc.; Regional
Administrator, United States Securities
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: October 11, 1932 Fund Complex; Professor of Medicine, Corporation and
3471 Fifth Avenue University of Pittsburgh; Medical 54 other investment companies
Suite 1111 Director, University of Pittsburgh in the Fund Complex
Pittsburgh, PA Medical Center Downtown; Hematologist,
DIRECTOR Oncologist, and Internist, University of
Pittsburgh Medical Center; Member,
National Board of Trustees, Leukemia
Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 18, 1924 Fund Complex; Attorney, of Counsel, Corporation and
Miller, Ament, Henny & Kochuba Miller, Ament, Henny & Kochuba; Director 54 other investment companies
205 Ross Street Emeritus, Eat'N Park Restaurants, Inc.; in the Fund Complex
Pittsburgh, PA formerly: Counsel, Horizon Financial,
DIRECTOR F.A., Western Region; Partner, Meyer and
Flaherty.
Peter E. Madden Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: March 16, 1942 Fund Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment companies
100 Royal Palm Way Court; President, State Street Bank and in the Fund Complex
Palm Beach, FL Trust Company and State Street
DIRECTOR Corporation.
Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the $ 0 $0 for the
Birth Date: April 10, 1945 Federated Fund Complex; Management Corporation and
80 South Road Consultant. 26 other investment companies
Westhampton Beach, NY in the Fund Complex
DIRECTOR Previous Positions: Chief Executive
Officer, PBTC International Bank; Chief
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: December 20, 1932 Fund Complex; President, Law Professor, Corporation and
President, Duquesne University Duquesne University; Consulting Partner, 54 other investment companies
Pittsburgh, PA Mollica & Murray. in the Fund Complex
DIRECTOR
Previous Positions: Dean and Professor
of Law, University of Pittsburgh School
of Law; Dean and Professor of Law,
Villanova University School of Law.
Wesley W. Posvar Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: September 14, 1925 Fund Complex; President, World Society Corporation and
1202 Cathedral of Learning of Ekistics (metropolitan planning), 54 other investment companies
University of Pittsburgh Athens; Professor, International in the Fund Complex
Pittsburgh, PA Politics; Management Consultant;
DIRECTOR 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; Trustee, Czech Management
Center, Prague.
Previous Positions: Professor, United
States Military Academy; Professor,
United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: June 21, 1935 Fund Complex; Public Corporation and
4905 Bayard Street Relations/Marketing/Conference Planning. 54 other investment companies
Pittsburgh, PA in the Fund Complex
DIRECTOR Previous Positions: National
Spokesperson, Aluminum Company of
America; business owner.
J. Christopher Donahue+ President or Executive Vice President of $ 0 $0 for the Corporation and 16
Birth Date: April 11, 1949 the Federated Fund Complex; Director or other investment companies
Federated Investors Tower Trustee of some of the Funds in the in the Fund Complex
1001 Liberty Avenue Federated Fund Complex; President and
Pittsburgh, PA Director, Federated Investors, Inc.;
EXECUTIVE VICE PRESIDENT President and Trustee, Federated
Investment Management Company; President and
Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the Funds $0 $0 for the Corporation and 1
Birth Date: October 22, 1930 in the Federated Fund Complex; other investment companies in
Federated Investors Tower President, Executive Vice President and the Fund Complex
1001 Liberty Avenue Treasurer of some of the Funds in the
Pittsburgh, PA Federated Fund Complex; Vice Chairman,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated Investment
Counseling, Federated Global Investment
Management Corp. and Passport Research,
Ltd.; Executive Vice President and
Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary $0 $0 for the Corporation and 54
Birth Date: October 26, 1938 of the Federated Fund Complex; Executive other investment companies in
Federated Investors Tower Vice President, Secretary, and Director, the Fund Complex
1001 Liberty Avenue Federated Investors, Inc.; Trustee,
Pittsburgh, PA Federated Investment Management Company;
EXECUTIVE VICE PRESIDENT Director, Federated Investment
Counseling and Federated Global Investment
Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; $0 $0 for the Corporation and 54
Birth Date: June 17, 1954 Vice President - Funds Financial other investment companies in
Federated Investors Tower Services Division, Federated Investors, the Fund Complex
1001 Liberty Avenue Inc.; Formerly: various management
Pittsburgh, PA positions within Funds Financial
TREASURER Services Division of Federated
Investors, Inc.
Henry A. Frantzen Chief Investment Officer of this Fund $0 $0 for the Corporation and 3
Birth Date: November 28, 1942 and various other Funds in the Federated other investment companies in
Federated Investors Tower Fund Complex; Executive Vice President, the Fund Complex
1001 Liberty Avenue Federated Investment Counseling,
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice
President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. $0 $0 for the Corporation and one
Birth Date: December 19, 1956 Collins joined Federated Investors in other investment company in
Federated Investors Tower 1995 as a Senior Portfolio Manager and a the Fund Complex
1001 Liberty Avenue Senior Vice President of the Fund's
Pittsburgh, PA investment adviser. Mr. Collins served
VICE PRESIDENT 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 Wharton
School of The University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $102,179.65 for which the
Funds paid $254.30 in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditors for the
Fund.
<TABLE>
<CAPTION>
For the Period ended November 30 1998
<S> <C>
Advisory Fee Earned $ 9,535
Advisory Fee Reduction $ 9,535
Brokerage Commissions $ 9,366
Administrative Fee $30,918
12b-1 Fee
Class A Shares $ 0
Class B Share $ 933
Class C Shares $ 196
Shareholder Services Fee
Class A Shares $ 2,007
Class B Share $ 311
Class C Shares $ 65
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the start
of performance period ended November 30, 1998.
Class Name Start of Performance*
Class A Shares 13.33%
Class B Shares 14.30% Class C Shares 18.80% * START OF PERFORMANCE ON
SEPTEMBER 30, 1998.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
MSCI All Country World Finance Index
A medium- to large-cap index comprising the banking, financial services,
insurance and real estate industries, and is diversified across 46 countries and
more than 400 companies.
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.
Morgan Stanley Capital International World Indices
Includes, 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.
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.
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.
Dow Jones Composite Average
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.
Dow Jones World Industry Index
Or its component indices, including, among others, the utility sector.
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.
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.
Financial Times Actuaries Indices
Including the FTA-World Index (and components thereof), which are based on
stocks in major world equity markets.
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.
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.
Mutual Fund Source Book
Published by Morningstar, Inc.--analyzes price, yield, risk, and total return
for equity and fixed income funds.
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.
Value Line Index
An unmanaged index which follows the stocks of approximately 1,700 companies.
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.
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.
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.
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.
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 279 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Global Financial Services Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED GLOBAL FINANCIAL SERVICES FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
FEDERATED INTERNATIONAL GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing in shares of
other mutual funds, the portfolios of which consist primarily of foreign equity
securities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses 3
What are the Fund's Investment Strategies 4
What are the Principal Securities in Which the Fund Invests 5
What are the Specific Risks of Investing in the Fund 6
What do Shares Cost 8
How is the Fund Sold 11
How to Purchase Shares 11
How to Redeem and Exchange Shares 13
Account and Share Information 15
Who Manages the Fund 16
Financial Information 18
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long- term growth of capital. Any
income received from the portfolio is incidental. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in shares of other open- end management investment companies for which
affiliates of Federated Investors serve as adviser and principal underwriter
("underlying funds") that invest primarily in foreign equity securities. The
underlying funds in which the Fund will invest include, but are not limited to:
Federated Asia Pacific Growth Fund
Federated Emerging Market Fund
Federated European Growth Fund
Federated International Small Company Fund
Federated Latin American Growth Fund
Each underlying fund seeks to provide long-term growth of capital.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. fluctuations in the value of equity securities in foreign securities markets;
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies;
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities;
. the Fund may invest a significant portion of its assets in a particular
geographic region, which makes it subject to greater currency risk and more
susceptible to adverse impact from actions of foreign governments;
. prices of emerging market securities in which the Fund invests can be
significantly more volatile than prices of securities in developed countries;
. the smaller market capitalization of the companies in which the Fund invests,
which may mean that the companies' stock is less liquid and subject to price
volatility; and
. the exchange rate between the Euro and the U.S. dollar will have a
significant impact on the value of the Fund's investments because the Fund
makes significant investments in securities denominated in Euro.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
[CHART APPEARS HERE - SEE APPENDIX.]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charge is not reflected in the total return above, and if this
amount was reflected, return would be less than that shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 13.61% (quarter ended December 31, 1998). Its lowest
quarterly return was (15.92%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
1 Year Start of
Performance/1/
<S> <C> <C>
Class A (5.00%) (11.79%)
Class B (5.69%) (11.98%)
Class C (1.21%) (8.94%)
MSCI-ACW 14.46% 2.40%
MSCI-EAFE 20.00% 6.43%
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
July 1, 1997. The table shows the Fund's Class A, Class B and Class C Shares
average annual total returns (reduced to reflect sales charges) compared to
the Morgan Stanley Capital International All Country World Index (MSCI-ACW)
and the Morgan Stanley Capital International Europe Australia Far East Index
(MSCI-EAFE), broad-based indices, for the calendar periods ending December 31,
1998. The MSCI-ACW is a market cap- weighted securities index of the
performance, by industry, of securities in the stock exchanges of 22
countries. The MSCI- EAFE is a market cap-weighted foreign securities index
widely used to measure the performance of European, Australian, New Zealand,
and Far Eastern stock markets.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards. What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment Class A Class B Class C <S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) 5.50% None None Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption 0.00% 5.50% 1.00%
proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Reimbursements and Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ NA NA NA
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee/4/ 0.25% 0.25% 0.25%
Other Expenses/5/ 1.75% 1.75% 1.75%
Total Annual Fund Operating Expenses 2.25% 2.75%6 2.75%
1 Although not contractually obligated to do so, the adviser reimbursed and the
distributor and shareholder services provider waived certain amounts.
These are shown below along with the net expenses the Fund actually paid for
the fiscal year ended November30, 1998.
Reimbursements and Waivers of Fund Expenses 2.18% 1.93% 1.93%
Total Actual Annual Fund Operating Expenses (after reimbursements and waivers) 0.07% 0.82% 0.82%
2 Because the Fund does not invest in individual securities at the present time,
it pays the adviser no management fee. The management fee is contingent upon
the grant of certain exemptive relief from the SEC. If the Fund were paying or
accruing the management fee, the Fund would be able to pay up to 1.25% of its
average daily net assets which are invested in individual stocks, bonds or
money market instruments, and not on those assets invested in shares of the
underlying funds. The Fund may also charge an asset allocation fee of 0.20% of
its average daily net assets invested in the underlying funds. The Fund did
not pay or accrue the asset allocation fee during the fiscal year ended
November 30, 1998. The Fund has no present intention of paying or accruing the
asset allocation fee during the year ending November 30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended November 30, 1998. Class A Shares have no present intention
of paying or accruing the distribution (12b-1) fee during the year ending
November 30, 1999.
4 The shareholder services fee for Class A, B and C Shares has been voluntarily
reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund's Class A, B and C Shares (after the
voluntary reduction) was 0.00% for the year ended November 30, 1998.
5 The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) were 0.07% for
the year ended November 30, 1998.
6 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in the
Fund's Class A, Class B, and Class C Shares for the time periods indicated and
then redeem all of your Shares at the end of those periods. Expenses assuming no
redemption are also shown. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are before reimbursements and waivers as shown in the Table
and remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A
<S> <C> <C> <C> <C>
Expenses assuming $766 $1,215 $1,689 $2,993
redemption
Expenses assuming no $766 $1,215 $1,689 $2,993
redemption
Class B
Expenses assuming $828 $1,253 $1,654 $2,960
redemption
Expenses assuming no $278 $ 853 $1,454 $2,960
redemption
Class C
Expenses assuming $378 $ 853 $1,454 $3,080
redemption
Expenses assuming no $278 $ 853 $1,454 $3,080
redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in shares of other open- end management investment companies for which
affiliates of Federated Investors serve as adviser and principal underwriter
("underlying funds") that invest primarily in foreign equity securities. The
underlying funds in which the Fund will invest include, but are not limited to:
Federated Asia Pacific Growth Fund
Federated Emerging Market Fund
Federated European Growth Fund
Federated International Small Company Fund
Federated Latin American Growth Fund
Each underlying fund seeks to provide long-term growth of capital.
The adviser believes that holding a diversified portfolio of international
equity funds may provide access to a wider range of companies, industries,
countries and markets than would be available through any one underlying fund.
The adviser will allocate the Fund's assets across the underlying funds such
that the Fund will be exposed to large and small capitalization stocks from both
developed and emerging markets outside of the United States. Market
capitalization is determined by multiplying the number of its outstanding shares
by the current market price per share.
From time to time, the adviser will alter the allocation percentages of the
underlying funds based on market risk, economic fundamentals and unique market
characteristics within the foreign markets and asset classes in which the
underlying funds invest. The adviser will first assess the relative
attractiveness of geographic regions and individual countries. After identifying
the most and least attractive regions or countries, consideration will be given
to expected returns and risks before deciding which areas, if any, to overweight
or underweight. By rebalancing the Fund through investment of the proceeds of
new purchases into the Fund, by making purchases and sales among the shares of
the underlying funds, or a combination of the two, the adviser will continually
manage the Fund's exposure to large and small capitalization stocks from both
developed and emerging markets.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders. What are the Principal Securities in Which the Fund Invests?
The Fund invests at least 65% of its total assets in shares of the
underlying funds. The principal securities in which the underlying funds invest
are: FOREIGN SECURITIES Foreign securities are securities of issuers based
outside the United States. The Fund considers an issuer to be based outside the
United States if: . it is organized under the laws of, or has a principal office
located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic equity securities, foreign securities
are subject to currency risks and risks of foreign investing.
The fund may invest in foreign securities by investing in other mutual funds
that own foreign securities and that are advised by an affiliate of the Fund's
adviser. These other mutual funds are managed independently of the Fund and may
incur additional administrative expenses. DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the underlying funds' portfolios will rise and
fall. These fluctuations could be a sustained trend or a drastic movement. The
underlying funds' portfolios will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each underlying fund. However, diversification will not protect the
Fund against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the underlying funds may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on an
underlying fund's performance. Infrequent trading of securities may also lead to
an increase in their price volatility.
REGIONAL RISKS
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American or Asian or Pacific Rim countries. For example, some of the currencies
of these countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made in certain of these currencies
periodically.
Although there is a trend toward less government involvement in commerce,
governments of many Latin American, Asian or Pacific Rim 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, Asian or Pacific Rim countries, which could affect private
sector companies and the Fund, as well as the value of securities in the Fund's
portfolio.
EMERGING MARKET RISKS
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
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.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.
EURO RISKS
The underlying funds may make significant investments in securities denominated
in the Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar may have a
significant impact on the value of the Fund's investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
EXPENSES OF THE FUND
An investor in the Fund should recognize that you may invest directly in
underlying funds and that, by investing in underlying funds indirectly through
the Fund, you will bear not only your proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the underlying funds. In
addition, you will bear your proportionate share of expenses, if any, related to
the distribution of the Fund's shares, and also may indirectly bear expenses
paid by an underlying fund related to the distribution of its shares. You also
will bear your proportionate share of any sales charges incurred by the Fund
related to the purchase of shares of the underlying funds.
In certain instances, the Fund may be eligible to purchase underlying funds at
a reduced or no sales charge, whereas an individual investor would have to pay
the full sales charge if the investor directly invested in such underlying
funds. In those instances, it may be possible for an investor to bear greater
transaction and operating expenses by investing directly in the underlying funds
than if the investor were to invest indirectly through such underlying funds as
a shareholder in the Fund (even after aggregating the transaction and operating
expense of the Fund and the underlying funds). Finally, you should recognize
that, as a result of the Fund's policies of investing in other mutual funds, you
may receive taxable capital gains distributions to a greater extent than would
be the case if you invested directly in the underlying funds.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
The public offering price is the net asset value (NAV) plus any applicable
sales charge. NAV is determined at the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open. The Fund's current NAV and public
offering price may be found in the mutual funds section in certain local
newspapers under "Federated" and the appropriate class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Shares Offered Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Amounts1 Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more should be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase" below.
3 See "Sales Charge When You Redeem" below.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge as a Sales Charge as a
Percentage of Public Percentage of NAV
Offering Price
<S> <C> <C>
Less that $50,00 5.50% 5.82%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than 2.00% 2.04%
$1million
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
. by you, your spouse, and your children under age 21; or
. of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
ACDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
<S> <C>
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the original shares were held for the applicable CDSC holding period (other
than a money market fund);
. purchased through investment professionals who did not receive advanced sales
payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
. The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
. You will become the owner of Shares and your Shares will be priced at the
next calculated NAV after the Fund receives your wire or your check. If your
check does not clear, your purchase will be canceled and you could be liable
for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last
. 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or by contacting your investment professional or
the Fund. Your account value must meet the minimum initial investment amount at
the time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
The Fund's portfolio managers are:
Drew J. Collins
Drew J. Collins has been the Fund's portfolio manager since its inception. He is
Vice President of the Corporation. Mr. Collins joined Federated in 1995 as a
Senior Portfolio Manager and a Senior Vice President of the Fund's 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 Wharton School of
The University of Pennsylvania.
Henry A. Frantzen
Henry A. Frantzen has been the Fund's portfolio manager since its inception. Mr.
Frantzen joined Federated
in 1995 as an Executive Vice President of the Fund's
Adviser. Mr. Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992 until 1995.
Alexandre de Bethmann
Alexandre de Bethmann has been the portfolio manager of Federated Asia Pacific
Growth Fund and Federated Latin American Growth Fund, underlying funds, since
their inception. Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio
Manager and a Vice President of the Fund's 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. Mr. de Bethmann received
his M.B.A. in Finance from Duke University.
Jolanta M. Wysocka
Jolanta M. Wysocka has been the portfolio manager of Federated Emerging Markets
Fund, an underlying fund, since its inception in February 1996. Ms. Wysocka
joined Federated Investors in 1995 as a Portfolio Manager and a Vice President
of the Fund's 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 received her master's degree in
computer science from the Institute of Technology, Zielona Gora, Poland.
Frank Semack
Frank Semack has been the portfolio manager of Federated European Growth Fund,
an underlying fund, since its inception. Mr. Semack joined Federated in 1995 as
a Senior Portfolio Manager and a Vice President of the Fund's Adviser. Mr.
Semack served as an Investment Analyst at Omega Advisers, Inc. from 1993 to
1994. He was a portfolio manager and Associate Director of Wardley Investment
Services (HK) Ltd. between 1980 and 1993. Mr. Semack received his M.Sc. in
economics from the London School of Economics.
Tracy P. Stouffer
Tracy P. Stouffer has been the portfolio manager of Federated International
Small Company Fund, an underlying fund, since its inception. Ms. Stouffer joined
Federated Investors in 1995 as a Portfolio Manager and a Vice President of the
Fund's 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.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total more than $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser is entitled to an annual investment advisory fee equal to 1.25% of
the Fund's average daily net assets. This advisory fee applies only to assets
which are invested in individual stocks, bonds or money market instruments and
not to those assets invested in the underlying funds. Because the Fund does not
invest in individual securities at the present time, it pays the Adviser no
advisory fee.
The investment advisory fees of the underlying funds are not included in the
Fund's advisory fee. There are separate investment advisory fees paid by each
underlying fund. You would not incur the Fund's expenses if you were to invest
in the underlying funds directly.
ASSET ALLOCATION FEE
The Fund has no present intention of paying or accruing the asset allocation fee
during the fiscal year ending November 30, 1998. If an asset allocation fee were
to be charged to the Fund, it could range up to an annual fee of 0.20% of the
average daily net assets invested in the underlying funds. Before this fee would
be implemented, the Directors' approval would be required.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C>
Year Ended November 30 1998 1997/1/
Net Asset Value, Beginning of Period $ 8.73 $ 10.00
Income From Investment Operations:
Net investment income/(net operating loss) 0.04/2/ (0.01)
Net realized and unrealized loss on investments (0.33) (1.26)
TOTAL FROM INVESTMENT OPERATIONS (0.29) (1.27)
Less Distributions:
Distributions from net investment income (0.06)
Net Asset Value, End of Period $ 8.38 $ 8.73
Total Return/3/ (3.37%) (12.70%)
Ratios to Average Net Assets:
Expenses 0.08% 0.07%/5/
Net investment income/(net operating loss) 0.51% (0.01%)/5/
Expense waiver/reimbursement/4/ 1.92% 4.32%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $19,440 $10,562
Portfolio turnover 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
5 Computed on an annualized basis.
Financial Highlights Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C>
Year Ended November 30 1998 1997/1/
Net Asset Value, Beginning of Period $ 8.71 $ 10.00
Income From Investment Operations:
Net operating loss (0.02)2 (0.01)
Net realized and unrealized loss on investments (0.34) (1.28)
TOTAL FROM INVESTMENT OPERATIONS (0.36) (1.29)
Less Distributions:
Distributions from net investment income (0.04)
Net Asset Value, End of Period $ 8.31 $ 8.71
Total Return/3/ (4.14%) (12.90%)
Ratios to Average Net Assets:
Expenses 0.83% 0.82%/5/
Net operating loss (0.24%) (0.77%)/5/
Expense waiver/reimbursement/4/ 1.92% 2.78%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $8,212 $ 5,036
Portfolio turnover 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
5 Computed on an annualized basis.
Financial Highlights Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C>
Year Ended November 30 1998 1997/1/
Net Asset Value, Beginning of Period $ 8.72 $ 10.00
Income From Investment Operations:
Net operating loss (0.02)/2/ (0.01)
Net realized and unrealized loss on investments (0.33) (1.27)
TOTAL FROM INVESTMENT OPERATIONS (0.35) (1.28)
Less Distributions:
Distributions from net investment income (0.04)
Net Asset Value, End of Period $ 8.33 $ 8.72
Total Return3 (3.99%) (12.80%)
Ratios to Average Net Assets:
Expenses 0.83% 0.82%5
Net operating loss (0.24%) (0.77%)5
Expense waiver/reimbursement4 1.92% 2.69%5
Supplemental Data:
Net assets, end of period (000 omitted) $1,154 $ 680
Portfolio turnover 31% 3%
</TABLE>
1 Reflects operations for the period from July 1, 1997 (date of initial public
investment) to November 30, 1997.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
5 Computed on an annualized basis.
[federated logo]
Federated International Growth Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges. [Federated logo] Federated
International Growth Fund Federated Investors Funds 5800 Corporate Drive
Pittsburgh, PA 15237-7400 1-800-341-7400
www.federatedinvestors.com
Investment Company Act File No. 811-7141
Cusip 981487739
Cusip 981487721
Cusip 981487713
G02118-01-ABC (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated International Growth Fund
(Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Financial Information
Addresses
Cusip 981487739
981487721
981487713
G02118-02 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Global Investment Management Corp. (Adviser).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Securities of Other Investment Companies
The Fund invests 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 additional expenses.
The Fund may invest in foreign securities by investing in other mutual funds
that own securities and that are advised by an affiliate of the Adviser. These
other mutual funds are managed independently of the Fund and may incur
additional administrative expenses.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the underlying funds may enter into spot currency
trades. In a spot trade, the underlying Funds agree to exchange one currency
for another at the current exchange rate. The underlying funds may also enter
into derivative contracts in which a foreign currency is an underlying asset.
The exchange rate for currency derivative contracts may be higher or lower
than the spot exchange rate. Use of these derivative contracts may increase or
decrease the underlying funds' exposure to currency risks.
Brady Bonds
Brady bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund typically negotiates the exchange to cure or avoid a default by
restructuring the terms of the bank loans. The principal amount of some Brady
bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady bonds. However, neither the U.S. government not the
International Monetary Fund has guaranteed the repayment of any Brady Bond.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The underlying funds cannot predict the income
they will receive from equity securities because issuers generally have
discretion as to the payment of any dividends or distributions. However, equity
securities offer greater potential for appreciation than many other types of
securities, because their value increases directly with the value of the
issuer's business. The following describes the types of equity securities in
which the underlying funds invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the underlying funds the option to buy the issuer's equity
securities at a specified price (the exercise price) at a specified future
date (the expiration date). The underlying Funds may buy the designated
securities by paying the exercise price before the expiration date. Warrants
may become worthless if the price of the stock does not rise above the
exercise price by the expiration date. This increases the market risks of
warrants as compared to the underlying security. Rights are the same as
warrants, except companies typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the
underlying Funds invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Convertible Securities
Convertible securities are fixed income securities that the underlying Funds
have the option to exchange for equity securities at a specified conversion
price. The option allows the underlying funds to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, the underlying fund may hold fixed income securities that are
convertible into shares of common stock at a conversion price of $10 per share.
If the market value of the shares of common stock reached $12, the underlying
fund could realize an additional $2 per share by converting its fixed income
securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
underlying funds to realize some of the potential appreciation of the underlying
equity securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, an underlying fund could close out an open contract to buy an asset
at a future date by entering into an offsetting contract to sell the same asset
on the same date. If the offsetting sale price is more than the original
purchase price, the underlying fund realizes a gain; if it is less, the
underlying fund realizes a loss. Exchanges may limit the amount of open
contracts permitted at any one time. Such limits may prevent the underlying fund
from closing out a position. If this happens, the underlying fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm the underlying fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The underlying funds may also trade derivative contracts over-the-counter (OTC)
in transactions negotiated directly between the underlying fund and the
counterparty. OTC contracts do not necessarily have standard terms, so they
cannot be directly offset with other OTC contracts. In addition, OTC contracts
with more specialized terms may be more difficult to price than exchange traded
contracts.
Depending upon how the underlying fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease the underlying
fund's exposure to market and currency risks, and may also expose the underlying
fund to liquidity risks. OTC contracts also expose the underlying fund to credit
risks in the event that a counterparty defaults on the contract.
The underlying funds may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The underlying funds may buy or sell the following types of futures contracts:
foreign currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The underlying funds may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The underlying funds may also write covered call options and secured put
options on securities to generate income from premiums and lock in gains. If a
call written by the underlying fund is exercised, the underlying 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 a risk that the underlying fund may be required to take delivery of
the underlying asset when its current market price is lower than the exercise
price.
When the underlying fund writes options on futures contracts, it will be
subject to margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the underlying funds may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which an underlying fund buys a
security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. The repurchase price exceeds the sale
price, reflecting the underlying fund's return on the transaction. This return
is unrelated to the interest rate on the underlying security. The underlying
fund will enter into repurchase agreements only with banks and other
recognized financial institutions, such as securities dealers, deemed
creditworthy by the Adviser.
The underlying fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which an underlying
fund is the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the underlying fund. Reverse
repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the underlying fund must
repurchase the underlying security at a higher price, regardless of the market
value of the security at the time of repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which an underlying fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During the
period between purchase and settlement, no payment is made by the underlying
fund to the issuer and no interest accrues to the underlying fund. The
underlying fund records the transaction when it agrees to buy the securities
and reflects their value in determining the price of its shares. Settlement
dates may be a month or more after entering into these transactions so that
the market values of the securities bought may vary from the purchase prices.
Therefore, delayed delivery transactions create market risks for the
underlying fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.
Securities Lending
The underlying funds may lend portfolio securities to borrowers that the
Adviser deems creditworthy. In return, the underlying funds receive cash or
liquid securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities increases.
Also, the borrower must pay the underlying Fund the equivalent of any
dividends or interest received on the loaned securities.
The underlying Fund will reinvest cash collateral in securities that qualify
as an acceptable investment for the underlying Fund. However, the underlying
Fund must pay interest to the borrower for the use of cash collateral.
Loans are subject to termination at the option of the underlying Fund or the
borrower. The underlying fund will not have the right to vote on securities
while they are on loan, but it will terminate a loan in anticipation of any
important vote. The underlying fund may pay administrative and custodial fees
in connection with a loan and may pay a negotiated portion of the interest
earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the underlying funds will either own the underlying
assets, enter into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the underlying fund's
obligations. Unless the underlying fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting derivative contract or terminating a special
transaction. This may cause the underlying fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions. Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility. Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
underlying fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the underlying fund must rely entirely upon its Adviser's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
an underlying fund will fail to meet its obligations. This could cause the
underlying fund to lose the benefit of the transaction or prevent the underlying
fund from selling or buying other securities to implement its investment
strategy.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry other than investment companies, 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, securities of investment companies, 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 unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material changes in these limitations becomes 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and . for all other securities at fair value as
determined in good faith by the Board. Prices provided by independent
pricing services may be determined without relying exclusively on quoted prices
and may consider institutional trading in similar groups of securities, yield,
quality, stability, risk, coupon rate, maturity, type of issue, trading
characteristics, and other market data or factors. From time to time, when
prices cannot be obtained from an independent pricing service, securities may be
valued based on quotes from broker-dealers or other financial institutions that
trade the securities. The underlying funds in which the Fund may invest
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.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board of the underlying fund may determine in good faith that another method of
valuing such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the
underlying funds in which the Fund may invest value foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
underlying fund's Board, although the actual calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce the sales charge you pay.
You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases. Reinvestment Privilege You may reinvest,
within 120 days, your redemption proceeds at the next determined NAV without any
sales charge. Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases: . the Directors, employees and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates; . Employees
of State Street Bank Pittsburgh who started their employment on January 1, 1998,
and were employees of Federated Investors, Inc. (Federated) on December 31,
1997; . any associated person of an investment dealer who has a sales agreement
with the Distributor; and . trusts, pension or profit-sharing plans for these
individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE These
reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the post-purchase death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder; . representing minimum required distributions from an
Individual Retirement Account or other retirement plan in Federated Funds to a
shareholder who has attained the age of 70 1/2; . which are involuntary
redemptions processed by the Fund because the accounts do not meet the minimum
balance requirements; . which are qualifying redemptions of Class B Shares under
a Systematic Withdrawal Program; . of Shares that represent a reinvestment
within 120 days of a previous redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. The fee paid by the Fund to Federated Shareholder Services Company
will be reduced to the extent that the Fund receives a fee from an underlying
fund pursuant to the underlying fund's Shareholder Services Agreement with
Federated Shareholder Services. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage
of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Enterprise Trust & Investment Co., Los Gatos, CA owned approximately
231,048 Class A Shares (10.74%); Firstblue & Company, Bluefield, WV owned
approximately 149,421 Class A Shares (6.95%); Hudson United Bank, West Orange,
NJ owned approximately 126,757 Class A Shares (5.89%); Donaldson Lufkin Jenrette
Securities Corporation Inc., Jersey City, NJ owned approximately 16,980 Class C
Shares (12.92%); State Street Bank & Trust, Phoenix, AZ owned approximately
9,337 Class C Shares (7.10%); and First Citizens Bank & Trust Co., Raleigh, NC
owned approximately 7,873 Class C Shares (5.99%). When the Fund is asked to
vote on matters relating to the underlying funds, the Fund is required to
either: seek voting instructions from its shareholders regarding underlying fund
proxies and to vote such proxies in accordance with the instructions received;
or to vote such proxies in the same proportion as the vote of all other holders
of the underlying fund securities.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
The Fund may invest in underlying funds with capital loss carry-forwards. If
such an underlying fund realizes capital gains, it will be able to offset the
gains to the extent of its loss carry-forwards in determining the amount of
capital gains which must be distributed to its shareholders. To the extent that
gains are offset in this manner, the Fund will not realize gains on the related
fund until such time as the underlying fund is sold.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned
approximately 39,822 (1.85%) of the Fund's outstanding Class A Shares and less
than 1% of the Fund's outstanding Class B and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee of the $ 0 $0 for the
Birth date: July 28, 1924 Federated Fund Complex, Chairman and Director, Corporation and
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, 54 other investment
1001 Liberty Avenue Federated Investment Management Company; companies
Pittsburgh, PA Chairman and Director, Federated Investment in the Fund Complex
DIRECTOR AND CHAIRMAN Counseling and Federated Global Investment
Management Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: February 3, 1934 Director, Member of Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, Ernst 54 other investment
Pittsburgh, PA & Young LLP; Director, MED 3000 Group, Inc.; Director, companies
DIRECTOR Member of Executive Committee, University of in the Fund Complex
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: June 23, 1937 President, Investment Properties Corporation; Senior Corporation and
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., 54 other investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies
Realtors ventures in Southwest Florida; formerly: President, in the Fund Complex
3255 Tamiami Trial North Naples, Naples Property Management, Inc. and Northgate
FL Village Development Corporation.
DIRECTOR
Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $1,416.84 $47,958.02 for the
Birth date: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Corporation and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: July 4, 1918 Director and Member of the Executive Committee, Corporation and
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and 54 other investment
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; Director, companies
DIRECTOR Ryan Homes, Inc. in the Fund Complex
Previous Positions: Director, United Refinery; Director,
Forbes Fund; Chairman, Pittsburgh Foundation;
Chairman, Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Corporation and
571 Hayward Mill Road Fund, Inc. 54 other investment
Concord, MA companies
DIRECTOR Previous Positions: President, Boston Stock Exchange, in the Fund Complex
Inc.; Regional Administrator, United States Securities
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical Corporation and
3471 Fifth Avenue Director, University of Pittsburgh Medical Center 54 other investment
Suite 1111 Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, in the Fund Complex
DIRECTOR National Board of Trustees, Leukemia Society of
America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth date: June 18, 1924 Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Corporation and
Miller, Ament, Henny & Kochuba Director ,Emeritus, Eat'N Park Restaurants, Inc.; 54 other investment
205 Ross Street formerly: Counsel, Horizon Financial, F.A., Western companies
Pittsburgh, PA Region; Partner, Meyer and Flaherty. in the Fund Complex
DIRECTOR
Peter E. Madden Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: March 16, 1942 formerly: Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; President, State Street 54 other investment
100 Royal Palm Way Bank and Trust Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
DIRECTOR Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated Funds; $ 0 $0 for the
Birth date: April 10, 1945 Managment Consultant. Corporation and
80 South Road 26 other investment
Westhampton Beach, NY Retired: Chief Executive Officer, PBTC International companies
DIRECTOR Bank; Chief Financial Officer of Retail Banking Sector, in the Fund Complex
Chase Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G. Zarb School
of Business, Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: December 20, 1932 President, Law Professor, Duquesne University; Corporation and
President, Duquesne University Consulting Partner, Mollica & Murray. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: Dean and Professor of Law, in the Fund Complex
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: September 14, 1925 President, World Society of Ekistics (metropolitan Corporation and
1202 Cathedral of Learning planning), Athens; Professor, International Politics; 54 other investment
University of Pittsburgh Management Consultant; Trustee, Carnegie companies
Pittsburgh, PA Endowment for International Peace, RAND Corporation, in the Fund Complex
DIRECTOR 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; Trustee, Czech Management Center, Prague.
Retired: Professor, United States Military Academy;
Professor, United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth date: June 21, 1935 Public Relations/Marketing/Conference Planning. Corporation and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
DIRECTOR Company of America; business owner. in the Fund Complex
J. Christopher Donahue+ President or Executive Vice President of the $ 0 $0 for the
Birth date: April 11, 1949 Federated Fund Complex; Director or Trustee of some Corporation and
Federated Investors Tower of the Funds in the Federated Fund Complex; 16 other investment
1001 Liberty Avenue President and Director, Federated Investors, Inc.; companies
Pittsburgh, PA President and Trustee, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company; President and Director,
Federated Investment Counseling and Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director, Federated
Services Company.
Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the
Birth date: October 22, 1930 Federated Fund Complex; President, Executive Vice Corporation and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated companies
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company, Federated Investment
Counseling, Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the
Birth date: October 26, 1938 Federated Fund Complex; Executive Vice President, Corporation and
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; 54 other investment
1001 Liberty Avenue Trustee, Federated Investment Management Company; companies
Pittsburgh, PA Director, Federated Investment Counseling and in the Fund Complex
EXECUTIVE VICE PRESIDENT Federated Global Investment
Management Corp.; Director, Federated Services
Company; Director, Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth date: June 17, 1954 President - Funds Financial Services Division, Federated Corporation and
Federated Investors Tower Investors, Inc.; Formerly: various management positions 54 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER
Henry A. Frantzen Chief Investment Officer of this Fund and various $0 $0 for the
Birth date: November 28, 1942 other Funds in the Federated Fund Complex; Executive Corporation and
Federated Investors Tower Vice President, Federated Investment Counseling, 3 other investment
1001 Liberty Avenue Federated Global Investment Management Corp., companies
Pittsburgh, PA Federated Investment Management Company, and in the Fund Complex
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice President,
Federated Investment Counseling Institutional
Portfolio Management Services Division; Chief
Investment Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. Collins joined $0 $0 for the
Birth date: December 19, 1956 Federated Investors in 1995 as a Senior Portfolio Corporation and
Federated Investors Tower Manager and a Senior Vice President of the Fund's 1 other investment
1001 Liberty Avenue investment adviser. Mr. Collins served as Vice company in the
Pittsburgh, PA President/Portfolio Manager of international equity Fund Complex
VICE PRESIDENT 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 Wharton School
of The University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation. INVESTMENT ADVISER The Adviser
conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated. The Adviser shall
not be liable to the Corporation, the Fund, or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
The distributor may assist in the execution of the Fund's portfolio transactions
to purchase underlying fund shares for which it may receive distribution
payments from the underlying funds or their underwriters in accordance with the
distribution plans of those funds. In providing execution assistance, the
distributor receives orders from the Adviser; places them with the underlying
fund's distributor, transfer agent or other person, as appropriate; confirms the
trade, price and number of shares purchased; and assures prompt payment by the
Fund and proper completion of the order.
With respect to purchases of load fund shares, the Adviser may direct
substantially all of the Fund's orders to the distributor, which may, in its
discretion, direct the order to other broker-dealers in consideration of sales
of the Fund's shares.
The distributor may retain brokerage commissions on portfolio transactions of
mutual funds held in the Fund's portfolio, including funds which have a policy
of considering sales of their shares in selecting broker-dealers for the
execution of their portfolio transactions. Payment of brokerage commissions to
the distributor is not a factor considered by the Adviser in selecting an
underlying fund for investment.
Under certain circumstances, a sales charge incurred by the Fund in acquiring
shares of an underlying fund may not be taken into account in determining the
gain or loss on the disposition of the shares acquired. If shares are disposed
of within 90 days from the date they were purchased and if shares of a new
underlying fund are subsequently acquired without imposition of a sales charge
or imposition of a reduced sales charge pursuant to a right granted to the Fund
to acquire shares without payment of a sales charge or with the payment of a
reduced charge, then the sales charge paid upon the purchase of the initial
shares will be treated as paid in connection with the acquisition of the new
underlying fund's shares rather than the initial shares.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum
Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditor for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997
<S> <C> <C>
Advisory Fee Earned $ 0 $ 0
Advisory Fee Reduction $ 0 $ 0
Brokerage Commissions $ 0 $ 0
Administrative Fee $185,000 $77,041
12b-1 Fee
Class A Shares $ 0 NA
Class B Share $ 57,148 NA
Class C Shares $ 8,174 NA
Shareholder Services Fee
Class A Shares $ 40,448 NA
Class B Share $ 19,050 NA
Class C Shares $ 2,724 NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
Class Name 1 Year Start of Performance*
Class A Shares (8.70%) (20.26%)
Class B Shares (9.39%) (20.45%)
Class C Shares (4.94%) (16.28%)
* Start of performance on July 1, 1997.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
Morgan Stanley Capital International Europe, Australia, and Far East (EAFE)
Index
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.
Morgan Stanley Capital International Latin America Emerging Market Indices
Includes 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.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.
Financial Times Actuaries/Standard and Poor's World (ex U.S.) Mid/Small Cap
Index
A total return, market cap-weighted index of companies from 25 countries.
Financial Times Actuaries Indices
Includes the FTA-World Index (and components thereof), which are based on stocks
in major world equity markets.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Growth Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED INTERNATIONAL GROWTH FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
PROSPECTUS
FEDERATED INTERNATIONAL HIGH INCOME FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking a high level of current income and a secondary objective
of capital appreciation by investing primarily in government and corporate debt
obligations of issuers in emerging market countries and developed foreign
countries.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 7
What Do Shares Cost? 8
How is the Fund Sold? 11
How to Purchase Shares 12
How to Redeem and Exchange Shares 13
Account and Share Information 16
Who Manages the Fund? 17
Financial Information 18
</TABLE>
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek a high level of current income. The
Fund has a secondary objective of capital appreciation. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in foreign government and corporate d
ebt obligations. The
securities may be denominated in foreign currency or in U.S. dollars. The
adviser looks primarily for securities offering higher interest rates. In
implementing this strategy, the Adviser will invest in emerging market
countries. Many emerging market countries issue securities rated below
investment grade. The Fund may invest up to 80% of its foreign securities
portfolio in emerging markets, with the balance invested in developed markets.
The Fund does not limit the amount it may invest in securities rated below
investment grade.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. a general rise in interest rates;
. defaults or an increase in the risk of defaults on portfolio securities;
. prices of emerging market securities in which the Fund invests can be
significantly more volatile than prices of securities in developed
countries;
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities;
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United
States and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies;
. the Fund invests in the securities rated below investment grade which may be
subject to greater market, credit and liquidity risks than investment grade
securities; and
. the possibility that a certain sector may underperform other sectors or the
market as a whole.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[Graph appears here see Appendix]
The bar chart shows the variability of the Fund's Class B Shares total returns
on a yearly basis.
The Fund's Class B Shares are sold subject to a contingent deferred sales charge
(load). The impact of the contingent deferred sales charges are not reflected in
the total returns above, and if these amounts were reflected, the returns would
be less than those shown.
Within the period shown in the Chart, the Fund's Class B Shares highest
quarterly return was 11.47% (quarter ended December 31, 1998). Its lowest
quarterly return was (15.84%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
1 Year Start of
Performance1
<S> <C> <C>
Fund/Class A Shares (10.05%) (1.70%)
Fund/Class B Shares (11.17%) (1.85%)
Fund/Class C Shares (7.38%) (0.43%)
JPM-EMB (14.35%) 0.98%
</TABLE>
1 The Fund's Class A, Class B and C Shares start of performance date was October
2, 1996.
The table shows the Fund's Class A, Class B and Class C Shares average annual
total returns (reduced to reflect applicable sales charges) compared to the JP
Morgan Emerging Markets Bond Index Plus (JPM-EMB), a broad-based market index,
comprised of 14 emerging market countries which track total returns of
external currency denominated debt instruments of the emerging markets.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential reward
s.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Fees Paid Directly From Your Investment
<S> <C> <C> <C> Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 4.50% None None Maximum Deferred Sales Charge
(Load) (as a percentage of original purchase price or redemption 0.00% 5.50%
1.00%
proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 0.85% 0.85% 0.85%
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 0.68% 0.68% 0.68%
Total Annual Fund Operating Expenses 2.03% 2.53%/4/ 2.53%
- ------------------------------------------------
- --------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser and distributor
will waive certain amounts. These are shown below along with the net
expenses the Fund expects to pay for the fiscal year endingNovember 30,
1999. Waivers of Fund Expenses 1.03% 0.78% 0.78% Total Annual Fund Operating
Expenses (after waivers) 1.00% 1.75% 1.75%
2 The adviser voluntarily expects to waive a portion of the management fee.
The adviser can terminate this voluntary waiver at any time. The management
fee the Fund expects to pay (after the voluntary waiver) is 0.07% for the
year ending November30,1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended November 30, 1998. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the year ending
November 30, 1999.
4 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. </TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A Shares, Class
B Shares and Class C Shares for the time periods indicated and then redeem all
of your Shares at the end of those periods. Expenses assuming no redemption are
also shown. The Example also assumes that your investment has a 5% return each
year and that the Fund's Class A Shares, Class B Shares and Class C Shares
operating expenses are before waivers as shown in the Table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Share Class
1 Year 3 Years 5 Years 10 Years
Class A
<S> <C> <C> <C> <C>
Expenses assuming $647 $1,058 $1,494 $2,702
redemption
Expenses assuming no $647 $1,058 $1,494 $2,702
redemption
Class B
Expenses assuming $806 $1,188 $1,545 $2,743
redemption
Expenses assuming no $256 $ 788 $1,345 $2,743
redemption
Class C
Expenses assuming $356 $ 788 $1,345 $2,866
redemption
Expenses assuming no $256 $ 788 $1,345 $2,866
redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in foreign government and corporate debt obligations. The
securities may be denominated in foreign currency or in U.S. dollars. The
adviser looks primarily for securities offering higher interest rates. In
implementing this strategy, the Adviser will invest in emerging market
countries. Many emerging market countries issue securities rated below
investment grade. The Fund may invest up to 80% of its foreign securities
portfolio in emerging markets, with the balance invested in developed markets.
The Fund does not limit the amount it may invest in securities rated below
investment grade.
The adviser attempts to manage the risks of these high yield securities in two
ways. First, by investing the portfolio in a large number of securities from a
wide range of foreign countries. Second, by allocating the portfolio among
countries whose markets, based on historical analysis, respond differently to
changes in the global economy.
The adviser weighs several factors in selecting investments for the portfolio.
First, the adviser analyzes a country's general economic condition and outlook,
including its interest rates, foreign exchange rates and current account
balance. The adviser then analyzes the country's financial condition, including
its credit ratings, government
budget, tax base, outstanding public debt and the
amount of public debt held outside the country. In connection with this
analysis, the adviser also considers how developments in other countries in the
region or the world might affect these factors. Using its analysis, the adviser
tries to identify countries with favorable characteristics, such as a
strengthening economy, favorable inflation rate, sound budget policy or strong
public commitment to repay government debt. The adviser then analyzes the
business, competitive position, and financial condition of the issuer to assess
whether the security's risk is commensurate with its potential return.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities
is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic fixed income securities, foreign
securities are subject currency risks and risks of foreign investing. Trading in
certain foreign markets is also subject to liquidity risks.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the principal types of fixed income securities in
which the Fund invests.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter- American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage- related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment
grade.
What are the Specific Risks of Investing in the Fund?
CURRENCY RISKS
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
. The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
BOND MARKET RISKS
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest
at a higher rate. The difference between the yield of a security and the yield
of a U.S. Treasury security with a comparable maturity (the spread) measures
the additional interest paid for risk. Spreads may increase generally in
response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is
perceived to have an increased credit risk. An increase in the spread will
cause the price of the security to decline.
RISKS OF FOREIGN INVESTING
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent the Fund and its
adviser from obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available concerning
companies in the United States.
. Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect the Fund's investments.
LIQUIDITY RISKS
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment
grade, are not widely held or
are issued by companies located in emerging
markets. These features may make it more difficult to sell or buy a security
at a favorable price or time. Consequently, the Fund may have to accept a
lower price to sell a security, sell other securities to raise cash or give
up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading of securities may also increase
their price volatility.
SECTOR RISKS
. A substantial part of the Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, or with other
similar characteristics. As a result, the Fund will be more susceptible to
any economic, business, political, or other developments which generally
affect these issuers.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
EMERGING MARKET RISKS
. Securities issued or traded in emerging markets generally entail greater
risks than securities issued or traded in developed markets. For example,
their prices can be significantly more volatile than prices in developed
countries. Emerging market economies may also experience more severe
downturns (with corresponding currency devaluations) than developed
economies.
. 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.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open.
When the Fund receives your transaction request in proper form, it is processed
at the next calculated net asset value (NAV), plus any applicable front-end
sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designate listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Maximum Shares Charge
Minimum -----------------------------------
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $ 1,500/$10 4.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
- -------------------------------------------------------------------
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price of NAV
- -------------------------------------------------------------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
- -------------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
- -------------------------------------------------------------------
$250,000 but less than 2.50% 2.56%
$500,000
- -------------------------------------------------------------------
$500,000 but less than $1 2.00% 2.04%
million
- -------------------------------------------------------------------
$1 million or greater/1/ 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
- by you, your spouse,
and your children under age 21; or
- of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales
charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C>
A CDSC of 0.75% of the redemption amount applies to Class
A Shares redeemed up to 24 months after purchase under certain investment
programs where an investment professional received an advance payment on the
transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals who did not receive advanced sales
payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
The CDSC is then calculated using
the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment with
in three
business days. You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have
identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount
based on the next calculated NAV after
the Fund receives your written request in proper form. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions).
In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares daily and pays any dividends monthly to shareholders.
Dividends are paid to all shareholders invested in the Fund on the record date.
The record date is the date on which a shareholder must officially own Shares in
order to earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions
and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Micheal W. Casey, Ph.D.
Micheal W. Casey, Ph.D. has been the Fund's portfolio manager since January
1997. Mr. Casey joined Federated Investors in 1996 as a Senior Investment
Analyst and an Assistant Vice President. Mr. Casey currently serves as a
Portfolio Manager and has been a Vice President of the Adviser since 1998. 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.
Robert M. Kowit
Robert M. Kowit has been the Fund's portfolio manager since its inception. Mr.
Kowit joined Federated Investors in 1995 as a Senior Portfolio Manager and a
Vice President of the Fund's 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/Portfolio Manager 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.
Roberto Sanchez-Dahl
Roberto Sanchez-Dahl is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Sanchez-Dahl joined Federated Investors in December 1997; from 1994 through
November 1997, he served as an Emerging Markets Credit Associate with Goldman
Sachs & Co. Mr. Sanchez-Dahl
earned his M.B.A. from Columbia School of Business.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.85% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year
2000 readiness of those entities. This is especially true of entities or issuers
in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.50 $10.12 $10.00
Income From Investment Operations:
Net investment income 0.94 1.18 0.17/2/
Net realized and unrealized gain/(loss) on investments (1.49) (0.78) 0.13
TOTAL FROM INVESTMENT OPERATIONS (0.55) 0.40 0.30
Less Distributions:
Distributions from net investment income (0.96) (1.02) (0.17)
Distributions in excess of net investment income -- -- (0.01)/3/
Distributions from net realized gain on investment
s and foreign
currencytransactions (0.00)/4/ -- --
TOTAL DISTRIBUTIONS (0.96) (1.02) (0.18)
Net Asset Value, End of Period $ 7.99 $ 9.50 $10.12
Total Return/5/ (5.95%) 4.02% 2.99%
Ratios to Average Net Assets:
Expenses 0.82% 0.75% 0.75%7
Net investment income 11.07% 10.54% 9.19%7
EXPENSE WAIVER/REIMBURSEMENT/6/ 0.99% 2.03% 8.46%7
Supplemental Data:
Net assets, end of period (000 omitted) $11,052 $9,073 $ 599
Portfolio turnover 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
2 Per share information is based on the average number of shares outstanding.
3 Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
4 Per share amount does not round to $(0.01).
5 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
6 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
7 Computed on an annualized basis.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 199
8 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.50 $ 10.12 $10.00
Income From Investment Operations:
Net investment income 0.89 0.96 0.18/2/
Net realized and unrealized gain/(loss) on investments (1.50) (0.63) 0.11
TOTAL FROM INVESTMENT OPERATIONS (0.61) 0.33 0.29
Less Distributions: -- --
Distributions from net investment income (0.90) (0.95) (0.17)
Distributions from net realized gain on investments and foreign
currencytransactions (0.00)/3/
TOTAL DISTRIBUTIONS (0.90) (0.95) (0.17)
Net Asset Value, End of Period $ 7.99 $ 9.50 $10.12
TOTAL RETURN/4/ (6.67%) 3.24% 2.87%
Ratios to Average Net Assets:
Expenses 1.57% 1.50% 1.50%/6/
Net investment income
10.37% 9.73% 8.92%/6/
EXPENSE WAIVER/REIMBURSEMENT5 0.99% 2.03% 8.46%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $70,458 $49,929 $5,397
Portfolio turnover 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public offering) to November 30, 1996.
2 Per share information presented is based upon the average number of shares
outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
6 Computed on an annualized basis.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.50 $10.12 $10.00
Income From Investment Operations:
Net investment income 0.85 0.98 0.17/2/
Net realized and unrealized gain/(loss) on investments (1.46) (0.65) 0.12
TOTAL FROM INVESTMENT OPERATIONS (0.61) 0.33 0.29
Less Distributions:
Distributions from net investm
ent income (0.90) (0.95) (0.17)
Distributions from net realized gain on investments and foreign
currencytransactions (0.00)3 -- --
TOTAL DISTRIBUTIONS (0.90) (0.95) (0.17)
Net Asset Value, End of Period $ 7.99 $ 9.50 $10.12
Total Return4 (6.67%) 3.24% 2.87%
Ratios to Average Net Assets:
Expenses 1.57% 1.50% 1.50%/6/
Net investment income 10.35% 10.04% 8.67%/6/
EXPENSE WAIVER/REIMBURSEMENT/5/ 0.99% 2.03% 8.46%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $8,106 $6,037 $ 83
Portfolio turnover 128% 93% 0%
</TABLE>
1 Reflects operations for the period from October 2, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information presented is based upon the average number of shares
outstanding.
3 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in b
oth the expense and net
investment income ratios shown above.
6 Computed on an annualized basis.
Federated
International
High Income
Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[logo of Federated]
Federated International High Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
- --------------------------
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7141
Cusip 981487762
Cusip 981487754
Cusip 981487747
G01745-01 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL HIGH INCOME FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated International High Income
Fund (Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI
incorporates by reference the Fund's Annual Report. Obtain the prospectus or the
Annual Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487697
981487689
981487671
G01745-02 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Fund's investment adviser is Federated
Global Investment Management Corp. (Adviser).
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Non-Principal Investment Strategy
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject currency risks and risks of foreign investing. Trading in
certain foreign markets is also subject to liquidity risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Brady Bonds
Brady bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund typically negotiates the exchange to cure or avoid a default by
restructuring the terms of the bank loans. The principal amount of some Brady
bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady bonds. However, neither the U.S. government not the
International Monetary Fund has guaranteed the repayment of any Brady Bond.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely amount
issuers. The credit risk of an issuer's debt security may also vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are know as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive
a pro rata share of all payments and pre-payments from the underlying
mortgages. As a result, the holders assume all the prepayment risks of the
underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage backed securities.
This creates different prepayment and market risks for each CMO class. For
example, in a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for each
sequential class of CMO. As a result, each class of sequential pay CMOs
reduces the prepayment risks of subsequent classes.
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with companion
classes. PACs and TACs receive principal payments and prepayments at a
specified rate. The companion classes receive principal payments and
prepayments in excess of the specified rate. In addition, PACs will receive
the companion classes' share of principal payments, if necessary, to cover a
shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion classes.
CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against market risks.
Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market
index such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest)
as interest rates rise. This shifts prepayment and market risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater
class.
CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages
until all other CMO classes have been paid off. Once this happens, holders of
Z class CMOs receive all payments and prepayments. Similarly, REMICs have
residual interests that receive any mortgage payments not allocated to another
REMIC class.
The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. Z classes, IOs, POs, and Inverse Floaters are among the
most volatile investment grade fixed income securities currently traded in the
United States. However, the actual returns on any type of mortgage backed
security depend upon the performance of the underlying pool of mortgages,
which no one can predict and will vary among pools.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed
income assets (including other fixed income securities) may be used to create
an asset backed security. Asset backed securities may take the form of
commercial paper, notes, or pass through certificates. Asset backed securities
may also resemble some types of CMOs, such as Floaters, Inverse Floaters, IOs
and POs.
Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer or commercial debt. In addition, some asset backed
securities use prepayment to buy additional assets, rather than paying off the
securities. Therefore, while asset backed securities may have some prepayment
risks, they generally do not present the same degree of risk as mortgage
backed securities.
Zero Coupon Securities
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below
the amount payable at maturity. The difference between the purchase price and
the amount paid at maturity represents interest on the zero coupon security.
An investor must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs
are the most common forms of stripped zero coupon securities. In addition,
some securities give the issuer the option to deliver additional securities in
place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities.
Credit Enhancement
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. Following a default, these assets may be sold and the proceeds paid
to security's holders. Either form of credit enhancement reduces credit risks
by providing another source of payment for a fixed income security.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The Fund may but forward contracts which serve as a substitute for investment in
certain foreign securities markets from which the Fund earns interest while
potentially benefiting from exchange rate fluctuations. The other party to a
derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks. OTC contracts also expose the Fund to credit risks in the event
that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
---------
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities, securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
Buy call options on foreign currencies, securities, and securities indices and
on futures contracts involving these items in anticipation of an increase in
the value of the underlying asset.
Buy put options on foreign currencies, securities, and securities indices, and
on futures contracts involving these items in anticipation of a decrease in
the value of the underlying asset.
Write covered call options on foreign currencies, securities, and securities
indices and on futures contracts involving these items to generate income from
premiums. 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.
Write secured put options on foreign currencies, securities, and securities
indices and futures contracts involving these items (to generate income from
premiums). In writing puts, there is a risk that the Fund may be required to
take delivery of the underlying asset when its current market price is lower
than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Buy or write options to close out existing options positions.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swap agreements provide for interest payments in different
currencies. The parties might agree to exchange the notional principal
amount as well.
Caps and Floors
In these arrangements one party agrees to make payments only under specific
circumstances, usually in return for payment of a fee by the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject
to. In addition, reverse repurchase agreements create leverage risks because the
Fund must repurchase the underlying security at a higher price, regardless of
the market value of the security at the time of repurchase.
Delayed Delivery Transactions
Delayed delivery transactions are arrangements in which the Fund buys securities
for a set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to buy the securities and reflects their
value in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, when issued
transactions create market risks for the Fund. Delayed delivery transactions
also involve credit risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Investment Ratings for Investment Grade Securities. The Adviser will determine
whether a security is investment grade based upon the credit ratings given by
one or more nationally recognized rating services. For example, Standard and
Poor's, a rating service, assigns ratings to investment grade securities (AAA,
AA, A, and BBB) based on their assessment of the likelihood of the issuer's
inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Euro Risks
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
. Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
. Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect the Fund's investments.
Liquidity Risks
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment
grade, are not widely held or are issued by companies located in emerging
markets. These features may make it more difficult to sell or buy a security
at a favorable price or time. Consequently, the Fund may have to accept a
lower price to sell a security, sell other securities to raise cash or give
up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading of securities may also increase
their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Prepayment Risks
. Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors
can also lead to increases or decreases in prepayments. Increases in
prepayments of high interest rate mortgage backed securities, or decreases in
prepayments of lower interest rate mortgage backed securities, may reduce
their yield and price. These factors, particularly the relationship between
interest rates and mortgage prepayments makes the price of mortgage backed
securities more volatile than many other types of fixed income securities
with comparable credit risks.
. Mortgage backed securities generally compensate for greater prepayment risk
by paying a higher yield. The difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk. Spreads
may increase generally in response to adverse economic or market conditions.
A security's spread may also increase the security is perceived to have an
increased prepayment risk or less market demand. An increase in the spread
will cause the price of the security to decline.
. The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks,
or other less favorable characteristics.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
Emerging Market Risks
. Securities issued or traded in emerging markets generally entail greater
risks than securities issued or traded in developed markets. For example,
their prices can be significantly more volatile than prices in developed
countries. Emerging market economies may also experience more severe
downturns (with corresponding currency devaluations) than developed
economies.
. 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.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. 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 unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval [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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the
mean between the last bid and the last asked price for the option as provided
by an investment dealer or other financial institution that deals in the
option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charge that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your redemption proceeds at the next
determined NAV without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
. the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated)
on December 31, 1997;
. any associated person of an investment dealer who has a sales agreement with
the Distributor; and
. trusts, pension or profit-sharing plans for these individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
. as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator
has entered into certain arrangements with the Distributor or its affiliates,
or any other investment professional, to the extent that no payments were
advanced for purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% and 1.00%, respectively, of the
NAV of Class B and C Shares.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Advance Payments as a
Amount Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: ISTCO, Belleville, IL, owned
approximately 136,219 Class A Shares (6.58%), Frojack Company, Grand Forks, ND,
owned approximately 267,969 Class A Shares (12.95%), and Glen R. Johnson, Marco
Island, FL, owned approximately 355,244 Class A Shares (17.17%); and Merrill
Lynch Pierce Fenner & Smith, Jacksonville, FL, owned approximately 265,574 Class
C Shares (27.63%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax..
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee $ 0 $0 for the
Birth Date: July 28, 1924 of the Federated Fund Complex, Chairman and Corporation and
Federated Investors Tower Director, Federated Investors, Inc.; Chairman and 54 other investment
1001 Liberty Avenue Trustee, Federated Investment Management Company; companies
Pittsburgh, PA Chairman and Director, Federated Investment in the Fund Complex
DIRECTOR AND CHAIRMAN Counseling and Federated Global Investment
Management Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, 54 other investment
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; companies
DIRECTOR Director, Member of Executive Committee, University in the Fund
of Pittsburgh. Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $1,558.76 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Corporation and
Wood/IPC Commercial Dept. Senior Vice President, John R. Wood and Associates, 54 other
John R. Wood Associates, Inc. Inc., Realtors; Partner or Trustee in private investment
Realtors real estate ventures in Southwest Florida; formerly: companies
3255 Tamiami Trial North President, Naples Property Management, Inc. and in the Fund
Naples, FL Northgate Village Development Corporation. Complex
DIRECTOR
Nicholas Constantakis Director or Trustee of the Federated Fund $1,416.84 $47,958.02 for the
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen Worldwide SC. Corporation and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: July 4, 1918 Complex; Director and Member of the Executive Corporation and
One PNC Plaza-23rd Floor Committee, Michael Baker, Inc.; formerly: Vice 54 other investment
Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and companies
DIRECTOR PNC Bank Corp.; Director, Ryan Homes, Inc. in the Fund Complex
Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic
Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: May 18, 1922 Complex; Attorney-at-law; Director, The Corporation and
571 Hayward Mill Road Emerging Germany Fund, Inc. 54 other investment
Concord, MA Previous Positions: President, Boston Stock companies
DIRECTOR Exchange, Inc.; Regional Administrator, in the Fund Complex
United States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center Downtown; Hematologist, companies
Pittsburgh, PA Oncologist, and Internist, University of Pittsburgh in the Fund Complex
DIRECTOR Medical Center; Member, National Board of Trustees,
Leukemia Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: June 18, 1924 Complex; Attorney, of Counsel, Miller, Ament, Henny Corporation and
Miller, Ament, Henny & Kochuba & Kochuba; Director Emeritus, Eat'N Park Restaurants, 54 other investment
205 Ross Street Inc.; formerly: Counsel, Horizon Financial, F.A., companies
Pittsburgh, PA Western Region; Partner, Meyer and Flaherty. in the Fund Complex
DIRECTOR
Peter E. Madden Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: March 16, 1942 Complex; formerly: Representative, Commonwealth Corporation and
One Royal Palm Way of Massachusetts General Court; President, State 54 other investment
100 Royal Palm Way Street Bank and Trust Company and State Street companies
Palm Beach, FL Corporation. in the Fund Complex
DIRECTOR Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated $ 0 $0 for the
Birth Date: April 10, 1945 Fund Complex; Management Consultant. Corporation and
80 South Road 26 other investment
Westhampton Beach, NY Previous Positions: Chief Executive Officer, companies
DIRECTOR PBTC International Bank; Chief Financial Officer in the Fund Complex
of Retail Banking Sector, Chase Manhattan Bank;
Senior Vice President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School of
Business, Hostra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & Murray. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: Dean and Professor of Law, in the Fund Complex
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: September 14, 1925 Complex; President, World Society of Ekistics Corporation and
1202 Cathedral of Learning (metropolitan planning), Athens; Professor, 54 other investment
University of Pittsburgh International Politics; Management Consultant; companies
Pittsburgh, PA Trustee, Carnegie Endowment for International in the Fund Complex
DIRECTOR 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; Trustee, Czech
Management Center, Prague.
Previous Positions: Professor, United States
Military Academy; Professor, United States Air
Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $1,416.84 $113,860.22 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. Corporation and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
DIRECTOR Company of America; business owner. in the Fund Complex
J. Christopher Donahue+ President or Executive Vice President of the $ 0 $0 for the Corporation
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of some and 16 other
Federated Investors Tower of the Funds in the Federated Fund Complex; President investment companies
1001 Liberty Avenue and Director, Federated Investors, Inc.; in the Fund Complex
Pittsburgh, PA President and Trustee, Federated Investment
EXECUTIVE VICE PRESIDENT Management Company; President and Director,
Federated Investment Counseling and Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.
Edward C. Gonzales Trustee or Director of some of the Funds in $ 0 $0 for the Corporation
Birth Date: October 22, 1930 the Federated Fund Complex; President, Executive and 1 other investment
Federated Investors Tower Vice President and Treasurer of some of the Funds companies in the Fund
1001 Liberty Avenue in the Federated Fund Complex; Vice Chairman, Complex
Pittsburgh, PA Federated Investors, Inc.; Vice President,
EXECUTIVE VICE PRESIDENT Federated Investment Management Company, Federated
Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
John W. McGonigle Executive Vice President and Secretary of $ 0 $0 for the Corporation
Birth Date: October 26, 1938 the Federated Fund Complex; Executive Vice and 54 other
Federated Investors Tower President, Secretary, and Director, Federated investment
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Investment companies in the Fund
Pittsburgh, PA Management Company; Director, Federated Investment Complex
EXECUTIVE VICE PRESIDENT Counseling and Federated Global Investment
Management Corp.; Director, Federated Services
Company; Director, Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; $ 0 $0 for the Corporation
Birth Date: June 17, 1954 Vice President - Funds Financial Services Division, and 54 other
Federated Investors Tower Federated Investors, Inc.; Formerly: various investment
1001 Liberty Avenue management positions within Funds Financial Services companies in the Fund
Pittsburgh, PA Division of Federated Investors, Inc. Complex
TREASURER
Henry A. Frantzen Chief Investment Officer of this Fund and $ 0 $0 for the Corporation
Birth Date: November 28, 1942 various other Funds in the Federated Fund and 3 other
Federated Investors Tower Complex; Executive Vice President, Federated investment
1001 Liberty Avenue Investment Counseling, Federated Global Investment companies in the Fund
Pittsburgh, PA Management Corp., Federated Investment Management Complex
CHIEF INVESTMENT OFFICER Company and Passport Research, Ltd.; Registered
Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Chief
Investment Officer/Manager, International
Equities, Brown Brothers Harriman & Co.;
Managing Director, BBH Investment Management
Limited.
Drew J. Collins Vice President of the Corporation. Mr. Collins $ 0 $0 for the Corporation
Birth Date: December 19, 1956 joined Federated Investors in 1995 as a Senior and one other
Federated Investors Tower Portfolio Manager and a Senior Vice President investment company
1001 Liberty Avenue of the Fund's investment adviser. Mr. Collins in the Fund
Pittsburgh, PA served as Vice President/Portfolio Manager of Complex
VICE PRESIDENT 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 Wharton School of The University of
Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditors for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $698,226 $272,638 $ 7,908
Advisory Fee Reduction $698,226 $272,638 $ 7,908
Brokerage Commissions $ 16,156 $ 8,081 $ 202
Administrative Fee $185,000 $185,000 $30,328
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $480,528 NA NA
Class C Shares $ 62,731 NA NA
Shareholder Services Fee
Class A Shares $ 24,274 NA NA
Class B Share $160,176 NA NA
Class C Shares $ 20,911 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998. Yield given
for the 30-day period ended November 30, 1998.
<TABLE>
<CAPTION>
Class Name 30-Day Period 1 Year Start of Performance*
<S> <C> <C> <C>
Total Return
Class A Shares NA (10.20%) (1.76%)
Class B Shares NA (11.30%) (1.90%)
Class C Shares NA (7.51%) (0.41%)
Yield
Class A Shares 12.75% NA NA
Class B Shares 12.61% NA NA
Class C Shares 12.62% NA NA
* START OF PERFORMANCE ON OCTOBER 2, 1996.
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time. From time to time, the Fund will
quote its Lipper ranking in the "emerging market region funds" category in
advertising and sales literature.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of
all types, according to their risk-adjusted returns. The maximum rating is five
stars, and ratings are effective for two weeks.
J.P. Morgan Non-Dollar Bond Index
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.
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.
J.P. Morgan Global (ex-U.S.) Government Index
The standard unmanaged foreign securities index representing major government
bond markets.
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 ("Moody's"),
including defaulted issues. If no Moody's rating is available, bonds must be
rated BB+ or lower by Standard & Poor's Ratings Services ("S&P"); and if no S&P
rating is available, bonds must be rated below investment grade by Fitch
Investor's Service, L.P. ("Fitch"). 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.
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.
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.
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.
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.
Various publications and annual reports produced by the World Bank and its
affiliates.
Various publications from the International Bank for Reconstruction and
Development.
Various publications including, but not limited to, ratings agencies such as
Moody's, Fitch, and S&P.
Various publications from the Organization for Economic Cooperation and
Development.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 279 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated International High Income Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED INTERNATIONAL HIGH INCOME FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
FEDERATED INTERNATIONAL SMALL COMPANY FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking long-term growth of capital by investing primarily in
equity securities of foreign companies that have a market capitalization at the
time of purchase of $1.5 billion or less.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What Do Shares Cost? 7
How is the Fund Sold? 10
How to Purchase Shares 10
How to Redeem and Exchange Shares 12
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 17
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long- term growth of capital.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of foreign companies that have a market
capitalization at the time of purchase of $1.5 billion or less. A small company
might in some countries rank among the largest companies in terms of
capitalization. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. The adviser may invest
the Fund's assets in any region of the world. It will 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 countries, such as those of
Canada, Japan and Western Europe.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. fluctuations in the value of equity securities in foreign securities markets;
. the smaller market capitalization of the companies in which the Fund invests,
which may mean that the companies' stock is less liquid and subject to price
volatility;
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities;
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies; and
. the exchange rate between the euro and the U.S. dollar will have a
significant impact on the value of the Fund's investments because the Fund
makes significant investments in securities denominated in euro.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency. Risk/Return Bar
Chart and Table [graph appears heres - See Appendix]
The bar chart shows the variability of the Fund's Class B Shares total returns
on a yearly basis.
The Fund's Class B Shares are subject to a contingent deferred sales charges
(load). The impact of the contingent deferred sales charges are not reflected in
the total returns above, and if these amounts were reflected, the returns would
be less than those shown.
Within the period shown in the Chart, the Fund's Class B Shares highest
quarterly return was 21.57% (quarter ended March 31, 1998). Its lowest quarterly
return was (15.05%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
1 Year Start of
Performance1
<S> <C> <C>
Class A 20.74% 21.59%
Class B 21.32% 22.13%
Class C 25.84% 23.07%
MSCI-SCW 4.31% (7.57%)
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
February 28, 1996. The table shows the Fund's Class A, Class B and Class C
Shares average annual total returns (reduced to reflect applicable sales
charges) compared to the Morgan Stanley Capital International World (ex. U.S.)
Small Cap Index (MSCI-SCW) a broad-based index. MSCI-SCW includes stocks
having market capitalizations between US $200-800 million (the Small Cap
Universe). This index tracks small-cap stock performance worldwide by defining
a consistent market capitalization range across 22 developed countries (ex-
U.S.).
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by it potential
rewards.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
Fees Paid Directly From Your Investment
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption 0.00% 5.50% 1.00%
proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 1.25% 1.25% 1.25%
Distribution (12b-1) Fee2 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 0.45% 0.45% 0.45%
Total Annual Fund Operating Expenses 2.20% 2.70%/3/ 2.70%
1 Although not contractually obligated to do so, the distributor waived certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended November30, 1998.
Waivers of Fund Expenses 0.25% 0.00% 0.00%
Total Actual Annual Fund Operating Expenses (after waivers) 1.95% 2.70% 2.70%
2 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended November 30, 1998. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the year ending
November 30, 1999.
3 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. </TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000
in the Fund's Class A Shares, Class B Shares and Class C Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's Class
A Shares, Class B Shares and Class C Shares operating expenses are before
waivers as shown in the Table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A
<S> <C> <C> <C> <C>
Expenses assuming $761 $1,200 $1,665 $2,945
redemption
Expenses assuming no $761 $1,200 $1,665 $2,945
redemption
Class B
Expenses assuming $823 $1,238 $1,630 $2,912
redemption
Expenses assuming no $273 $ 838 $1,430 $2,912
redemption
Class C
Expenses assuming $373 $ 838 $1,430 $3,032
redemption
Expenses assuming no $273 $ 838 $1,430 $3,032
redemption
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of foreign companies that have a market
capitalization at the time of purchase of $1.5 billion or less. A small company
might in some countries rank among the largest companies in terms of
capitalization. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share. The adviser may invest
the Fund's assets in any region of the world. It will 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 countries, such as those of
Canada, Japan and Western Europe.
In selecting investments for the portfolio the adviser looks for companies
which are positioned for rapid growth in revenues or earnings and assets. The
adviser evaluates the quality of each company's management, its market share,
and the uniqueness of its product line. The adviser may also meet with company
representatives, company suppliers, customers, or competitors. The adviser tries
to select securities that offer the best potential returns consistent with its
general portfolio strategy.
Companies may be grouped together in broad categories called business sectors.
The adviser may emphasize certain business sectors in the portfolio that exhibit
stronger growth potential or higher profit margins.
Similarly, the adviser may emphasize investment in a particular region or
regions of the world from time to time when the growth potential of a region is
attractive to the adviser.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS The Fund may temporarily depart from its
principal investment strategies by investing its assets in cash, cash items, and
shorter-term, higher-quality debt securities and similar obligations. It may do
this to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to give up
greater investment returns to maintain the safety of principal, that is, the
original amount invested by shareholders. What are the Principal Securities
in Which the Fund Invests?
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic equity securities, foreign securities
are subject to currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
. Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect the Fund's investments.
RISKS RELATED TO COMPANY SIZE
. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
LIQUIDITY RISKS
. Trading opportunities are more limited for equity securities that are not
widely held or are closely held. This may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may have
to accept a lower price to sell a security, sell other securities to raise
cash or give up an investment opportunity, any of which could have a negative
effect on the Fund's performance. Infrequent trading of securities may also
lead to an increase in their price volatility.
EURO RISKS
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price). NAV is determined
at the end of regular trading (normally 4:00 p.m. Eastern time) each day the
NYSE is open. The Fund's current NAV and public offering price may be found in
the mutual funds section in certain local newspapers under "Federated" and the
appropriate class designate listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions. <TABLE> <CAPTION>
Minimum Maximum Sales Charge
Initial/ Contingent
Subsequent Front-End Deferred
Investment Sales Sales
Shares Offered Amounts1 Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem." SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge as Sales Charge as
a Percentage of a Percentage of
Public Offering NAV
Price
<S> <C> <C>
Less that $50,00 5.50% 5.82%
$50,000 but less than 4.50% 4.71%
$100,000
$100,000 but less than 3.75% 3.90%
$250,000
$250,000 but less than 2.50% 2.56%
$500,000
$500,000 but less than 2.00% 2.04%
$1million
$1 million or greater 0.00% 0.00%
$1 million or greater1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales
charge;
. combining concurrent purchases of Shares:
. by you, your spouse, and your children under age 21; or
. of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.
<S> <C>
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals
. who did not receive advanced sales payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower. How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV. By Mail You
may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Tracy P. Stouffer
Tracy P. Stouffer has been the Fund's portfolio manager since its inception. Ms.
Stouffer joined Federated Investors in 1995 as a Portfolio Manager and a Vice
President of the Fund's 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.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated Investors in 1995 as a Senior Portfolio Manager and a Senior Vice
President of the Fund's 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 Wharton School of The University of Pennsylvania.
Leonardo A. Vila
Leonardo A. Vila is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
He joined Federated Investors in 1995 and has been an Assistant Vice President
of the Fund's Adviser since January 1998. From April 1994 through September
1995, Mr. Vila was an Equity Research Manager with the American Stock Exchange.
Previously, he was an Associate with J.P. Morgan & Company from 1989 to 1994.
Mr. Vila earned his M.B.A. from St. John's University.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers. ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.25% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C>
Year Ended November30 1998 1997 1996/1/
Net Asset Value, Beginning of Period $ 14.25 $ 12.26 $ 10.00
Income From Investment Operations:
Net operating loss (0.17)/2/ (0.11) (0.02)
Net realized and unrealized gain on investments and 3.48 2.10 2.28
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS 3.31 1.99 2.26
Net Asset Value, End of Period $ 17.56 $ 14.25 $ 12.26
Total Return/3/ 23.23% 16.23% 22.60%
Ratios to Average Net Assets:
Expenses 1.95% 2.12% 1.97%5
Net operating loss (0.97%) (1.08%) (0.48%)/5/
Expense waiver/reimbursement/4/ 0.21% 3.38%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $147,490 $91,707 $16,399
Portfolio turnover 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
5 Computed on an annualized basis.
Financial Highlights Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<S> <C> <C> <C>
Year Ended November30 1998 1997 1996/1/
Net Asset Value, Beginning of Period $ 14.07 $ 12.20 $ 10.00
Income From Investment Operations:
Net operating loss (0.29)/2/ (0.12) (0.04)
Net realized and unrealized gain on investments and 3.42 1.99 2.24
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS 3.13 1.87 2.20
Net Asset Value, End of Period $ 17.20 $ 14.07 $ 12.20
Total Return/3/ 22.25% 15.33% 22.00%
Ratios to Average Net Assets:
Expenses 2.70% 2.87% 2.72%5
Net operating loss (1.72%) (1.81%) (1.61%)5
Expense waiver/reimbursement/4/ -- 0.17% 3.38%5
Supplemental Data:
Net assets, end of period (000 omitted) $189,965 $120,939 $16,721
Portfolio turnover 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
5 Computed on an annualized basis.
<TABLE>
Financial Highlights Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<S> <C> <C> <C>
Year Ended November 30 1998 1997 1996/1/
Net Asset Value, Beginning of Period $ 14.06 $ 12.19 $10.00
Income From Investment Operations:
Net operating loss (0.29)/2/ (0.12) (0.05)
Net realized and unrealized gain on investments and 3.42 1.99 2.24
foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS 3.13 1.87 2.19
Net Asset Value, End of Period $ 17.19 $ 14.06 $12.19
Total Return/3/ 22.26% 15.34% 21.90%
Ratios to Average Net Assets:
Expenses 2.70% 2.87% 2.72%/5/
Net operating loss (1.72%) (1.85%) (1.58%)/5/
Expense waiver/reimbursement/4/ 0.17% 3.38%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $47,697 $27,412 $3,040
Portfolio turnover 380% 286% 174%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding. 3 Based on net
asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
operating loss ratios shown above.
5 Computed on an annualized basis.
[federated logo]
Federated International Small Company Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400. You can obtain information
about the Fund (including the SAI) by visiting or writing the Public Reference
Room of the Securities and Exchange Commission in Washington, DC 20549-6009 or
from the Commission's Internet site at http://www.sec.gov. You can call
1-800-SEC-0330 for information on the Public Reference Room's operations and
copying charges. [federated logo] Federated International Small Company Fund
Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-70000
1-800-341-7400
WWW.federatedinvestors.com
Investment Company Act File No. 811-7141
Cusip 981487838
Cusip 981487820
Cusip 981487812
G01473-02 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL SMALL COMPANY FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated International Small Company
Fund (Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI
incorporates by reference the Fund's Annual Report. Obtain the prospectus or the
Annual Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487697
981487689
981487671
G01473-03 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Fund's investment adviser is Federated
Global Investment Management Corp. (Adviser). The Board of Directors (the
Board) has established three classes of shares of the Fund, known as Class A
Shares, Class B Shares and Class C Shares (Shares). This SAI relates to all
three classes of the above-mentioned Shares.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Non-Principal Investment Strategy
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the
Fund may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by
a variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions. Investment Ratings for Investment Grade Securities. The
Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
INVESTMENT RISKS There are many factors which may affect an investment
in the Fund. The Fund's principal risks are described in its prospectus.
Additional risk factors are outlined below. Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions which
could adversely affect the Fund's investments.
Emerging Market Risks
. Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
. 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.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held or are closely held. This may make it more difficult to sell or buy
a security at a favorable price or time. Consequently, the Fund may have to
accept a lower price to sell a security, sell other securities to raise cash or
give up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
Euro Risks
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
Sector Risks
. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed.
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 indices 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 unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval (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 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 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.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service; . futures contracts and options are valued at
market values established by the exchanges on which they are traded at the close
of trading on such exchanges. Options traded in the over-the-counter market are
valued according to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other financial institution
that deals in the option. The Board may determine in good faith that another
method of valuing such investments is necessary to appraise their fair market
value; . for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined. Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfil the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charge that were not
applied to your purchases. Reinvestment Privilege You may reinvest,
within 120 days, your redemption proceeds at the next determined NAV without any
sales charge. Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases: . the Directors, employees and sales representatives
of the Fund, the Adviser, the Distributor and their affiliates; . Employees
of State Street Bank Pittsburgh who started their employment on January 1, 1998,
and were employees of Federated Investors, Inc. (Federated) on December 31,
1997; . any associated person of an investment dealer who has a sales agreement
with the Distributor; and . trusts, pension or profit-sharing plans for these
individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
. as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE These
reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder; . representing minimum required distributions from an
Individual Retirement Account or other retirement plan in Federated Funds to a
shareholder who has attained the age of 70 1/2; . which are involuntary
redemptions processed by the Fund because the accounts do not meet the minimum
balance requirements; . which are qualifying redemptions of Class B Shares under
a Systematic Withdrawal Program; . of Shares that represent a reinvestment
within 120 days of a previous redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% and 1.00%, respectively, of the
NAV of Class B and C Shares.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75% Next $5 - $20 million 0.50% Over $20 million 0.25%
</TABLE> For accounts with assets over $1 million, the dealer advance
payments reset annually to the first breakpoint on the anniversary of the first
purchase. Class A Share purchases under this program may be made by Letter
of Intent or by combining concurrent purchases. The above advance payments will
be paid only on those purchases that were not previously subject to a front-end
sales charge and dealer advance payments. Certain retirement accounts may not be
eligible for this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management. Exchanging Securities For Shares You may
contact the Distributor to request a purchase of Shares in an exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Charles Schwab & Company, Inc., San Francisco, CA, owned approximately
2,258,044 Class A Shares (24.46%), Merrill Lynch Pierce Fenner and Smith,
Jacksonville, FL, owned approximately 1,104,730 Class A Shares (11.97%), and
Federated International Growth Fund, Pittsburgh, PA, owned approximately 598,200
Class A Shares (6.48%); Merrill Lynch Pierce Fenner and Smith, Jacksonville, FL,
owned approximately 2,326,529 Class B Shares (20.45%); and Merrill Lynch Pierce
Fenner and Smith, Jacksonville, FL, owned approximately 1,228,979 Class C Shares
(40.83%). Shareholders owning 25% or more of outstanding Shares may be in
control and be able to affect the outcome of certain matters presented for a
vote of shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or $ 0 $0 for the
Birth Date: July 28, 1924 Trustee of the Federated Fund Corporation and
Federated Investors Tower Complex, Chairman and Director, 54 other investment
1001 Liberty Avenue Federated Investors, Inc.; Chairman companies
Pittsburgh, PA and Trustee, Federated Investment in the Fund Complex
DIRECTOR AND CHAIRMAN Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.;
Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: February 3, 1934 Fund Complex; Director, Member of Corporation and
15 Old Timber Trail Executive Committee, Children's 54 other investment
Pittsburgh, PA Hospital of Pittsburgh; formerly: Senior companies
DIRECTOR Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc.; Director,
Member of Executive Committee,
University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 23, 1937 Fund Complex; President, Investment Corporation and
Wood/IPC Commercial Dept. Properties Corporation; Senior Vice 54 other investment
John R. Wood Associates, Inc. President, John R. Wood and companies
Realtors Associates, Inc., Realtors; Partner or in the Fund Complex
3255 Tamiami Trial North Naples, Trustee in private real estate ventures
FL in Southwest Florida; formerly:
DIRECTOR President, Naples Property
Management, Inc. and Northgate
Village Development Corporation.
Nicholas Constantakis Director or Trustee of the Federated $1,416.84 $47,958.02 for the
Birth Date: September 3, 1939 Fund Complex; formerly: Partner, Corporation and
175 Woodshire Drive Andersen Worldwide SC. 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: July 4, 1918 Fund Complex; Director and Member Corporation and
One PNC Plaza-23rd Floor of the Executive Committee, Michael 54 other investment
Pittsburgh, PA Baker, Inc.; formerly: Vice Chairman companies
DIRECTOR and Director, PNC Bank, N.A., and in the Fund Complex
PNC Bank Corp.; Director, Ryan
Homes, Inc.
Previous Positions: Director, United
Refinery; Director, Forbes Fund;
Chairman, Pittsburgh Foundation;
Chairman, Pittsburgh Civic Light
Opera.
James E. Dowd, Esq. Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: May 18, 1922 Fund Complex; Attorney-at-law; Corporation and
571 Hayward Mill Road Director, The Emerging Germany 54 other investment
Concord, MA Fund, Inc. companies
DIRECTOR in the Fund Complex
Previous Positions: President, Boston
Stock Exchange, Inc.; Regional
Administrator, United States Securities
and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: October 11, 1932 Fund Complex; Professor of Medicine, Corporation and
3471 Fifth Avenue University of Pittsburgh; Medical 54 other investment
Suite 1111 Director, University of Pittsburgh companies
Pittsburgh, PA Medical Center Downtown; in the Fund Complex
DIRECTOR Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National
Board of Trustees, Leukemia Society
of America.
Richard B. Fisher* President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Federated Funds in the Federated Fund Complex; Corporation and
1001 Liberty Avenue Trustee of some of the Funds in the Federated 6 other investment
Pittsburgh, PA Fund Complex; Executive Vice President, Federated companies in the
PRESIDENT AND DIRECTOR Investors, Inc.; Chairman and Director, Fund Complex
Federated Securities Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated $1,558.76 $125,264.48 for the
Birth Date: June 18, 1924 Fund Complex; Attorney, of Counsel, Corporation and
Miller, Ament, Henny & Kochuba Miller, Ament, Henny & Kochuba; 54 other investment
205 Ross Street Director Emeritus, Eat'N Park companies
Pittsburgh, PA Restaurants, Inc.; formerly: Counsel, in the Fund Complex
DIRECTOR Horizon Financial, F.A., Western
Region; Partner, Meyer and Flaherty.
Peter E. Madden Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: March 16, 1942 Fund Complex; formerly: Corporation and
One Royal Palm Way Representative, Commonwealth of 54 other investment
100 Royal Palm Way Massachusetts General Court; companies
Palm Beach, FL President, State Street Bank and Trust in the Fund Complex
DIRECTOR Company and State Street
Corporation.
Previous Positions: Director, VISA
USA and VISA International; Chairman
and Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the $ 0 $0 for the
Birth Date: April 10, 1945 Federated Fund Complex; Corporation and
80 South Road Management Consultant. 26 other investment
Westhampton Beach, NY companies
DIRECTOR Previous Positions: Chief Executive in the Fund Complex
Officer, PBTC International Bank; Chief
Financial Officer of Retail Banking
Sector, Chase Mahattan Bank; Senior Vice
President, Marine Midland Bank; Vice
President, Citibank; Assistant Professor
of Banking and Finance, Frank G. Zarb
School of Business, Hostra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: December 20, 1932 Fund Complex; President, Law Corporation and
President, Duquesne University Professor, Duquesne University; 54 other investment
Pittsburgh, PA Consulting Partner, Mollica & Murray. companies
DIRECTOR in the Fund Complex
Previous Positions: Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean and
Professor of Law, Villanova University
School of Law.
Wesley W. Posvar Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: September 14, 1925 Fund Complex; President, World Corporation and
1202 Cathedral of Learning Society of Ekistics (metropolitan 54 other investment
University of Pittsburgh planning), Athens; Professor, companies
Pittsburgh, PA International Politics; Management in the Fund Complex
DIRECTOR 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; Trustee, Czech Management
Center, Prague.
Previous Positions: Professor, United
States Military Academy; Professor,
United States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated $1,416.84 $113,860.22 for the
Birth Date: June 21, 1935 Fund Complex; Public Corporation and
4905 Bayard Street Relations/Marketing/Conference 54 other investment
Pittsburgh, PA Planning. companies
DIRECTOR in the Fund Complex
Previous Positions: National
Spokesperson, Aluminum Company of
America; business owner.
J. Christopher Donahue+ President or Executive Vice President $ 0 $0 for the Corporation
Birth Date: April 11, 1949 of the Federated Fund Complex; and 16 other investment
Federated Investors Tower Director or Trustee of some of the companies
1001 Liberty Avenue Funds in the Federated Fund in the Fund Complex
Pittsburgh, PA Complex; President and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.; President
and Trustee, Federated Investment
Management Company; President and
Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the $0 $0 for the Corporation
Birth Date: October 22, 1930 Funds in the Federated Fund and 1 other investment
Federated Investors Tower Complex; President, Executive Vice companies in the Fund
1001 Liberty Avenue President and Treasurer of some of Complex
Pittsburgh, PA the Funds in the Federated Fund
EXECUTIVE VICE PRESIDENT Complex; Vice Chairman, Federated
Investors, Inc.; Vice President,
Federated Investment Management
Company, Federated Investment
Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
John W. McGonigle Executive Vice President and $0 $0 for the Corporation
Birth Date: October 26, 1938 Secretary of the Federated Fund and 54 other investment
Federated Investors Tower Complex; Executive Vice President, companies in the Fund
1001 Liberty Avenue Secretary, and Director, Federated Complex
Pittsburgh, PA Investors, Inc.; Trustee, Federated
EXECUTIVE VICE PRESIDENT Investment Management Company;
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.;
Director, Federated Services
Company; Director, Federated
Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund $0 $0 for the Corporation
Birth Date: June 17, 1954 Complex; Vice President Funds and 54 other investment
Federated Investors Tower Financial Services Division, Federated companies in the Fund
1001 Liberty Avenue Investors, Inc.; Formerly: various Complex
Pittsburgh, PA management positions within Funds
TREASURER Financial Services Division of
Federated Investors, Inc.
Henry A. Frantzen Chief Investment Officer of this Fund $0 $0 for the Corporation
Birth Date: November 28, 1942 and various other Funds in the and 3 other investment
Federated Investors Tower Federated Fund Complex; Executive companies in the Fund
1001 Liberty Avenue Vice President, Federated Investment Complex
Pittsburgh, PA Counseling, Federated Global
CHIEF INVESTMENT OFFICER Investment Management Corp.,
Federated Investment Management
Company and Passport Research,
Ltd.; Registered Representative,
Federated Securities Corp.; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International
Equities, Brown Brothers Harriman &
Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. $0 $0 for the Corporation
Birth Date: December 19, 1956 Collins joined Federated Investors in and one other investment
Federated Investors Tower 1995 as a Senior Portfolio Manager company in the Fund
1001 Liberty Avenue and a Senior Vice President of the Complex
Pittsburgh, PA Fund's investment adviser. Mr. Collins
VICE PRESIDENT 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
Wharton School of The University of
Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $47,158,570.46 for which
the Funds paid $198,500.30 in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum
Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditors for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $4,436,654 $1,677,789 $131,036
Advisory Fee Reduction $ 0 $ 231,231 $131,036
Brokerage Commissions $9,125,592 $3,378,511 $325,108
Administrative Fee $ 267,666 $ 185,588 $141,023
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $1,265,236 NA NA
Class C Shares $ 319,179 NA NA
Shareholder Services Fee
Class A Shares $ 359,193 NA NA
Class B Share $ 421,745 NA NA
Class C Shares $ 106,393 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
Class Name 1 Year Start of Performance*
Class A Shares 16.45% 20.18%
Class B Shares 16.75% 20.71%
Class C Shares 21.26% 21.72%
* START OF PERFORMANCE ON FEBRUARY 28, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specific period of time.
Morgan Stanley Capital International World Indices
Includes, 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.
Morgan Stanley Capital International Latin America Emerging Market Indices
Includes 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.
Lehman Brothers High Yield Index
Covers the universe of fixed rate, publicly issued, non-investment 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 IBCA, Inc. 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.
Bear Stearns Foreign Bond Index
Provides simple average returns for individual countries and GNP-weighted index,
beginning in 1975. The returns are broken down by local market and currency.
Ibbotson Associates International Bond Index
Provides a detailed breakdown of local market and currency returns since 1960.
CDA/Wiesenberger Investment Company Services
Mutual fund rankings and data that ranks and/or compares mutual funds by overall
performance, investment objectives, assets, expense levels, periods of existence
and/or other factors.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
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.
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.
CNBC
Financial News Composite Index.
Financial Times Actuaries Indices
Including the FTA-World Index (and components thereof), which are based on
stocks in major world equity markets.
International Finance Corporation (IFC) Emerging Markets Data Base Provides
detailed statistics on stock and bond markets in developing countries, including
IFC market indices.
International Financial Statistics
Produced by the International Monetary Fund.
Salomon Brothers Global Telecommunications Index
Composed of telecommunications companies in the developing and emerging
countries.
Composed of telecommunications companies in the developing and emerging
countries. Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
World Bank
Various publications and annual reports produced by the World Bank and its
affiliates.
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.
Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
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.
Various publications from the International Bank for Reconstruction and
Development.
Various publications from the Organization for Economic Cooperation and
Development.
Various publications including, but not limited to, ratings agencies such as
Moody's, Fitch and S&P.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 279 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Small Company Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED INTERNATIONAL SMALL COMPANY FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
FEDERATED LATIN AMERICAN GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking high-term growth of capital by investing primarily in
equity securities of Latin American companies.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 8
How is the Fund Sold? 10
How to Purchase Shares 11
How to Redeem and Exchange Shares 12
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 18
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide long- term growth of capital.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment strategies and policies
described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of Latin American companies. Latin America is
defined as Mexico, Central America, South America, and the Spanish-speaking
islands of the Caribbean. The adviser intends to focus its investments in the
most developed capital markets of Latin America.
In selecting investments for the portfolio the adviser looks for companies
which are positioned for rapid growth in revenues or earnings and assets.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. investing in smaller, developing capital markets in Latin American
countries,
. fluctuations in the value of equity securities in foreign securities
markets;
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies.
. the foreign markets in which the Fund invests may be subject to economic
or political conditions which are less favorable than those of the United
States and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies;
. the Fund may invest a significant portion of its assets in a particular
geographic region, which makes it subject to greater currency risk and more
susceptible to adverse impact from actions of foreign governments;
. prices of emerging market securities in which the Fund invests can be
significantly more volatile than prices of securities in developed countries;
and
. the foreign securities in which the Fund invests may trade infrequently and
may be subject to greater fluctuation in price than other securities.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
[CHART APPEARS HERE - SEE APPENDIX.]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 21.31% (quarter ended June 30, 1997). Its lowest quarterly
return was (30.13%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
Calendar Period 1 Year Start of Performance1
<S> <C> <C>
Class A (44.15%) (7.08%)
Class B (44.67%) (7.31%)
Class C (41.98%) (5.98%)
MSCI-LAF (35.11%) 0.17%
</TABLE>
1 The Fund's Class A, Class B and Class C Shares start of performance date was
February 28, 1996.
The table shows the Fund's Class A, Class B and Class C Shares average annual
total returns (reduced to reflect applicable sales charges) compared to the
Morgan Stanley Capital International Latin American-Free Index (MSCI-LAF) for
the calendar periods ending December 31, 1998. The MSCI-LAF is a market
value-weighted index of the performance of securities listed on the stock
exchanges of seven countries in the Latin-American region.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
Fees Paid Directly From Your Investment
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, as applicable) 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends (and other Distributions)
(as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Reimbursements and Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/ 1.25% 1.25% 1.25%
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses/4/ 2.70% 2.70% 2.70%
Total Annual Fund Operating Expenses 4.45% 4.95%/5/ 4.95%
</TABLE>
1 Although not contractually obligated to do so, the adviser waived and
reimbursed and the distributor waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
November 30, 1998. Reimbursements and Waivers of Fund Expenses 2.45% 2.20%
2.20% Total Actual Annual Fund Operating Expenses (after reimbursements and
waivers) 2.00% 2.75% 2.75%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.00% for the year ended November
30, 1998.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended November 30, 1998. Class A Shares have no present intention
of paying or accruing the distribution (12b-1) fee during the year ending
November 30, 1999.
4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) were 1.75% for
the year ended November 30, 1998.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your
Shares at the end of those periods. Expenses assuming no redemption are also
shown. The Example also assumes that your investment has a 5% return each year
and that the Fund's Class A, Class B, and Class C Shares operating expenses are
before reimbursements and waivers as shown in the Table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A
<S> <C> <C> <C> <C>
Expenses assuming redemption $ 972 $1,822 $2,682 $4,873
Expenses assuming no
redemption $ 972 $1,822 $2,682 $4,873
Class B
Expenses assuming redemption $1,045 $1,886 $2,678 $4,866
Expenses assuming no
redemption $ 495 $1,486 $2,478 $4,866
Class C
Expenses assuming redemption $ 595 $1,486 $2,478 $4,962
Expenses assuming no
redemption $ 495 $1,486 $2,478 $4,962
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of Latin American companies. Latin America is
defined as Mexico, Central America, South America, and the Spanish-speaking
islands of the Caribbean. The adviser intends to focus its investments in the
most developed capital markets of Latin America.
In selecting countries in which to invest, the adviser reviews the country's
economic outlook, including its interest and inflation rates, and the political
and foreign exchange risk of investing in a particular country. The adviser
generally follows the country composition of the Morgan Stanley Latin America
Free Index in selecting the weightings of countries contained in the portfolio.
The adviser then analyzes companies located in each particular country.
In selecting investments for the portfolio the adviser looks for companies
which are positioned for rapid growth in revenues or earnings and assets. The
adviser evaluates the quality of each company's management, its market share in
domestic and export markets, and the uniqueness of its product line. The adviser
may also meet with company representatives, company suppliers, customers, or
competitors. Based on this information, the adviser evaluates the sustainability
of the company's current growth trends and potential catalysts for increased
growth. Using this type of fundamental analysis, the adviser tries to select
securities that offer the best potential returns consistent with its general
portfolio strategy.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
LATIN AMERICAN SECURITIES
The Fund considers an issuer to be a Latin American company if:
. it is organized under the laws of, or has a principal office located in, a
Latin American country;
. the principal trading market for its securities is in a Latin American; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in a Latin American country.
Latin American securities are often denominated in foreign currencies. Along
with the risks normally associated with domestic equity securities, foreign
securities are subject to currency risks and risks of foreign investing.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign- based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
REGIONAL RISKS
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
America 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.
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.
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.
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 and the rate of inflation. 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 and high interest rates.
EMERGING MARKET RISKS
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
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.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
The public offering price is the net asset value (NAV) plus any applicable
sales charge. NAV is determined at the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open. The Fund's current NAV and public
offering price may be found in the mutual funds section in certain local
newspapers under "Federated" and the appropriate class designation listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Minimum Initial/ Maximum Sales Charge
Subsequent Front-End Contingent
Investment Sales Deferred
Shares Offered Amounts/1/ Charge/2/ Sales Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more should be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase" below.
3 See "Sales Charge When You Redeem" below.
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Class A Shares
Sales Charge as a Percentage Sales Charge as a
Purchase Amount of Public Offering Price Percentage of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than
$250,000 3.75% 3.90%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than $1
million 2.00% 2.04%
$1 million or greater1 0.00% 0.00%
</TABLE>
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales charge;
. combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or - of the same share
class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C> A CDSC of 0.75% of the redemption amount applies to Class A Shares
redeemed up to 24 months after purchase under certain investment programs where
an investment professional received an advance payment on the transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the original shares were
. held for the applicable CDSC holding period (other than a money market fund);
. purchased through investment professionals who did not receive advanced sales
payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
. The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or by contacting your investment professional or
the Fund. Your account value must meet the minimum initial investment amount at
the time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) On Class B Shares You will not be charged a
CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, account must be at least
one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily capital gains. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Alexandre de Bethmann
Alexandre de Bethmann has been the Fund's portfolio manager since its inception.
Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio Manager and a
Vice President of the Fund's 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. Mr. de Bethmann received his M.B.A.
in Finance from Duke University.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated in 1995 as a Senior Portfolio Manager and a Senior Vice President of
the Fund's 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 Wharton School of The University of Pennsylvania.
Arminda Aviles
Arminda Aviles is a Senior Investment Analyst who assists the portfolio managers
in selecting and monitoring the securities in which the Fund invests. Ms. Aviles
joined Federated in September 1998. She served as a Latin America Equities
Investment Officer with Brown Brothers Harriman & Company from 1997 to August
1998 and as an Assistant Trade Analyst-Foreign Exchange Desk with the Federal
Reserve Bank during 1995 and 1996. From 1991 through 1994, she served as
Assistant Vice President in the Commercial Banking Division of Chemical Bank.
Ms. Aviles earned her Master of International Affairs from Columbia University.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total more than $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.25% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<C>PTION>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.39 $ 11.56 $10.00
Income From Investment Operations:
Net investment income/(net operating loss) 0.19/2/ (0.06) 0.12
Net realized and unrealized gain/(loss) on investments and
foreigncurrencytransactions (4.48) 2.38/3/ 1.44
TOTAL FROM INVESTMENT OPERATIONS (4.29) 2.32 1.56
Less Distributions:
Distributions from net investment income -- (0.08) --
Distributions from net realized gain on investments and
foreigncurrencytransactions -- (0.41) --
TOTAL DISTRIBUTIONS -- (0.49) --
Net Asset Value, End of Period $ 9.10 $ 13.39 $11.56
Total Return/4/ (32.04%) 20.76% 15.60%
Ratios to Average Net Assets:
Expenses 2.00% 2.17% 1.97%/6/
Net investment income/(net operating loss) 1.59% (0.32%) 1.49%/6/
Expense waiver/reimbursement5 2.20% 1.91% 6.96%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $ 6,400 $14,847 $4,836
Portfolio turnover 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
6 Computed on an annualized basis.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.24 $11.50 $10.00
Income From Investment Operations:
Net investment income/(net operating loss) 0.09/2/ (0.04) (0.05)
Net realized and unrealized gain/(loss) on investments and foreign
currency transactions (4.41) 2.24/3/ 1.55
TOTAL FROM INVESTMENT OPERATIONS (4.32) 2.20 1.50
Less Distributions:
Distributions from net investment income -- (0.05) --
Distributions from net realized gain on investments and -- (0.41) --
foreigncurrencytransactions
TOTAL DISTRIBUTIONS -- (0.46) --
Net Asset Value, End of Period $ 8.92 $13.24 $11.50
Total Return4 (32.63%) 19.72% 15.00%
Ratios to Average Net Assets:
Expenses 2.75% 2.93% 2.72%/6/
Net investment income/(net operating loss) 0.84% (1.29%) (1.20%)/6/
Expense waiver/reimbursement5 2.20% 1.90% 6.96%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $ 4,704 $8,814 $1,355
Portfolio turnover 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
6 Computed on an annualized basis.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended November 30 1998 1997 1996/1/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.27 $11.48 $10.00
Income From Investment Operations:
Net investment income/(net operating loss) 0.09/2/ (0.04) (0.08)
Net realized and unrealized gain/(loss) on investments and (4.41) 2.27/3/ 1.56
foreigncurrency transactions
TOTAL FROM INVESTMENT OPERATIONS (4.32) 2.23 1.48
Less Distributions:
Distributions from net investment income (0.03)
Distributions from net realized gain on investments and (0.41)
foreigncurrencytransactions
TOTAL DISTRIBUTIONS (0.44)
Net Asset Value, End of Period $ 8.95 $13.27 $11.48
Total Return/4/ (32.55%) 19.97% 14.80%
Ratios to Average Net Assets:
Expenses 2.75% 2.93% 2.72%/6/
Net investment income/(net operating loss) 0.84% (1.23%) (1.30%)/6/
Expense waiver/reimbursement5 2.20% 1.90% 6.96%/6/
Supplemental Data:
Net assets, end of period (000 omitted) $ 723 $1,781 $ 260
Portfolio turnover 201% 79% 38%
</TABLE>
1 Reflects operations for the period from February 28, 1996 (date of initial
public investment) to November 30, 1996.
2 Per share information is based on average shares outstanding.
3 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments and
foreign currency for the period ended due to the timing of sales and
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 This voluntary expense decrease is reflected in both the expense and net
investment income/(net operating loss) ratios shown above.
6 Computed on an annualized basis.
Federated
Latin American Growth Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Federated Latin American Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7141
Cusip 981487796
Cusip 981487788
Cusip 981487770
G01471-02 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED LATIN AMERICAN GROWTH FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Latin American Growth Fund
(Fund) and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487796
981487788
981487770
G01471-03 (3/99)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Global Investment Management Corp. (Adviser).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Brady Bonds
Brady bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund typically negotiates the exchange to cure or avoid a default by
restructuring the terms of the bank loans. The principal amount of some Brady
bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady bonds. However, neither the U.S. government not the
International Monetary Fund has guaranteed the repayment of any Brady Bond.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the following types of futures contracts: foreign
currency, securities and securities indices.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
. Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and . Buy put options on foreign currencies, securities, securities
indices and futures contracts involving these items to manage interest rate and
currency risks.
The Fund may also write covered call options and secured put options on
securities to generate income from premiums and lock in gains. 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 a risk that the
Fund may be required to take delivery of the underlying asset when its current
market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party,
and the parties might not own the assets underlying the swap. The payments
are usually made on a net basis so that, on any given day, the Fund would
receive (or pay) only the amount by which its payment under the contract is
less than (or exceeds) the amount of the other party's payment. Swap
agreements are sophisticated instruments that can take many different
forms, and are known by a variety of names including caps, floors, and
collars. Common swap agreements that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated
principal amount of fixed income securities, in return for payments equal
to a different fixed or floating rate times the same principal amount, for
a specific period. For example, a $10 million LIBOR swap would require one
party to pay the equivalent of the London Interbank Offer Rate of interest
(which fluctuates) on $10 million principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on $10
million principal amount.
Currency Swaps
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional
principal amount as well.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Investment Ratings for Investment Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed,
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, the Fund may pledge assets as
necessary to secure such borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the purchase and sale of
securities options (and options on securities indexes) and (ii) initial or
variation margin for futures contracts.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
Investing in Commodities
The Fund will not invest in commodities, except that the Fund reserves the
right to engage in transactions involving futures contracts, options, and
forward contracts with respect to securities, securities indexes or
currencies.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, corporate bonds, money market instruments, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies, and limitations or the
Corporation's Articles of Incorporation.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets,
the Fund will not purchase securities issued by any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material changes in these limitations becomes 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce the sales charge you pay.
You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your redemption proceeds at the next
determined NAV without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
. the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
. any associated person of an investment dealer who has a sales agreement with
the Distributor; and
. trusts, pension or profit-sharing plans for these individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares. Upon notification to
the Distributor or the Fund's transfer agent, no CDSC will be imposed on
redemptions:
. following the post-purchase death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
. an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to a
reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
. an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Advance Payments as a
Amount Percentage of Public Offering Price
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Federated International Growth Fund,
Pittsburgh, PA owned approximately 55,396 Class A Shares (9.60%); Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL owned approximately 8,843 Class C Shares
(9.60%); and Carl H. Schulse, Houston, TX owned 3,348 Class C Shares (5.21%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned
approximately 9,327 (1.62%) of the Fund's outstanding Class A Shares and less
than 1% of the Fund's outstanding Class B and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee $ 0 $0 for the
Birth date: July 28, 1924 of the Federated Fund Complex, Chairman and Corporation and
Federated Investors Tower Director, Federated Investors, Inc.; Chairman and 54 other investment
1001 Liberty Avenue Trustee, Federated Investment Management Company; companies
Pittsburgh, PA Chairman and Director, Federated Investment in the Fund Complex
DIRECTOR AND CHAIRMAN Counseling and Federated Global Investment
Management Corp.; Chairman, Passport Research,
Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: February 3, 1934 Complex; Director, Member of Executive Committee, Corporation and
15 Old Timber Trail Children's Hospital of Pittsburgh; formerly: 54 other investment
Pittsburgh, PA Senior Partner, Ernst & Young LLP; Director, MED companies
DIRECTOR 3000 Group, Inc.; Director, Member of Executive in the Fund Complex
Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/IPC Commercial Dept. Corporation; Senior Vice President, John R. Wood 54 other investment
John R. Wood Associates, Inc. and Associates, Inc., Realtors; Partner or companies
Realtors Trustee in private real estate ventures in in the Fund Complex
3255 Tamiami Trial North Naples, Southwest Florida; formerly: President, Naples
FL Property Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
Nicholas Constantakis Director or Trustee of the Federated Fund $1,416.84 $47,958.02 for the
Birth date: September 3, 1939 Complex; formerly: Partner, Andersen Worldwide SC. Corporation and
175 Woodshire Drive 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: July 4, 1918 Complex; Director and Member of the Executive Corporation and
One PNC Plaza-23rd Floor Committee, Michael Baker, Inc.; formerly: Vice 54 other investment
Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and PNC companies
DIRECTOR Bank Corp.; Director, Ryan Homes, Inc. in the Fund Complex
Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light
Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: May 18, 1922 Complex; Attorney-at-law; Director, The Emerging Corporation and
571 Hayward Mill Road Germany Fund, Inc. 54 other investment
Concord, MA companies
DIRECTOR Previous Positions: President, Boston Stock in the Fund Complex
Exchange, Inc.; Regional Administrator, United
States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center Downtown; companies
Pittsburgh, PA Hematologist, Oncologist, and Internist, in the Fund Complex
DIRECTOR University of Pittsburgh Medical Center; Member,
National Board of Trustees, Leukemia Society of
America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth date: June 18, 1924 Complex; Attorney, of Counsel, Miller, Ament, Corporation and
Miller, Ament, Henny & Kochuba Henny & Kochuba; Director ,Emeritus, Eat'N Park 54 other investment
205 Ross Street Restaurants, Inc.; formerly: Counsel, Horizon companies
Pittsburgh, PA Financial, F.A., Western Region; Partner, Meyer in the Fund Complex
DIRECTOR and Flaherty.
Peter E. Madden Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: March 16, 1942 Complex; formerly: Representative, Commonwealth Corporation and
One Royal Palm Way of Massachusetts General Court; President, State 54 other investment
100 Royal Palm Way Street Bank and Trust Company and State Street companies
Palm Beach, FL Corporation. in the Fund Complex
DIRECTOR
Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated $ 0 $0 for the
Birth date: April 10, 1945 Funds; Managment Consultant. Corporation and
80 South Road 26 other investment
Westhampton Beach, NY Retired: Chief Executive Officer, PBTC companies
DIRECTOR International Bank; Chief Financial Officer of in the Fund Complex
Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & Murray. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: Dean and Professor of Law, in the Fund Complex
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of
Law.
Wesley W. Posvar Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: September 14, 1925 Complex; President, World Society of Ekistics Corporation and
1202 Cathedral of Learning (metropolitan planning), Athens; Professor, 54 other investment
University of Pittsburgh International Politics; Management Consultant; companies
Pittsburgh, PA Trustee, Carnegie Endowment for International in the Fund Complex
DIRECTOR 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; Trustee, Czech
Management Center, Prague.
Retired: Professor, United States Military
Academy; Professor, United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth date: June 21, 1935 Complex; Public Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: National Spokesperson, in the Fund Complex
Aluminum Company of America; business
owner.
J. Christopher Donahue+ President or Executive Vice President of the $ 0 $0 for the
Birth date: April 11, 1949 Federated Fund Complex; Director or Trustee of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund Complex; 16 other investment
1001 Liberty Avenue President and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President and Trustee, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company; President and Director,
Federated Investment Counseling and Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director, Federated
Services Company.
Edward C. Gonzales Trustee or Director of some of the Funds in the $ 0 $0 for the
Birth date: October 22, 1930 Federated Fund Complex; President, Executive Vice Corporation and
Federated Investors Tower President and Treasurer of some of the Funds in 1 other investment
1001 Liberty Avenue the Federated Fund Complex; Vice Chairman, companies
Pittsburgh, PA Federated Investors, Inc.; Vice President, in the Fund Complex
EXECUTIVE VICE PRESIDENT Federated Investment Management Company, and
Federated Investment Counseling, Federated Global
Investment Management Corp. and Passport
Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.
John W. McGonigle Executive Vice President and Secretary of the $ 0 $0 for the
Birth date: October 26, 1938 Federated Fund Complex; Executive Vice President, Corporation and
Federated Investors Tower Secretary, and Director, Federated Investors, 54 other investment
1001 Liberty Avenue Inc.; Trustee, Federated Investment Management companies
Pittsburgh, PA Company; Director, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Counseling and Federated Global Investment
Management Corp.; Director, Federated Services
Company; Director, Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $ 0 $0 for the
Birth date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; Formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial companies
Pittsburgh, PA Services Division of Federated Investors, Inc. in the Fund Complex
TREASURER
Henry A. Frantzen Chief Investment Officer of this Fund and various $ 0 $0 for the
Birth date: November 28, 1942 other Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Executive Vice President, Federated Investment 3 other investment
1001 Liberty Avenue Counseling, Federated Global Investment companies
Pittsburgh, PA Management Corp., Federated Investment Management in the Fund Complex
CHIEF INVESTMENT OFFICER Company, and Passport Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Vice President, Federated
Investors, Inc.; Formerly: Executive Vice
President, Federated Investment Counseling
Institutional Portfolio Management
Services Division; Chief Investment
Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing
Director, BBH Investment Management
Limited.
Drew J. Collins Vice President of the Corporation. Mr. Collins $ 0 $0 for the
Birth date: December 19, 1956 joined Federated Investors in 1995 as a Senior Corporation and
Federated Investors Tower Portfolio Manager and a Senior Vice President of 1 other investment
1001 Liberty Avenue the Fund's investment adviser. Mr. Collins company in the Fund
Pittsburgh, PA served as Vice President/Portfolio Manager of Complex
VICE PRESIDENT 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 Wharton
School of The University of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily
Maximum Administrative Fee Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditor for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $234,964 $240,269 $ 54,798
Advisory Fee Reduction $234,964 $240,269 $ 52,073
Brokerage Commissions $285,623 $154,017 $ 26,393
Administrative Fee $185,000 $185,000 $140,012
12b-1 Fee
Class A Shares $ 0 NA NA
Class B Share $ 50,647 NA NA
Class C Shares $ 8,442 NA NA
Shareholder Services Fee
Class A Shares $ 27,297 NA NA
Class B Share $ 16,883 NA NA
Class C Shares $ 2,814 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
<TABLE>
<CAPTION>
Class Name 1 Year Start of Performance*
<S> <C> <C>
Class A Shares (35.78%) (3.88%)
Class B Shares (36.33%) (4.07%)
Class C Shares (33.23%) (2.64%)
* Start of performance on February 28, 1996.
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.
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.
Morgan Stanley Capital International World Indices
Includes, 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.
Morgan Stanley Capital International Latin America Emerging Market Indices
Includes 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.
Ibbotson Associates International Bond Index
Provides a detailed breakdown of local market and currency returns since 1960.
Bear Stearns Foreign Bond Index
Provides simple average returns for individual countries and GNP-weighted index,
beginning in 1975. The returns are broken down by local market and currency.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
CDA/Wiesenberger Investment Company Services
Mutual fund rankings and data that ranks and/or compares mutual funds by overall
performance, investment objectives, assets, expense levels, periods of existence
and/or other factors.
Financial Times Actuaries Indices
Includes the FTA-World Index (and components thereof), which are based on stocks
in major world equity markets.
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.
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.
CNBC/Financial News Composite Index.
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.
Salomon Brothers Global Telecommunications Index
Composed of telecommunications companies in the developing and emerging
countries.
Datastream, InterSec, FactSet, Ibbotson Associates, and Worldscope Database
retrieval services for information including, but not limited to, international
financial and economic data.
International Financial Statistics
Produced by the International Monetary Fund.
World Bank
Various publications and annual reports produced by the World Bank and its
affiliates.
International Bank for Reconstruction and Development
Various publications.
Moody's Investors Service, Inc., Fitch IBCA, Inc. and Standard & Poor's
Various publications
Wilshire Associates
An on-line database for international financial and economic data including
performance measures for a wide range of securities.
International Finance Corporation (IFC) Emerging Markets Data Base Provides
detailed statistics on stock and bond markets in developing countries, including
IFC market indices.
Organization for Economic Cooperation and Development (OECD)
Various publications.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Latin American Growth Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED LATIN AMERICAN GROWTH FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
Prospectus
Federated World Utility Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A mutual fund seeking total return by investing in securities issued by domestic
and foreign companies in the utilities industries.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 10
How to Purchase Shares 11
How to Redeem and Exchange Shares 12
Account and Share Information 15
Who Manages the Fund? 16
Financial Information 17
</TABLE>
MARCH 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide total return. The Fund's total
return will consist of two components: (1) changes in the market value of its
portfolio securities and (2) income received from its portfolio securities. The
Fund expects that changes in the market value of its portfolio securities will
comprise the largest component of its total return. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its total
assets in securities issued by domestic and foreign companies in the utilities
sector. The Fund invests primarily, but not exclusively, in equity securities of
utility companies which are represented in the Financial Times/S&P World Utility
Index, an index of 175 global utility companies.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
. the possibility that the utilities sector may underperform other sectors or
the market as a whole;
. fluctuations in the value of equity securities in domestic and foreign
securities markets
. fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
. prices of emerging market securities in which the Fund invests can be
significantly more volatile than prices of securities in developed countries;
and
. the foreign markets in which the Fund invests may be subject to economic or
political conditions which are less favorable than those of the United States
and may lack financial reporting standards or regulatory requirements
comparable to those applicable to U.S. 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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
[Graph appears here - See Appendix]
The bar chart shows the variability of the Fund's Class A Shares total returns
on a yearly basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, returns would be less than those shown.
Within the period shown in the chart, the Fund's Class A Shares highest
quarterly return was 14.26% (quarter ended December 31, 1998). Its lowest
quarterly return was (4.54%) (quarter ended September 30, 1998).
Average Annual Total Return
<TABLE>
<CAPTION>
Start of
Calendar Period 1 Year Performance/1/
<S> <C> <C>
Class A Shares 16.91% 15.55%
Class B Shares 17.29% 19.47%
Class C Shares 21.77% 20.00%
S&P 500 28.61% 26.73%
FTGU 36.75% 18.35%
LUFA 18.40% 15.77%
</TABLE>
1 The Fund's Class A Shares start of performance date was April 22, 1994. The
Fund's Class B and Class C Shares start of performance date was July 27,
1995.
The table shows the Fund's Class A, Class B and Class C Shares average annual
total returns (reduced to reflect applicable sales charges) compared to the
Standard and Poor's 500 Index (S&P 500), a broad-based index, the FT
Actuaries/S&P Global Utility Index (FTGU), a broad-based market index of
total return market cap-weighted index of 1,092 companies from 25 countries
and the Lipper Utility Funds Average (LUFA), an average of funds with similar
investment objectives which represents an average of the total returns
reported by all of the mutual funds designated by Lipper.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, or C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
Fees Paid Directly From Your Investment
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee/2/ 1.00% 1.00% 1.00%
Distribution (12b-1) Fee None 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 1.08% 1.08% 1.08%
Total Annual Fund Operating Expenses 2.33% 3.08%/3/ 3.08%
</TABLE>
1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses the
Fund actually paid for the fiscal year ended November 30, 1998. Waivers of
Fund Expenses 0.81% 0.81% 0.81% Total Actual Annual Fund Operating Expenses
(after waivers) 1.52% 2.27% 2.27%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.19% for the year ended November
30, 1998.
3 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Class A Shares, Class B Shares and Class C Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A Shares, Class
B Shares and Class C Shares for the time periods indicated and then redeem all
of your Shares at the end of those periods. Expenses assuming no redemption are
also shown. The Example also assumes that your investment has a 5% return each
year and that the Fund's Class A Shares, Class B Shares and Class C Shares
operating expenses are before waivers as shown in the Table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
Class A
<S> <C> <C> <C> <C>
Expenses assuming
redemption $773 $1,237 $1,727 $3,069
Expenses assuming
no redemption $773 $1,237 $1,727 $3,069
Class B
Expenses assuming
redemption $861 $1,351 $1,816 $3,219
Expenses assuming
no redemption $311 $ 951 $1,616 $3,219
Class C
Expenses assuming
redemption $411 $ 951 $1,616 $3,392
Expenses assuming
no redemption $311 $ 951 $1,616 $3,392
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing at least 65% of its total
assets in securities issued by domestic and foreign companies in the utilities
sector. The Fund invests primarily in equity securities of utility companies
which are represented in the Financial Times/S&P World Utility Index (Index), an
index of 175 global utility stocks, including stocks issued by companies located
in emerging market countries.
The adviser uses a quantitative process to rate the future performance
potential of the 175 utility companies in the Index as well as utility companies
not represented in the Index. The adviser evaluates each company's earnings
relative to its current valuation to narrow the list of attractive companies.
The adviser then evaluates product positioning, management quality, earnings
diversification, dividend yield and sustainability of current growth trends of
these companies. In implementing this strategy, the adviser will invest in
emerging market countries. Using this type of fundamental analysis, the adviser
selects the most promising companies for the Fund's portfolio.
INDUSTRY CONCENTRATION
The Fund may invest 25% or more of its assets in securities of issuers in the
utilities industry.
PORTFOLIO TURNOVER
The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal type of equity security in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are often denominated in foreign currencies. Foreign
securities are subject currency risks and risks of foreign investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS OF INVESTING IN UTILITY SECURITIES
Utility securities pose certain risks to investors. For instance, technological
innovations may cause existing plants, equipment or products to become less
competitive or obsolete. Energy conservation and environmental concerns may
reduce demand for services of utility companies or may impede planned growth by
such companies. Utilities which own nuclear facilities may be susceptible to
environmental and regulatory issues that could cause litigation or result in
fines being levied against the company. In addition, most utility companies in
the United States and in foreign countries are subject to government regulation
which seeks 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. Utility
companies may, therefore, be adversely affected by shifts in regulatory
policies, the adequacy of rate increases, and future regulatory initiatives.
SECTOR RISKS
Sector risk is the possibility that a certain sector may underperform other
sectors or the market as a whole. Because the Fund concentrates its investments
in utility companies, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector. For
example, a global increase in the cost of natural resources used by utility
companies would reduce the value of utility companies more than companies in
other business sectors. This would cause the Fund to underperform other mutual
funds that do not concentrate in the utility sector.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
EMERGING MARKET RISKS
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
can be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
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.
What do Shares Cost?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), plus any
applicable front-end sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund's current NAV and public offering
price may be found in the mutual funds section in certain local newspapers under
"Federated" and the appropriate class designate listing.
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
<TABLE>
<CAPTION>
Minimum Maximum Sales Charge
Initial/
Subsequent Front-End Contingent
Investment Sales Deferred Sales
Shares Offered Amounts/1/ Charge/2/ Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>
1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund.
Orders for $250,000 or more will be invested in Class A Shares instead of
Class B Shares to maximize your return and minimize the sales charges and
marketing fees. Accounts held in the name of an investment professional may
be treated differently. Class B Shares will automatically convert into Class
A Shares after eight full years from the purchase date. This conversion is a
non-taxable event.
2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."
SALES CHARGE WHEN YOU PURCHASE
<TABLE>
<CAPTION>
Sales Charge as
a Percentage of Sales Charge as
Class A Shares Public Offering a Percentage of
Purchase Amount Price NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than
$100,000 4.50% 4.71%
$100,000 but less than
$250,000 3.75% 3.90%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$1 million 2.00% 2.04%
$1 million or greater1
</TABLE> 0.00% 0.00%
1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.
The sales charge at purchase may be reduced or eliminated by:
. purchasing Shares in greater quantities to reduce the applicable sales charge;
. combining concurrent purchases of Shares:
. by you, your spouse, and your children under age 21; or
. of the same share class of two or more Federated Funds (other than money
market funds);
. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or
. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares:
. within 120 days of redeeming Shares of an equal or lesser amount;
. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
. through wrap accounts or other investment programs where you pay the
investment professional directly for services;
. through investment professionals that receive no portion of the sales charge;
. as a Federated Life Member (Class A Shares only) and their immediate family
members; or
. as a Director or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.
If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor,
Federated Securities Corp., at the time of purchase. If the Distributor is not
notified, you will receive the reduced sales charge only on additional
purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
<TABLE>
<CAPTION>
Class A Shares
<S> <C>
A CDSC of 0.75% of the redemption amount applies to Class A
Shares redeemed up to 24 months after purchase under certain investment
programs where an investment professional received an advance payment on the
transaction.
Class B Shares
Shares Held Up To: CDSC
1 Year 5.50%
2 Years 4.75%
3 Years 4.00%
4 Years 3.00%
5 Years 2.00%
6 Years 1.00%
7 Years or More 0.00%
Class C Shares
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.
</TABLE>
You will not be charged a CDSC when redeeming Shares:
. purchased with reinvested dividends or capital gains;
. purchased within 120 days of redeeming Shares of an equal or lesser amount;
. that you exchanged into the same share class of another Federated Fund where
the shares were held for the applicable CDSC holding period (other than a
money market fund);
. purchased through investment professionals
. who did not receive advanced sales payments; or
. if after you purchase Shares, you become disabled as defined by the IRS.
In addition, you will not be charged a CDSC:
. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
. if your redemption is a required retirement plan distribution;
. upon the death of the last surviving shareholder of the account.
If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.
To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:
. Shares that are not subject to a CDSC; and
. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund).
The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.
How is the Fund Sold?
The Fund offers three share classes: Class A Shares, Class B Shares, and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check), you automatically will receive Class A Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends
when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
. You will become the owner of Shares and your Shares will be priced at the
next calculated NAV after the Fund receives your wire or your check. If your
check does not clear, your purchase will be canceled and you could be liable
for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number,
or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem and Exchange Shares
You should redeem or exchange Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions. If you call
before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time)
you will receive a redemption amount based on that day's NAV.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last 30 days;
. a redemption is payable to someone other than the shareholder(s) of record;
or
. if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
. ensure that the account registrations are identical;
. meet any minimum initial investment requirements; and
. receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/ EXCHANGE PROGRAM
You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.
Systematic Withdrawal Program (SWP) on Class B Shares
You will not be charged a CDSC on SWP redemptions if:
. you redeem 12% or less of your account value in a single year;
. you reinvest all dividends and capital gains distributions; and
. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance).
You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.
For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.). The Adviser manages the Fund's assets, including buying
and selling portfolio securities. The Adviser's address is 175 Water Street, New
York, NY 10038-4965.
THE FUND'S PORTFOLIO MANAGERS ARE:
Richard J. Lazarchic
Richard J. Lazarchic has been a portfolio manager of the Fund since March 1998.
Mr. Lazarchic joined Federated Investors in 1998 as a Portfolio Manager and Vice
President of the Fund's Adviser. From May 1979 through October 1997, Mr.
Lazarchic was employed with American Express Financial Corp., initially as an
Analyst and then as a Vice President/ Senior Portfolio Manager. Mr. Lazarchic is
a Chartered Financial Analyst. He received his M.B.A. from Kent State
University.
Drew J. Collins
Drew J. Collins has been a member of the Fund's portfolio management team since
its inception. He is Vice President of the Corporation. Mr. Collins joined
Federated Investors in 1995 as a Senior Portfolio Manager and a Senior Vice
President of the Fund's 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 Wharton School of The University of Pennsylvania.
Richard Winkowski
Richard Winkowski is a Senior Investment Analyst who assists the portfolio
managers in selecting and monitoring the securities in which the Fund invests.
Mr. Winkowski joined Federated Investors in April 1998; he served as a Senior
Research Analyst with Union Bank of Switzerland from October 1997 through March
1998. He was employed with American Express Financial Corp. as a Statistical
Analyst from April 1994 to January 1995 and then as a Portfolio Manager
Assistant until September 1997. Mr. Winkowski earned his B.A. from the
University of Wisconsin.
Peter Thoms
Peter Thoms is an Investment Analyst who assists the portfolio managers in
selecting and monitoring the securities in which the Fund invests. Mr. Thoms
joined Federated Investors in July 1998. From 1993 through mid-1996, Mr. Thoms
was a free-lance travel writer. He completed his M.B.A. at the University of
Virginia in May 1998.
The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which total approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date- related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
Financial HighlightsClass A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1998 1997 1996 1995 1994/1/
Net Asset Value, Beginning of Period $ 14.16 $ 12.69 $ 10.96 $ 9.67 $10.06
Income From Investment Operations:
Net investment income 0.23 0.28 0.43 0.42 0.24
Net realized and unrealized gain (loss) on
investments and foreign currency 2.55 2.00 1.67 1.27 (0.46)
TOTAL FROM INVESTMENT OPERATIONS 2.78 2.28 2.10 1.69 (0.22)
Less Distributions:
Distributions from net investment income (0.26) (0.38) (0.37) (0.40) (0.17)
Distributions from net realized gain on
investments and foreign currency transactions (0.44) (0.43)
TOTAL DISTRIBUTIONS (0.70) (0.81) (0.37) (0.40) (0.17)
Net Asset Value, End of Period $ 16.24 $ 14.16 $ 12.69 $10.96 $ 9.67
Total Return2 20.42% 19.08% 19.54% 17.94% (3.00%)
Ratios to Average Net Assets:
Expenses 1.52% 1.40% 1.05% 0.25% 0.25%/4/
Net investment income 1.71% 2.16% 3.87% 4.39% 5.10%/4/
Expense waiver/reimbursement3 0.81% 1.49% 3.11% 4.78% 4.43%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $28,022 $20,394 $12,671 $8,875 $4,948
Portfolio turnover 139% 52% 50% 46% 7%
</TABLE>
1 Reflects operations for the period from April 22, 1994 (date of initial
public investment) to November 30, 1994. For the period from the start of
business, March 17, 1994, to April 21, 1994, Class A had no public
investment.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 For the periods ended November 30, 1995 and 1994, the adviser waived all of
its investment advisory fee, 1.00% and 1.00%, respectively, and reimbursed
other operating expenses, 0.34% and 0.86%, respectively, to comply with
certain state expense limitations. The remainder of the reimbursement was
voluntary. This expense decrease is reflected in both the expenses and net
investment income ratios shown above.
4 Computed on an annualized basis.
Financial Highlights--Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
Year Ended November 30 1998 1997 1996 1995/1/
Net Asset Value, Beginning of Period $ 14.12 $ 12.68 $10.95 $10.53
Income From Investment Operations:
Net investment income 0.12 0.21 0.35 0.11
Net realized and unrealized gain on investments and
foreign currency 2.54 1.95 1.67 0.41
TOTAL FROM INVESTMENT OPERATIONS 2.66 2.16 2.02 0.52
Less Distributions:
Distributions from net investment income (0.15) (0.29) (0.29) (0.10)
Distributions from net realized gain on investments and
foreign currency transactions (0.44) (0.43) -- --
TOTAL DISTRIBUTIONS (0.59) (0.72) (0.29) (0.10)
Net Asset Value, End of Period $ 16.19 $ 14.12 $12.68 $10.95
Total Return/2/ 19.53% 18.04% 18.79% 5.00%
Ratios to Average Net Assets:
Expenses 2.27% 2.15% 1.80% 1.00%4//
Net investment income 0.96% 1.36% 3.18% 2.99%4//
Expense waiver/reimbursement3 0.81% 1.49% 3.11% 4.78%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $22,793 $15,177 $4,091 $1,068
Portfolio turnover 139% 52% 50% 46%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial public
investment) to November 30, 1995.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 For the periods ended November 30, 1995, the adviser waived all of its
investment advisory fee, 1.00%, and reimbursed other operating expenses,
0.34%, to comply with certain state expense limitations. The remainder of the
reimbursement was voluntary. This expense decrease is reflected in both the
expenses and net investment income ratios shown above.
4 Computed on an annualized basis.
Financial Highlights--Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
Year Ended November 30 1998 1997 1996 1995/1/
Net Asset Value, Beginning of Period $14.14 $12.67 $10.95 $10.53
Income From Investment Operations:
Net investment income 0.12 0.19 0.33 0.15
Net realized and unrealized gain on investments and 2.54 2.00 1.68 0.37
foreign currency
TOTAL FROM INVESTMENT OPERATIONS 2.66 2.19 2.01 0.52
Less Distributions:
Distributions from net investment income (0.15) (0.29) (0.29) (0.10)
Distributions from net realized gain on investments and (0.44) (0.43)
foreign currency transactions
TOTAL DISTRIBUTIONS (0.59) (0.72) (0.29) (0.10)
Net Asset Value, End of Period $16.21 $14.14 $12.67 $10.95
Total Return/2/ 19.50% 18.24% 18.61% 4.92%
Ratios to Average Net Assets:
Expenses 2.27% 2.15% 1.80% 1.00%/4/
Net investment income 0.96% 1.39% 3.17% 3.03%/4/
Expense waiver/reimbursement/3/ 0.81% 1.49% 3.11% 4.77%/4/
Supplemental Data:
Net assets, end of period (000 omitted) $3,276 $1,923 $1,072 $ 374
Portfolio turnover 139% 52% 50% 46%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial public
investment) to November 30, 1995.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 For the periods ended November 30, 1995, the adviser waived all of its
investment advisory fee, 1.00%, and reimbursed other operating expenses,
0.34%, to comply with certain state expense limitations. The remainder of the
reimbursement was voluntary. This expense decrease is reflected in both the
expenses and net investment income ratios shown above.
4 Computed on an annualized basis.
Federated World Utility Fund
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[LOGO of Federated]
Federated World Utility Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Investment Company Act File No. 811-7141
Cusip 981487762
Cusip 981487754
Cusip 981487747
G00440-03 (3/99)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED WORLD UTILITY FUND
A Portfolio of World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated World Utility Fund (Fund)
and Class A, B and C Shares, dated March 31, 1999. This SAI incorporates by
reference the Fund's Annual Report. Obtain the prospectus or the Annual Report
without charge by calling 1-800-341-7400.
MARCH 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 981487697
981487689
981487671
G00440-04 (3/99
)
How is the Fund Organized?
The Fund is a diversified portfolio of World Investment Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on January 25,
1994. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Fund's investment adviser is Federated
Global Investment Management Corp. (Adviser).
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all three classes of the above-mentioned Shares. The Fund
previously offered another class of share, Class F Shares. On February 23, 1999,
shareholders of Class F Shares approved merging their shares into Class A Shares
of the Fund.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Non-Principal Investment Strategy
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may attempt to lower the cost of hedging by entering into transactions that
provide only limited protection, including transactions that (1) hedge only a
portion of its portfolio, (2) use derivatives contracts that cover a narrow
range of circumstances or (3) involve the sale of derivatives contracts with
different terms. Consequently, hedging transactions will not eliminate risk even
if they work as intended. In addition, hedging strategies are not always
successful, and could result in increased expenses and losses to the Fund.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. American Depositary Receipts (ADRs) provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the International
Bank for Reconstruction and Development (the World Bank), the Asian
Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full, faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Investors regard agency
securities as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely amount
issuers. The credit risk of an issuer's debt security may also vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer
cannot continue to obtain liquidity in this fashion, its commercial paper
may default. The short maturity of commercial paper reduces both the market
and credit risks as compared to other debt securities of the same issuer.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity risks. OTC contracts
also expose the Fund to credit risks in the event that a counterparty defaults
on the contract.
The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell foreign currency futures contracts.
Options
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option. The Fund may
write covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options provided that no more than 5% of
the fair market value of its net assets may be invested in premiums on such
options.
The Fund may write covered call options on all or any portion of its portfolio
to generate income from premiums. 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.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices). Hybrid
instruments also include convertible securities with conversion terms related
to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments. Moreover, depending on the structure of the particular hybrid, it
may expose the Fund to leverage risks or carry liquidity risks.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price, reflecting
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into
these transactions so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
market risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay
the Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Investment Ratings for Investment Grade Securities. The Adviser will determine
whether a security is investment grade based upon the credit ratings given by
one or more nationally recognized rating services. For example, Standard and
Poor's, a rating service, assigns ratings to investment grade securities (AAA,
AA, A, and BBB) based on their assessment of the likelihood of the issuer's
inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Stock Market Risks
. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
Currency Risks
. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
. The adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Credit Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
. Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
. Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
. Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
. Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
Prepayment Risks
. Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.
. Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase the security is perceived to have an
increased prepayment risk or less market demand. An increase in the spread will
cause the price of the security to decline.
. The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.
Euro Risks
. The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these country's
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held or are issued by companies located in emerging markets. This may
make it more difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security, sell
other securities to raise cash or give up an investment opportunity, any of
which could have a negative effect on the Fund's performance. Infrequent trading
of securities may also lead to an increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Related to Company Size
. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
larger, well capitalized companies.
Bond Market Risks
. Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
Leverage Risks
. Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
. Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
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.
The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations become 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.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value;
. for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
. for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:
Quantity Discounts
Larger purchases of the same Share class can reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
Letter of Intent
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the custodian will release the Shares in escrow to your account. If you
do not fulfil the Letter of Intent, the custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charge that were not
applied to your purchases.
Reinvestment Privilege
You may reinvest, within 120 days, your redemption proceeds at the next
determined NAV without any sales charge.
Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:
. the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc. (Federated) on
December 31, 1997;
. any associated person of an investment dealer who has a sales agreement with
the Distributor; and
. trusts, pension or profit-sharing plans for these individuals.
Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:
. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
Funds are no longer marketed); or
. as Liberty Account shareholders by investing through an affinity group prior
to August 1, 1987.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the investment professional selling Shares, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
. following the death or post-purchase disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
shareholder;
. representing minimum required distributions from an Individual Retirement
Account or other retirement plan in Federated Funds to a shareholder who has
attained the age of 70 1/2;
. which are involuntary redemptions processed by the Fund because the accounts
do not meet the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons; and
. of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Fund may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Fund pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee. For some classes of Shares, the maximum Rule 12b-1 Plan fee
that can be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it may take
the Distributor a number of years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule 12b-
1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive an amount up to 5.50% and 1.00%, respectively, of the
NAV of Class B and C Shares.
Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:
<TABLE>
<CAPTION>
Amount Advance Payments as a Percentage of Public Offering Price
<S> <C>
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
</TABLE>
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management. Exchanging Securities For Shares You may
contact the Distributor to request a purchase of Shares in an exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share 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 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.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote. As of March 4, 1999, the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: Charles Schwab & Company, Inc., San Francisco, CA, owned approximately
149,002 Class A Shares (5.26%) and Merrill Lynch Pierce Fenner and Smith,
Jacksonville, FL, owned approximately 357,492 Class A Shares (12.63%); Merrill
Lynch Pierce Fenner and Smith, Jacksonville, FL, , owned approximately 153,423
Class B Shares (9.13%); and Merrill Lynch Pierce Fenner and Smith, Jacksonville,
FL, owned approximately 29,145 Class C Shares (11.93%). Shareholders owning
25% or more of outstanding Shares may be in control and be able to affect the
outcome of certain matters presented for a vote of shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable. Distributions from a Fund may be based on estimates
of book income for the year. Book income generally consists solely of the coupon
income generated by the portfolio, whereas tax-basis income includes gains or
losses attributable to currency fluctuation. Due to differences in the book and
tax treatment of fixed-income securities denominated in foreign currencies, it
is difficult to project currency effects on an interim basis. Therefore, to the
extent that currency fluctuations cannot be anticipated, a portion of
distributions to shareholders could later be designated as a return of capital,
rather than income, for income tax purposes, which may be of particular concern
to simple trusts. If the Fund invests in the stock of certain foreign
corporations, they may constitute Passive Foreign Investment Companies (PFIC),
and the Fund may be subject to Federal income taxes upon disposition of PFIC
investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of 10 funds and the Federated Fund Complex is comprised
of 54 investment companies, whose investment advisers are affiliated with the
Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, and C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation From
Address Principal Occupations From Corporation and Fund
Position With Corporation for Past Five Years Corporation Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or $ 0 $0 for the
Birth Date: July 28, 1924 Trustee of the Federated Fund Complex, Corporation and
Federated Investors Tower Chairman and Director, Federated Investors, 54 other investment
1001 Liberty Avenue Inc.; Chairman and Trustee, Federated companies
Pittsburgh, PA Investment Management Company; Chairman and in the Fund Complex
DIRECTOR AND CHAIRMAN Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of 54 other investment
Pittsburgh, PA Pittsburgh; formerly: Senior Partner, Ernst companies
DIRECTOR & Young LLP; Director, MED 3000 Group, in the Fund Complex
Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/IPC Commercial Dept. Corporation; Senior Vice President, John R. 54 other investment
John R. Wood Associates, Inc. Wood and Associates, Inc., Realtors; companies
Realtors Partner or Trustee in private real estate in the Fund Complex 3255
Tamiami Trial North ventures in Southwest Florida; formerly:
Naples, FL President, Naples Property Management, Inc.
DIRECTOR and Northgate Village Development
Corporation.
Nicholas Constantakis Director or Trustee of the Federated Fund $1,416.84 $47,958.02 for the
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen Corporation and
175 Woodshire Drive Worldwide SC. 29 other investment
Pittsburgh, PA companies
DIRECTOR in the Fund Complex
William J. Copeland Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: July 4, 1918 Complex; Director and Member of the Corporation and
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; 54 other investment
Pittsburgh, PA formerly: Vice Chairman and Director, PNC companies
DIRECTOR Bank, N.A., and PNC Bank Corp.; Director, in the Fund Complex
Ryan Homes, Inc.
Previous Positions: Director, United
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman, Pittsburgh
Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: May 18, 1922 Complex; Attorney-at-law; Director, The Corporation and
571 Hayward Mill Road Emerging Germany Fund, Inc. 54 other investment
Concord, MA companies
DIRECTOR Previous Positions: President, Boston Stock in the Fund Complex
Exchange, Inc.; Regional Administrator,
United States Securities and Exchange
Commission.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University Corporation and
3471 Fifth Avenue of Pittsburgh; Medical Director, University 54 other investment
Suite 1111 of Pittsburgh Medical Center Downtown; companies
Pittsburgh, PA Hematologist, Oncologist, and Internist, in the Fund Complex
DIRECTOR University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.
Richard B. Fisher* President or Vice President of some of $0 $0 for the
Birth date: May 17, 1923 the Funds in the Federated Fund Complex; Corporation and
Federated Investors Tower Director or Trustee of some of the Funds 6 other investment
1001 Liberty Avenue in the Federated Fund Complex; Executive companies
Pittsburgh, PA Vice President, Federated Investors, Inc.; in the Fund Complex
DIRECTOR AND PRESIDENT Chairman and Director, Federated
Securities, Corp.
Edward L. Flaherty, Jr., Esq. # Director or Trustee of the Federated Fund $1,558.76 $125,264.48 for the
Birth Date: June 18, 1924 Complex; Attorney, of Counsel, Miller, Corporation and
Miller, Ament, Henny & Kochuba Ament, Henny & Kochuba; Director Emeritus, 54 other investment
205 Ross Street Eat'N Park Restaurants, Inc.; formerly: companies
Pittsburgh, PA Counsel, Horizon Financial, F.A., Western in the Fund Complex
DIRECTOR Region; Partner, Meyer and Flaherty.
Peter E. Madden Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: March 16, 1942 Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and companies
Palm Beach, FL Trust Company and State Street Corporation. in the Fund Complex
DIRECTOR
Previous Positions: Director, VISA USA and
VISA International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the $ 0 $0 for the
Birth Date: April 10, 1945 Federated Fund Complex; Management Corporation and
80 South Road Consultant. 26 other investment
Westhampton Beach, NY companies
DIRECTOR Previous Positions: Chief Executive in the Fund Complex
Officer, PBTC International Bank; Chief
Financial Officer of Retail Banking Sector,
Chase Mahattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business,
Hostra University.
John E. Murray, Jr., J.D., S.J.D. Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & 54 other investment
Pittsburgh, PA Murray. companies
DIRECTOR in the Fund Complex
Previous Positions: Dean and Professor of
Law, University of Pittsburgh School of
Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: September 14, 1925 Complex; President, World Society of Corporation and
1202 Cathedral of Learning Ekistics (metropolitan planning), Athens; 54 other investment
University of Pittsburgh Professor, International Politics; companies
Pittsburgh, PA Management Consultant; Trustee, Carnegie in the Fund Complex
DIRECTOR 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; Trustee, Czech Management
Center, Prague.
Previous Positions: Professor, United
States Military Academy; Professor, United
States Air Force Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund $1,416.84 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Corporation and
4905 Bayard Street Relations/Marketing/Conference Planning. 54 other investment
Pittsburgh, PA companies
DIRECTOR Previous Positions: National Spokesperson, in the Fund Complex
Aluminum Company of America; business owner.
J. Christopher Donahue+ President or Executive Vice President of $ 0 $0 for the
Birth Date: April 11, 1949 the Federated Fund Complex; Director or Corporation and 16
Federated Investors Tower Trustee of some of the Funds in the other investment
1001 Liberty Avenue Federated Fund Complex; President and companies
Pittsburgh, PA Director, Federated Investors, Inc.; in the Fund Complex
EXECUTIVE VICE PRESIDENT President and Trustee, Federated Investment
Management Company; President and Director,
Federated Investment Counseling and
Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the Funds in $0 $0 for the
Birth Date: October 22, 1930 the Federated Fund Complex; President, Corporation and 1
Federated Investors Tower Executive Vice President and Treasurer of other investment
1001 Liberty Avenue some of the Funds in the Federated Fund companies in the
Pittsburgh, PA Complex; Vice Chairman, Federated Fund Complex
EXECUTIVE VICE PRESIDENT Investors, Inc.; Vice President, Federated
Investment Management Company, Federated
Investment Counseling, Federated Global
Investment Management Corp. and Passport
Research, Ltd.; Executive Vice President
and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary of $0 $0 for the
Birth Date: October 26, 1938 the Federated Fund Complex; Executive Vice Corporation and 54
Federated Investors Tower President, Secretary, and Director, other investment
1001 Liberty Avenue Federated Investors, Inc.; Trustee, companies in the
Pittsburgh, PA Federated Investment Management Company; Fund Complex
EXECUTIVE VICE PRESIDENT Director, Federated Investment Counseling
and Federated Global Investment Management
Corp.; Director, Federated Services
Company; Director, Federated Securities
Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; $0 $0 for the
Birth Date: June 17, 1954 Vice President - Funds Financial Services Corporation and 54
Federated Investors Tower Division, Federated Investors, Inc.; other investment
1001 Liberty Avenue Formerly: various management positions companies in the
Pittsburgh, PA within Funds Financial Services Division of Fund Complex
TREASURER Federated Investors, Inc.
Henry A. Frantzen Chief Investment Officer of this Fund and $0 $0 for the
Birth Date: November 28, 1942 various other Funds in the Federated Fund Corporation and 3
Federated Investors Tower Complex; Executive Vice President, other investment
1001 Liberty Avenue Federated Investment Counseling, Federated companies in the
Pittsburgh, PA Global Investment Management Corp., Fund Complex
CHIEF INVESTMENT OFFICER Federated Investment Management Company and
Passport Research, Ltd.; Registered
Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President,
Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.
Drew J. Collins Vice President of the Corporation. Mr. $0 $0 for the
Birth Date: December 19, 1956 Collins joined Federated Investors in 1995 Corporation and one
Federated Investors Tower as a Senior Portfolio Manager and a Senior other investment
1001 Liberty Avenue Vice President of the Fund's investment company in the Fund
Pittsburgh, PA adviser. Mr. Collins served as Vice Complex
VICE PRESIDENT 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 Wharton School of The University
of Pennsylvania.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Corporation.
++ Mr. Mansfield became a member of the Board of Directors on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Corporation.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
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 Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $271,529.62 for which the
Funds paid $501.56 in brokerage commissions. Investment decisions
for the Fund are made independently from those of other accounts managed by the
Adviser. When the Fund and one or more of those accounts invests in, or disposes
of, the same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the Adviser
to be equitable. While the coordination and ability to participate in volume
transactions may benefit the Fund, it is possible that this procedure could
adversely impact the price paid or received and/or the position obtained or
disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP, Boston, Massachusetts, is the independent auditors for the
Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended November 30 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $587,621 $360,983 $214,584
Advisory Fee Reduction $409,202 $358,986 $204,186
Brokerage Commissions $302,937 $117,108 $ 48,762
Administrative Fee $215,000 $215,000 $215,000
12b-1 Fee
Class A Shares NA NA NA
Class B Share $148,193 NA NA
Class C Shares $ 19,433 NA NA
Shareholder Services Fee
Class A Shares $ 61,520 NA NA
Class B Share $ 49,398 NA NA
Class C Shares $ 6,477 NA NA
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares. How does the Fund Measure
Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns (reduced to reflect applicable sales charges) given for the
one-year and start of performance periods ended November 30, 1998.
<TABLE>
<CAPTION>
Yield given for the 30-day period ended November 30,
1998.
Class Name 30-Day Yield 1 Year Start of Performance*
<S> <C> <C> <C>
Total Return
Class A Shares NA 13.83% 14.32%
Class B Shares NA 14.03% 17.79%
Class C Shares NA 18.05% 18.36%
Yield
Class A Shares 0.68% NA NA
Class B Shares (0.01%) NA NA
Class C Shares (0.01%) NA NA
</TABLE>
*START OF PERFORMANCE OF CLASS A SHARES ON APRIL 22, 1994, AND CLASS B AND C
SHARES ON JULY 27, 1995.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent investment professional
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in Shares, the Share performance is lower for
shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specific period of time.
Morgan Stanley Capital International World Indices
Includes, 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.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks
Acomposite 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.
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.
Dow Jones Composite Average
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.
Dow Jones World Industry Index
Or its component indices, including, among others, the utility sector.
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.
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.
Financial Times Actuaries Indices
Including the FTA-World Index (and components thereof), which are based on
stocks in major world equity markets.
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.
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.
Mutual Fund Source Book
Published by Morningstar, Inc.--analyzes price, yield, risk, and total return
for equity and fixed income funds.
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.
Value Line Index
An unmanaged index which follows the stocks of approximately 1,700 companies.
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.
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.
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.
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.
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 279 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended November 30,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated World Utility Fund dated November 30, 1998.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. 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 IBCA, 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:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2--Issuers rated Prime-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 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 IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED WORLD UTILITY FUND
Class A Shares
Class B Shares
Class C Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
APPENDIX
FEDERATED ASIA PACIFIC GROWTH FUND
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Federated Asia Pacific Growth Fund as
of the calendar year-end for each of two years. The `y' axis reflects the "%
Total Return" beginning with "-30.00%" and increasing in increments of 6.00% up
to 0.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31, 1998. The light gray shaded chart features two distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Class A Shares for each calendar year
is stated directly at the bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are -26.97 and -7.36%, respectively.
federated european growth fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Federated European Growth Fund as of
the calendar year-end for each of two years. The `y' axis reflects the "% Total
Return" beginning with "0.00%" and increasing in increments of 5.00% up to
25.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31, 1998. The light gray shaded chart features two distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Class A Shares for each calendar year
is stated directly at the top of each respective bar, for the calendar years
1997 through1998. The percentages notes are 17.96% and 21.68%, respectively.
FEDERATED EMERGING MARKETS FUND
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Federated Emerging Markets Fund as of
the calendar year-end for each of two years. The `y' axis reflects the "% Total
Return" beginning with "-30.00%" and increasing in increments of 6.00% up to
0.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31, 1998. The light gray shaded chart features two distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Class A Shares for each calendar year
is stated directly at the bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are
-1.56% and -25.02%, respectively.
federated international growth fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Class A Shares of Federated International Growth Fund as
of the calendar year-end for one year. The `y' axis reflects the "% Total
Return" beginning with "0.00%" and increasing in increments of 0.1% up to 0.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features one distinct vertical bar, shaded in
charcoal, and visually representing by height the total return percentage for
the calendar year stated directly at its base. The calculated total return
percentage for the Class A Shares for the calendar year is stated directly at
the top of the bar, for the calendar year 1998. The percentage noted is 0.49%.
federated LATIN AMERICAN growth fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Federated Latin American Growth Fund
as of the calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "-50.00%" and
increasing in increments of 10.00% up to 30.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Class A Shares for each calendar year is stated
directly at the top or bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are 21.43% and -40.90%, respectively.
federated international high income fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class B Shares of Federated International High Income
Fund as of the calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "-7.00%" and
increasing in increments of 1.00% up to 3.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Class B Shares for each calendar year is stated
directly at the top or bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are 2.17% and -6.54%, respectively.
federated INTERNATIONAL SMALL COMPANY fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class B Shares of Federated International Small Company
Fund as of the calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 6.00% up to 30.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Class B Shares for each calendar year is stated
directly at the top or bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are 15.13% and 26.82%, respectively.
<PAGE>
federated WORLD UTILITY fund
Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Class A Shares of Federated World Utility Fund as of the
calendar year-end for each of four years. The `y' axis reflects the "% Total
Return" beginning with "0.00%" and increasing in increments of 5.00% up to
25.00%. The `x' axis represents calculation periods from the earliest calendar
year end of the Fund's start of business through the calendar year ended
December 31, 1998. The light gray shaded chart features two distinct vertical
bars, each shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Class A Shares for each calendar year
is stated directly at the top or bottom of each respective bar, for the calendar
years 1995 through1998. The percentages noted are23.46%, 17.64% 21.11% and
23.69%, respectively.
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) (i) Conformed copy of Articles of Incorporation of the
Registrant; (1)
(ii) Conformed copy of Articles Supplementary; (5)
(iii) Conformed copy of Articles Supplementary; (15
(iv) Conformed copy of Articles Supplementary; (15)
(v) Conformed copy of Articles of Amendment;+
(b) (i) Copy of By-Laws of the Registrant; (1)
(ii) Copy of Amendment #1 to the By-Laws of the Registrant; (15)
(iii) Copy of Amendment #2 to the By-Laws of the Registrant; (15)
(iv) Copy of Amendment #3 to the By-Laws of the Registrant; (15)
(c) (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)
(d) (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 Investment Advisory Contract of the
Registrant; (8)
(iv) Conformed copy of Exhibit H to Investment Advisory Contract of the
Registrant; (10)
+ 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)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed November 26, 1997. (File Nos. 33-52149
and 811-7141)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 28, 1998. (File Nos. 33-52149
and 811-7141)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed June 10, 1998. (File Nos. 33-52149 and
811-7141)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed February 1, 1999. (File Nos. 33-52149
and 811-7141)
<PAGE>
(v) Conformed copy of Exhibit I to Investment Advisory Contract of the
Registrant; (13)
(vi) Conformed copy of Exhibit J to Investment Advisory Contract of the
Registrant; (14) (vii)Conformed copy of Sub-Advisory Agreement of the
Registrant; (15)
(viii)Conformed copy of Sub-Adviser Resignation Letter; + (e) (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)
(iii)Conformed copy of Exhibits W, X, and Y to the
Distributor's Contract of the Registrant; (9) (iv)
Conformed copy of Exhibit Z and Exhibit AA to the
Distributor's Contract of the Registrant; (13)
(v) Conformed copy of Exhibit BB and Exhibit CC to
Distributor's Contract of the Registrant; (14)
(vi) Conformed copy of Distributor's Contract of the
Registrant (Class B Shares); (14)
(vii) Copy of Schedule A to Distributor's Contract
(Class B Shares);+
(viii) 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 23(e) of the Cash Trust Series II
Registration Statement on Form N-1A, filed with
the Commission
on July 24, 1995. (File Nos. 33-38550 and 811-6269)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (3)
(ii) Conformed copy of Custodian Fee Schedule; (10)
(iii) Addendum to Custodian Fee Schedule; (10)
(iv) Conformed copy of Domestic Custodian Fee
Schedule; (11)
+ 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)
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)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed November 26, 1997. (File Nos. 33-52149
and 811-7141)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed December 23, 1997. (File Nos. 33-52149
and 811-7141)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 28, 1998. (File Nos. 33- 52149
and 811-7141)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed June 10, 1998. (File Nos. 33- 52149 and
811-7141)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed February 1, 1999. (File Nos. 33-52149
and 811-7141)
<PAGE>
(v) Conformed copy of Global Custodian Fee Schedule; (11)
(vi) Addendum to Global Custodian Fee Schedule; (11)
(h) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (14)
(ii) Conformed copy of Amended and Restated Agreement for
Fund Accounting Services, Transfer Agency Services, and
Custody Services Procurement;
(14)
(iii)Conformed copy of Principal Shareholder Servicer's
Agreement (Class B Shares); (14) (iv) Conformed copy of
Shareholder Services Agreement (Class B Shares); (14)
(v) The responses described in Item 23(e)(vii) are
hereby incorporated by reference.
(vi) Copy of Schedule A to Shareholder Services Agreement (Class B
Shares);+
(vii)Copy of Schedule A to Principal Servicer's Agreement (Class B
Shares);+
(viii)Copy of Amended and Restated Shareholder Services Agreement
Exhibit;+
(ix) The Registrant hereby incorporates by reference the conformed
copy of the Shareholder Services Sub-Contract between Fidelity
and Federated Shareholder Services from Item 23(h)(iii) of the
Federated GNMA Trust Registration Statement on Form N-1A, filed
with the Commission on March 25, 1996 (File Nos. 2-75670 and
811-3375);
(i) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (2)
(j) Conformed copy of Consent of Independent Auditors; +
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding; (2)
(m) (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)
(iv) Conformed copy of Exhibit Y and Exhibit Z to the
12b-1 Distribution Plan of the Registrant; (13)
(v) Conformed copy of Exhibit AA and Exhibit BB to
the 12b-1 Distribution Plan of the Registrant;
(14)
(vi) Copy of Schedule A to the Distribution Plan
(Class B Shares) of the Registrant; +
- ----------------------------------------
+ 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)
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)
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)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 28, 1998. (File Nos. 33-52149
and 811-7141)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed June 10, 1998. (File Nos. 33-52149 and
811-7141)
<PAGE>
(n) Copy of Financial Data Schedules; + (o) (i) Conformed copy
of Multiple Class Plan; (5)
(ii) Exhibits to Multiple Class Plan (18f-3); (14) (p)
(i) Conformed copy of Power of Attorney; (14)
(ii) Conformed copy of Limited Power of Attorney; +
(iii)Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; (15)
(iv) Conformed copy of Power of Attorney of Treasurer
of the Registrant; (15)
(v) Conformed copy of Power of Attorney of a
Director of the Registrant; (15)
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification (1).
- ----------------------------------------
+ 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)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed June 10, 1998. (File Nos. 33-52149 and
811-7141)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed February 1, 1999. (File Nos. 33-52149
and 811-7141)
<PAGE>
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund?" in Part A. The
affiliations with the Registrant of four of the Trustees and one
of the Officers of the investment adviser are included in Part B
of this Registration Statement under "Who Manages and Provides
Services to the Fund?" The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson (Partner,
Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown,
Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine M. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
Item 27. Principal Underwriters:
(a)......Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
(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
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent
for Service at above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Federated Investors Tower
Services Company 1001 Liberty Avenue
(Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent)
Federated Services Company Federated Investors Tower
(Administrator) 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Global Investment 175 Water Street
Management Corp. New York, NY 10038-4965
(Adviser)
Federated Advisers Federated Investors Tower
(Sub-Adviser) 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
(Custodian) Boston, MA 02266-8600
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of 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.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
31st day of March, 1999.
WORLD INVESTMENT SERIES, INC.
BY: /s/Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
March 31, 1999
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:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/Karen M. Brownlee Attorney In Fact March 31, 1999
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
Henry A. Frantzen* Chief Investment Officer
John W. McGonigle* Executive Vice
President and Secretary
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Charles F. Mansfield, Jr.* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
</TABLE>
Exhibit a(v) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K
WORLD INVESTMENT SERIES, INC.
ARTICLES OF AMENDMENT
WORLD INVESTMENT SERIES, INC., a Maryland corporation having its
principal office in Maryland in the City of Baltimore, Maryland (the
"Corporation"), certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: The Charter of the Corporation is amended by reclassifying all
of the shares of the Corporation's Federated World Utility Fund Class F Shares
as Federated World Utility Fund Class A Shares.
SECOND: Upon effectiveness of these Articles of Amendment:
(a) All of the assets and liabilities attributable to the Corporation's
Federated World Utility Fund Class F Shares shall be combined with the assets
and liabilities attributable to the Corporation's Federated World Utility Fund
Class A Shares, and shall thereupon become and be assets and liabilities
attributable to the Federated World Utility Fund Class A Shares;
(b) All of the issued and outstanding shares, including fractional shares,
of the Corporation's Federated World utility Fund Class F Shares, par value
$.001 per share, will be automatically, and without any further act or deed,
reclassified as an equal number of full and fractional issued and outstanding
shares of the Corporation's Federated World Utility Fund Class A shares, par
value $.001 per share.
(c) Open accounts on the share records of the Corporation's Federated World
Utility Fund Class A Shares shall be established representing the appropriate
number of shares of Federated World Utility Fund Class A Shares owned by each
former holder of Federated World Utility Fund Class F shares as a result of the
reclassification.
THIRD: This amendment does not increase the authorized capital stock of
the Corporation. This amendment reclassifies the 100,000,000 authorized
Federated World Utility Fund Class F Shares as 100,000,000 additional Federated
World Utility Fund Class A Shares, as a result of which the Corporation will
have 200,000,000 Federated World Utility Fund Class A Shares authorized. This
amendment does not amend the description of any class of stock as set forth in
the Charter.
FOURTH: Any outstanding stock certificates representing issued and
outstanding Federated World Utility Fund Class F Shares immediately prior to
these Articles of Amendment becoming effective shall, upon these Articles of
Amendment becoming effective, be deemed to represent the same number of
Federated World Utility Fund Class A Shares. Stock certificates representing
Federated World Utility Fund Class A Shares resulting from the aforesaid
reclassification need not be issued until any certificates representing the
Federated World Utility Class F Shares so reclassified have been received by the
Corporation or its agent duly endorsed for transfer.
FIFTH: This amendment has been duly advised by the Board of Directors of
the Corporation and approved by the stockholders of the Corporation entitled to
vote thereon.
SIXTH: These Articles of Amendment shall be effective as of 9:00 a.m.,
March 1, 1999.
IN WITNESS WHEREOF, WORLD INVESTMENT SERIES, INC. has caused these Articles
of Amendment to be signed in its name and on its behalf by its Executive Vice
President, and witness by its Assistant Secretary, as of February 26, 1999.
The undersigned, J. Christopher Donahue, Executive Vice President of
the Corporation, hereby acknowledges in the name and on behalf of the
Corporation the foregoing Articles of Amendment are the act of the Corporation
and that to the best of his knowledge, information and belief, all matters and
facts set forth relating to the authorization and approval of these Articles of
Amendment are true in all material respects, and that this statement is made
under penalties of perjury.
WITNESS: WORLD INVESTMENT SERIES, INC.
/s/ Gail Cagney /s/ J. Christopher Donahue
Gail Cagney J. Christopher Donahue
Assistant Secretary Executive Vice President
Exhibit d(viii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
February 3, 1999
Henry A. Frantzen
Executive Vice President
Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
Dear Hank:
This letter serves as notice of the resignation of Federated Research as
sub-adviser to Federated Global Investment Management Corp. (formerly, Federated
Global Research Corp.) in relation to Federated Global Financial Services Fund,
a portfolio of World Investment Series, Inc.
In order to provide for the orderly termination of obligations under the
Sub-Advisory Agreement dated September 1, 1998, between Federated Global
Investment Management corp. and Federated Research (the "Agreement"),
notwithstanding the termination and notice provisions contained in the
Agreement, Federated Research's resignation shall be effective on March 31,
1999.
Please signify your acceptance of the waiver of the notice provision of the
Agreement by executing below.
Sincerely,
/s/ J. Thomas Madden
J. Thomas Madden
Executive Vice President
I hereby waive the notice provision of the Sub-Advisory Agreement dated
September 1, 1998, between Federated Global Investment Management Corp. and
Federated Research.
/s/ Henry A. Frantzen
Henry A. Frantzen
Executive Vice President
Federated Global Investment Management Corp.
Exhibit e(vii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Schedule A
Date: 10/24/97 DISTRIBUTOR'S CONTRACT
As revised: 9/1/98
- -------------------------------------------------------------------------------
World Investment Series, Inc.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of June 1, 1998:
World Investment Series, Inc.
Federated Global Financial Services Fund
Class B Shares
Exhibit h(vi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Schedule A
Date: 10/24/97 SHAREHOLDER SERVICES AGREEMENT
Revised: 9/1/98
- --------------------------------------------------------------------------------
World Investment Series, Inc.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of June 1, 1998:
World Investment Series, Inc.
Federated Global Financial Services Fund
Class B Shares
Exhibit h(vii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Schedule A
Date: 10/24/97 PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
Revised: 9/1/98
World Investment Series, Inc.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of June 1, 1998:
World Investment Series, Inc.
Federated Global Financial Services Fund
Class B Shares
Exhibit h(viii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
World Investment Series, Inc.:
Federated Asia Pacific Growth Fund
Class A Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class C Shares
Federated Global Equity Income Fund
Class A Shares
Class C Shares
Federated Global Financial Services Fund
Class A Shares
Class C Shares
Federated International Growth Fund
Class A Shares
Class C Shares
Federated International High Income Fund
Class A Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class C Shares
Federated World Utility Fund
Class A Shares
Class C Shares
Class F Shares
Exhibit j under Form N-1A
Exhibit 23 under Item 601/Reg S-K
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Independent Auditors" in the Statements of
Additional Information and to the use of our report dated January 20, 1999 in
Post-Effective Amendment Number 18 to the Registration Statement (Form N-1A No.
33-52149) and the related Annual Reports for the period ended November 30, 1998
and Prospectuses dated March 30, 1999 of Federated Asia Pacific Growth Fund,
Federated Emerging Markets Fund, Federated European Growth Fund, Federated
International Growth Fund, Federated International High Income Fund, Federated
International Small Company Fund, Federated Latin American Growth Fund,
Federated World Utility Fund, Federated Global Equity Income Fund, and Federated
Global Financial Services Fund, each a portfolio of World Investment Series,
Inc.
/s/ERNST & YOUNG LLP
Ernst & Young LLP
Boston, Massachusetts
March 30, 1999
Exhibit m(vi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Schedule A
Date: 10/24/97 DISTRIBUTION PLAN
Revised: 9/1/98
World Investment Series, Inc.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of June 1, 1998:
World Investment Series, Inc.
Federated Global Financial Services Fund
Class B Shares
Exhibit p(ii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, dated as of January 7, 1999, that World
Investment Series, Inc., a corporation duly organized under the laws of the
State of Maryland (the "Corporation"), does hereby nominate, constitute and
appoint Federated Global Investment Management Corp., a corporation duly
organized under the laws of the State of Delaware (the "Adviser"), to act
hereunder as the true and lawful agent and attorney-in-fact of the Corporation,
acting on behalf of each of the series portfolios for which the Adviser acts as
investment adviser shown on Schedule 1 attached hereto and incorporated by
reference herein (each such series portfolio being hereinafter referred to as a
"Fund" and collectively as the "Funds"), for the specific purpose of executing
and delivering all such agreements, instruments, contracts, assignments, bond
powers, stock powers, transfer instructions, receipts, waivers, consents and
other documents, and performing all such acts, as the Adviser may deem necessary
or reasonably desirable, related to the acquisition, disposition and/or
reinvestment of the funds and assets of a Fund of the Corporation in accordance
with Adviser's supervision of the investment, sale and reinvestment of the funds
and assets of each Fund pursuant to the authority granted to the Adviser as
investment Adviser of each Fund under that certain investment advisory contract
dated March 1, 1994 by and between the Adviser and the Corporation (such
investment advisory contract, as may be amended, supplemented or otherwise
modified from time to time is hereinafter referred to as the "Investment
Advisory Contract").
The Adviser shall exercise or omit to exercise the powers and
authorities granted herein in each case as the Adviser in its sole and absolute
discretion deems desirable or appropriate under existing circumstances. The
Corporation hereby ratifies and confirms as good and effectual, at law or in
equity, all that the Adviser, and its officers and employees, may do by virtue
hereof. However, despite the above provisions, nothing herein shall be construed
as imposing a duty on the Adviser to act or assume responsibility for any
matters referred to above or other matters even though the Adviser may have
power or authority hereunder to do so. Nothing in this Limited Power of Attorney
shall be construed (i) to be an amendment or modifications of, or supplement to,
the Investment Advisory Contract, (ii) to amend, modify, limit or denigrate any
duties, obligations or liabilities of the Adviser under the terms of the
Investment Advisory Contract or (iii) exonerate, relieve or release the Adviser
any losses, obligations, penalties, actions, judgments and suits and other
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Adviser (x) under the terms of
the Investment Advisory Contract or (y) at law, or in equity, for the
performance of its duties as the investment Adviser of any of the Funds.
The Corporation hereby agrees to indemnify and save harmless the
Adviser and its trustees, officers and employees (each of the foregoing an
"Indemnified Party" and collectively the "Indemnified Parties") against and from
any and all losses, obligations, penalties, actions, judgments and suits and
other costs, expenses and disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against an Indemnified Party, other
than as a consequence of gross negligence or willful misconduct on the part of
an Indemnified Party, arising out of or in connection with this Limited Power of
Attorney or any other agreement, instrument or document executed in connection
with the exercise of the authority granted to the Adviser herein to act on
behalf of the Corporation, including without limitation the reasonable costs,
expenses and disbursements in connection with defending such Indemnified Party
against any claim or liability related to the exercise or performance of any of
the Adviser's powers or duties under this Limited Power of Attorney or any of
the other agreements, instruments or documents executed in connection with the
exercise of the authority granted to the Adviser herein to act on behalf of the
Corporation, or the taking of any action under or in connection with any of the
foregoing. The obligations of the Corporation under this paragraph shall survive
the termination of this Limited Power of Attorney with respect to actions taken
by the Adviser on behalf of the Corporation during the term of this Limited
Power of Attorney. No Fund shall have any joint or several obligation with any
other Fund to reimburse or indemnify an Indemnified Party for any action, event,
matter or occurrence performed or omitted by or on behalf of the Adviser in its
capacity as agent or attorney-in-fact of Corporation acting on behalf of any
other Fund hereunder.
Any person, partnership, corporation or other legal entity dealing with
the Adviser in its capacity as attorney-in-fact hereunder for the Corporation is
hereby expressly put on notice that the Adviser is acting solely in the capacity
as an agent of the Corporation and that any such person, partnership,
corporation or other legal entity must look solely to the Corporation in
question for enforcement of any claim against the Corporation, as the Adviser
assumes no personal liability whatsoever for obligations of the Corporation
entered into by the Adviser in its capacity as attorney-in-fact for the
Corporation.
Each person, partnership, corporation or other legal entity which deals
with a Fund of the Corporation through the Adviser in its capacity as agent and
attorney-in-fact of the Corporation, is hereby expressly put on notice (i) that
all persons or entities dealing with the Corporation must look solely to the
assets of the Fund of the Corporation on whose behalf the Adviser is acting
pursuant to its powers hereunder for enforcement of any claim against the
Corporation, as the directors, officers and/or agents of such Corporation, the
shareholders of the various classes of shares of the Corporation and the other
Funds of the Corporation assume no personal liability whatsoever for obligations
entered into on behalf of such Fund of the Corporation, and (ii) that the
rights, liabilities and obligations of any one Fund are separate and distinct
from those of any other Fund of the Corporation.
The execution of this Limited Power of Attorney by the Corporation
acting on behalf of the several Funds shall not be deemed to evidence the
existence of any express or implied joint undertaking or appointment by and
among any or all of the Funds. Liability for or recourse under or upon any
undertaking of the Adviser pursuant to the power or authority granted to the
Adviser under this Limited Power of Attorney under any rule of law, statute or
constitution or by the enforcement of any assessment or penalty or by legal or
equitable proceedings or otherwise shall be limited only to the assets of the
Fund of the Corporation on whose behalf the Adviser was acting pursuant to the
authority granted hereunder.
The Corporation hereby agrees that no person, partnership, corporation
or other legal entity dealing with the Adviser shall be bound to inquire into
the Adviser's power and authority hereunder and any such person, partnership,
corporation or other legal entity shall be fully protected in relying on such
power or authority unless such person, partnership, corporation or other legal
entity has received prior written notice from the Corporation that this Limited
Power of Attorney has been revoked. This Limited Power of Attorney shall be
revoked and terminated automatically upon the cancellation or termination of the
Investment Advisory Contract between the Corporation and the Adviser. Except as
provided in the immediately preceding sentence, the powers and authorities
herein granted may be revoked or terminated by the Corporation at any time
provided that no such revocation or termination shall be effective until the
Adviser has received actual notice of such revocation or termination in writing
from the Corporation.
This Limited Power of Attorney constitutes the entire agreement between
the Corporation and the Adviser, may be changed only by a writing signed by both
of them, and shall bind and benefit their respective successors and assigns;
provided, however, the Adviser shall have no power or authority hereunder to
appoint a successor or substitute attorney in fact for the Corporation.
This Limited Power of Attorney shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to principles of conflicts of laws. If any provision hereof, or any power or
authority conferred upon the Adviser herein, would be invalid or unexercisable
under applicable law, then such provision, power or authority shall be deemed
modified to the extent necessary to render it valid or exercisable while most
nearly preserving its original intent, and no provision hereof, or power or
authority conferred upon the Adviser herein, shall be affected by the invalidity
or the non-exercisability of another provision hereof, or of another power or
authority conferred herein.
This Limited Power of Attorney may be executed in as many identical
counterparts as may be convenient and by the different parties hereto on
separate counterparts. This Limited Power of Attorney shall become binding on
the Corporation when the Corporation shall have executed at least one
counterpart and the Adviser shall have accepted its appointment by executing
this Limited Power of Attorney. Immediately after the execution of a counterpart
original of this Limited Power of Attorney and solely for the convenience of the
parties hereto, the Corporation and the Adviser will execute sufficient
counterparts so that the Adviser shall have a counterpart executed by it and the
Corporation, and the Corporation shall have a counterpart executed by the
Corporation and the Adviser. Each counterpart shall be deemed an original and
all such taken together shall constitute but one and the same instrument, and it
shall not be necessary in making proof of this Limited Power of Attorney to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Corporation has caused this Limited Power of
Attorney to be executed by its duly authorized officer as of the date first
written above.
World Investment Series, Inc.
By: /s/John W. McGonigle
Name: John W. McGonigle
Title: Executive Vice President
Accepted and agreed to this 7th day of January, 1999
Federated Global Investment Management Corp.
By: /s/J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
<PAGE>
Schedule 1
to Limited Power of Attorney
dated as of January 7, 1999
by World Investment Series, Inc.
(the Corporation "), acting on
behalf of each of the series portfolios
listed below, and appointing
Federated Global Investment Management Corp.
the attorney-in-fact of the
Corporation
List of Series Portfolios
Federated Asia Pacific Growth Fund
Federated Emerging Markets Fund
Federated European Growth Fund
Federated Global Equity Income Fund
Federated Global Financial Services Fund
Federated International Growth Fund
Federated International High Income Fund
Federated International Small Company Fund
Federated Latin American Growth Fund
Federated World Utility Fund
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> FEDERATED ASIA PACIFIC GROWTH FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 9,908,964
<INVESTMENTS-AT-VALUE> 11,269,243
<RECEIVABLES> 554,820
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,919
<TOTAL-ASSETS> 11,851,982
<PAYABLE-FOR-SECURITIES> 508,141
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 236,378
<TOTAL-LIABILITIES> 744,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,589,852
<SHARES-COMMON-STOCK> 990,904
<SHARES-COMMON-PRIOR> 934,555
<ACCUMULATED-NII-CURRENT> (112,969)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,732,243)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,362,823
<NET-ASSETS> 6,344,823
<DIVIDEND-INCOME> 123,645
<INTEREST-INCOME> 40,204
<OTHER-INCOME> 0
<EXPENSES-NET> (238,402)
<NET-INVESTMENT-INCOME> (74,553)
<REALIZED-GAINS-CURRENT> (5,092,522)
<APPREC-INCREASE-CURRENT> 2,916,524
<NET-CHANGE-FROM-OPS> (2,250,551)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,537,695
<NUMBER-OF-SHARES-REDEEMED> (1,481,346)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (306,648)
<ACCUMULATED-NII-PRIOR> (8,294)
<ACCUMULATED-GAINS-PRIOR> (1,742,587)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 122,689
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 659,758
<AVERAGE-NET-ASSETS> 6,944,136
<PER-SHARE-NAV-BEGIN> 7.810
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> (1.360)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.400
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> FEDERATED ASIA PACIFIC GROWTH FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 9,908,964
<INVESTMENTS-AT-VALUE> 11,269,243
<RECEIVABLES> 554,820
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,919
<TOTAL-ASSETS> 11,851,982
<PAYABLE-FOR-SECURITIES> 508,141
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 236,378
<TOTAL-LIABILITIES> 744,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,589,852
<SHARES-COMMON-STOCK> 660,013
<SHARES-COMMON-PRIOR> 466,458
<ACCUMULATED-NII-CURRENT> (112,969)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,732,243)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,362,823
<NET-ASSETS> 4,154,290
<DIVIDEND-INCOME> 123,645
<INTEREST-INCOME> 40,204
<OTHER-INCOME> 0
<EXPENSES-NET> (238,402)
<NET-INVESTMENT-INCOME> (74,553)
<REALIZED-GAINS-CURRENT> (5,092,522)
<APPREC-INCREASE-CURRENT> 2,916,524
<NET-CHANGE-FROM-OPS> (2,250,551)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,179,297
<NUMBER-OF-SHARES-REDEEMED> (985,742)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (306,648)
<ACCUMULATED-NII-PRIOR> (8,294)
<ACCUMULATED-GAINS-PRIOR> (1,742,587)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 122,689
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 659,758
<AVERAGE-NET-ASSETS> 3,678,618
<PER-SHARE-NAV-BEGIN> 7.730
<PER-SHARE-NII> (0.070)
<PER-SHARE-GAIN-APPREC> (1.370)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> FEDERATED ASIA PACIFIC GROWTH FUND - CLASS C
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
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<DIVIDEND-INCOME> 123,645
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<EXPENSES-NET> (238,402)
<NET-INVESTMENT-INCOME> (74,553)
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<NUMBER-OF-SHARES-SOLD> 681,864
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<NET-CHANGE-IN-ASSETS> (306,648)
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<PER-SHARE-NAV-BEGIN> 7.740
<PER-SHARE-NII> (0.080)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> FEDERATED EUROPEAN GROWTH FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
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<NET-ASSETS> 40,542,955
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<EXPENSES-NET> (912,810)
<NET-INVESTMENT-INCOME> 8,236
<REALIZED-GAINS-CURRENT> 2,230,667
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (29,363)
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<GROSS-EXPENSE> 1,194,438
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<PER-SHARE-NAV-BEGIN> 13.330
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 2.840
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> FEDERATED EUROPEAN GROWTH FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
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<SHARES-COMMON-STOCK> 1,159,450
<SHARES-COMMON-PRIOR> 438,673
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 17,952,299
<DIVIDEND-INCOME> 778,606
<INTEREST-INCOME> 142,440
<OTHER-INCOME> 0
<EXPENSES-NET> (912,810)
<NET-INVESTMENT-INCOME> 8,236
<REALIZED-GAINS-CURRENT> 2,230,667
<APPREC-INCREASE-CURRENT> 3,436,370
<NET-CHANGE-FROM-OPS> 5,675,273
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<NUMBER-OF-SHARES-SOLD> 1,811,616
<NUMBER-OF-SHARES-REDEEMED> (1,104,050)
<SHARES-REINVESTED> 13,211
<NET-CHANGE-IN-ASSETS> 37,364,521
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (29,363)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 441,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,194,438
<AVERAGE-NET-ASSETS> 11,511,871
<PER-SHARE-NAV-BEGIN> 13.180
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 2.720
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 043
<NAME> FEDERATED EUROPEAN GROWTH FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 56,938,955
<INVESTMENTS-AT-VALUE> 62,000,796
<RECEIVABLES> 2,133,245
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 32,530
<TOTAL-ASSETS> 64,166,571
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<SHARES-COMMON-STOCK> 157,289
<SHARES-COMMON-PRIOR> 58,386
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 2,238,589
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,061,815
<NET-ASSETS> 2,426,396
<DIVIDEND-INCOME> 778,606
<INTEREST-INCOME> 142,440
<OTHER-INCOME> 0
<EXPENSES-NET> (912,810)
<NET-INVESTMENT-INCOME> 8,236
<REALIZED-GAINS-CURRENT> 2,230,667
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<NUMBER-OF-SHARES-SOLD> 1,284,262
<NUMBER-OF-SHARES-REDEEMED> (1,186,882)
<SHARES-REINVESTED> 1,523
<NET-CHANGE-IN-ASSETS> 37,364,521
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 775,346
<OVERDISTRIB-NII-PRIOR> (29,363)
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,194,438
<AVERAGE-NET-ASSETS> 1,650,344
<PER-SHARE-NAV-BEGIN> 13.150
<PER-SHARE-NII> 0.000
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> FEDERATED EMERGING MARKETS FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 46,984,796
<INVESTMENTS-AT-VALUE> 47,015,410
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<ASSETS-OTHER> 0
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<SENIOR-LONG-TERM-DEBT> 0
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<SHARES-COMMON-STOCK> 3,810,103
<SHARES-COMMON-PRIOR> 4,165,840
<ACCUMULATED-NII-CURRENT> (4,006)
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<ACCUMULATED-NET-GAINS> (25,401,984)
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<NET-ASSETS> 32,002,171
<DIVIDEND-INCOME> 1,704,070
<INTEREST-INCOME> 54,311
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<EXPENSES-NET> (1,718,856)
<NET-INVESTMENT-INCOME> 39,525
<REALIZED-GAINS-CURRENT> (22,632,585)
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<NET-CHANGE-IN-ASSETS> (27,643,798)
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<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> (3.270)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> FEDERATED EMERGING MARKETS FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 46,984,796
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<EXPENSES-NET> (1,718,856)
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<NUMBER-OF-SHARES-REDEEMED> (717,998)
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<NET-CHANGE-IN-ASSETS> (27,643,798)
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<PER-SHARE-NAV-BEGIN> 11.500
<PER-SHARE-NII> (0.080)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> FEDERATED EMERGING MARKETS FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<INVESTMENTS-AT-COST> 46,984,796
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<NET-CHANGE-IN-ASSETS> (27,643,798)
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<PER-SHARE-NAV-BEGIN> 11.500
<PER-SHARE-NII> (0.090)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 009
<NAME> FEDERATED GLOBAL EQUITY INCOME FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 17,993,119
<INVESTMENTS-AT-VALUE> 18,952,304
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<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 19,389
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 959,431
<NET-ASSETS> 18,858,300
<DIVIDEND-INCOME> 13,263
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<NET-INVESTMENT-INCOME> 7,658
<REALIZED-GAINS-CURRENT> 21,907
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<NUMBER-OF-SHARES-SOLD> 1,787,143
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<NET-CHANGE-IN-ASSETS> 18,858,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 105,355
<AVERAGE-NET-ASSETS> 18,097,927
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.010
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<PER-SHARE-NAV-END> 10.550
<EXPENSE-RATIO> 2.00
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> FEDERATED GLOBAL EQUITY INCOME FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 17,993,119
<INVESTMENTS-AT-VALUE> 18,952,304
<RECEIVABLES> 12,109
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,230
<TOTAL-ASSETS> 18,967,643
<PAYABLE-FOR-SECURITIES> 18,450
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,869,515
<SHARES-COMMON-STOCK> 10
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 19,389
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,176
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<ACCUM-APPREC-OR-DEPREC> 959,431
<NET-ASSETS> 106
<DIVIDEND-INCOME> 13,263
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<PER-SHARE-NAV-BEGIN> 0.000
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 093
<NAME> FEDERATED GLOBAL EQUITY INCOME FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 17,993,119
<INVESTMENTS-AT-VALUE> 18,952,304
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 10
<SHARES-COMMON-PRIOR> 10
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 959,431
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<PER-SHARE-NAV-BEGIN> 0.000
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> FEDERATED GLOBAL FINANCIAL SERVICES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
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<INVESTMENTS-AT-VALUE> 6,439,517
<RECEIVABLES> 427,402
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<SENIOR-LONG-TERM-DEBT> 0
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<SHARES-COMMON-PRIOR> 33
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 986,460
<NET-ASSETS> 4,094,184
<DIVIDEND-INCOME> 12,596
<INTEREST-INCOME> 10,832
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<APPREC-INCREASE-CURRENT> 986,460
<NET-CHANGE-FROM-OPS> 1,032,614
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<NUMBER-OF-SHARES-SOLD> 562,999
<NUMBER-OF-SHARES-REDEEMED> (221,423)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,347,247
<ACCUMULATED-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 4,727,171
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.010
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> FEDERATED GLOBAL FINANCIAL SERVICES FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 5,453,090
<INVESTMENTS-AT-VALUE> 6,439,517
<RECEIVABLES> 427,402
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<SHARES-COMMON-PRIOR> 25
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 986,460
<NET-ASSETS> 1,910,700
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<INTEREST-INCOME> 10,832
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<NET-INVESTMENT-INCOME> 7,002
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<APPREC-INCREASE-CURRENT> 986,460
<NET-CHANGE-FROM-OPS> 1,032,614
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 159,648
<NUMBER-OF-SHARES-REDEEMED> (179)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,347,247
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.000
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 103
<NAME> FEDERATED GLOBAL FINANCIAL SERVICES FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 5,453,090
<INVESTMENTS-AT-VALUE> 6,439,517
<RECEIVABLES> 427,402
<ASSETS-OTHER> 0
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<SENIOR-LONG-TERM-DEBT> 0
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<SHARES-COMMON-STOCK> 28,650
<SHARES-COMMON-PRIOR> 25
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 46,154
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 986,460
<NET-ASSETS> 343,188
<DIVIDEND-INCOME> 12,596
<INTEREST-INCOME> 10,832
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<EXPENSES-NET> 16,426
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<REALIZED-GAINS-CURRENT> 39,152
<APPREC-INCREASE-CURRENT> 986,460
<NET-CHANGE-FROM-OPS> 1,032,614
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<NUMBER-OF-SHARES-SOLD> 30,948
<NUMBER-OF-SHARES-REDEEMED> (2,323)
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<NET-CHANGE-IN-ASSETS> 6,347,247
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 153,559
<PER-SHARE-NAV-BEGIN> 10.000
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> FEDERATED INTERNATIONAL GROWTH FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 27,584,036
<INVESTMENTS-AT-VALUE> 28,728,076
<RECEIVABLES> 52,308
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 96,296
<TOTAL-ASSETS> 28,876,680
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 70,517
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<PAID-IN-CAPITAL-COMMON> 32,544,106
<SHARES-COMMON-STOCK> 2,319,029
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,881,983)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,144,040
<NET-ASSETS> 19,440,117
<DIVIDEND-INCOME> 118,722
<INTEREST-INCOME> 26,167
<OTHER-INCOME> 0
<EXPENSES-NET> 83,840
<NET-INVESTMENT-INCOME> 61,049
<REALIZED-GAINS-CURRENT> (4,808,525)
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<NUMBER-OF-SHARES-SOLD> 2,050,819
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<AVERAGE-NET-ASSETS> 16,179,242
<PER-SHARE-NAV-BEGIN> 8.730
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> (0.330)
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> FEDERATED INTERNATIONAL GROWTH FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 27,584,036
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 96,296
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<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 32,544,106
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<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 83,840
<NET-INVESTMENT-INCOME> 61,049
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<NUMBER-OF-SHARES-SOLD> 583,808
<NUMBER-OF-SHARES-REDEEMED> (176,735)
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 7,619,790
<PER-SHARE-NAV-BEGIN> 8.710
<PER-SHARE-NII> (0.020)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 083
<NAME> FEDERATED INTERNATIONAL GROWTH FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 27,584,036
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<PAID-IN-CAPITAL-COMMON> 32,544,106
<SHARES-COMMON-STOCK> 138,445
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<NET-CHANGE-IN-ASSETS> 12,528,183
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<PER-SHARE-NII> (0.020)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> FEDERATED INTERNATIONAL HIGH INCOME FUND - CLASS A
<S> <C>
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<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
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<PER-SHARE-NAV-BEGIN> 9.500
<PER-SHARE-NII> 0.940
<PER-SHARE-GAIN-APPREC> (1.490)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 007
<NAME> FEDERATED INTERNATIONAL HIGH INCOME FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 101,358,522
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 008
<NAME> FEDERATED INTERNATIONAL HIGH INCOME FUND - CLASS C
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> FEDERATED INTERNATIONAL SMALL COMPANY FUND - CLASS A
<S> <C>
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<PERIOD-END> NOV-30-1998
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 052
<NAME> FEDERATED INTERNATIONAL SMALL COMPANY FUND - CLASS B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 053
<NAME> FEDERATED INTERNATIONAL SMALL COMPANY FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> NOV-30-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> FEDERATED LATIN AMERICAN GROWTH FUND - CLASS A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 062
<NAME> FEDERATED LATIN AMERICAN GROWTH FUND - CLASS B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 063
<NAME> FEDERATED LATIN AMERICAN GROWTH FUND - CLASS C
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<NUMBER> 011
<NAME> FEDERATED WORLD UTILITY FUND - CLASS A
<S> <C>
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<TABLE> <S> <C>
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<NAME> FEDERATED WORLD UTILITY FUND - CLASS B
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 013
<NAME> FEDERATED WORLD UTILITY FUND - CLASS C
<S> <C>
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</TABLE>
