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. ....................
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Post-Effective Amendment No. 19 .................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 20 ................................... 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
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) on ________________ pursuant
to paragraph (b)(1)(v) 60 days after filing pursuant to paragraph (a)(i) X MARCH
31, 2000 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 Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
March 31, 2000
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 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:
CURRENCY RISKS
Because the exchange rates for currencies fluctuate daily, prices of the foreign
securities in which the Fund invests are more volatile than prices of securities
traded exclusively in the U.S.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly or over a sustained period
of time.
RISKS OF FOREIGN INVESTING
Because the Fund invests in securities issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be
the case.
EMERGING MARKETS RISK
The Fund invests in emerging as well as developed markets in Asia and the
Pacific Rim. Countries in emerging markets can have relatively unstable
government economies based on only a few industries, and securities markets that
trade a small number of issues.
LIQUIDITY RISKS
Non-U.S. securities may trade on small exchanges less well regulated than
U.S. exchanges, may be more difficult to buy or sell on a particular day and may
be more volatile than U.S. 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
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Asia Pacific Growth Fund Class A Shares as of
the calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "-40.00%" and
increasing in increments of 20.00%% up to 140.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features three 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 Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1997
through 1999, The percentages noted are: (26.97%), (7.36%), and 128.24%.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 34.26% (quarter ended December 31, 1999). Its lowest
quarterly return was (25.93)% (quarter ended December 31, 1997).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns , reduced to reflect applicable
sales charges, for the calendar periods ended December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to the Morgan
Stanley Capital International Asia Pacific Index (MSCI-AP), a broad-based market
index The MSCI-AP is a market value-weighted average of the performance of
securities listed on the stock exchange of 13 countries in the Pacific and Asian
regions. Total returns for the index shown do not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
CALENDAR PERIOD CLASS A CLASS B CLASS C MSCI-AP
SHARES SHARES SHARES
1 Year 115.56% 120.85% 125.08% 57.86%
Start of 10.48% 10.78% 11.45% 1.19%
Performance1
1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was February 28, 1996. Past performance does not necessarily
predict future performance. This information provides you with historical
performance information so that you can analyze whether the Fund's investment
risks are balanced by its potential returns.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED ASIA PACIFIC FUND
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as 5.50% None None a
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage 0.00% 5.50% 1.00% of original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, None None None if
applicable) Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Rembursements)(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) 2.40% 2.40% 2.40%
Total Annual Fund Operating Expenses 4.00% 4.50%(54.50%
1 Although not contractually obligated to do so, the adviser waived and
reimbursed 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, 1999.
Waivers and Reimbursements of Fund Expenses 2.15% 1.90% 1.90%
Total Actual Annual Fund Operating Expenses (after 1.85% 2.60% 2.60%
waivers and reimbursements )
2 The adviser voluntarily waived 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 fiscal year ended November 30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) services fee
during the fiscal year ended November 30, 1999.
Class A Shares has no present intention of paying or accruing the
distribution (12b-1) services fee during the fiscal year ended
November 30, 2000.
4 The adviser voluntarily reimbursed certain operating expense 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 1.60% for
the fiscal year ended November 30, 1999.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses )
approximately eight years after purchse.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and C Shares operating expenses are BEFORE WAIVERS AND
REIMBURSEMENTS 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:
SHARE CLASS 1 3 YEARS 5 10
YEAR YEARS YEARS
CLASS A
Expenses assuming $930 $1,701 $2,488 $4,525
redemption
Expenses assuming no $930 $1,701 $2,488 $4,525
redemption
CLASS B
Expenses assuming $1,001 $1,760 $2,478 $4,514
redemption
Expenses assuming no $451 $1,360 $2,278 $4,514
redemption
CLASS C
Expenses assuming $551 $1,360 $2,278 $4,614
redemption
Expenses assuming no $451 $1,360 $2,278 $4,614
redemption
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.
The Fund is intended to provide regional exposure for a specific asset class. It
acts as the Asian and Pacific Rim component to an international equity
portfolio. In selecting the countries in which to invests, 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 then analyzes companies located in each particular country.
In selecting investments for the portfolio 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 representative, 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. A stock is typically sold when, in the opinion of
the portfolio manager, (i) the stock has reached its fair market value, (ii) the
company's fundamentals have deteriorated or (iii) the Fund's portfolio is too
heavily weighted in a particular industry or sector.
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 and shorter-term 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 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. Equity securities represent a share of an issuer's earnings and
assets, after the issuer pays its liabilities. The Fund cannot predict the
income it will receive from equity securities because issuers generally have
discretion as to the payment of any dividends or distributions. However, equity
securities offer greater potential for appreciation than many other types of
securities, because their value increases directly with the value of the
issuer's business. The following describes the types of equity securities in
which the Fund may invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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. Although it has historically not done so, 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?
CURRENCY RISKS
o 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,
diversifcation will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
STOCK MARKET RISKS
o 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's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.
RISKS OF FOREIGN INVESTING
o 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.
o 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.
o 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.
o Legal remedies available to investors in certain foreign countries may be
more limited than those available with respect to investments in the U.S. or
in other foreign countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers organized under the
laws of those foreign countries.
o
EMERGING MARKET RISKS
o 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund generally values equity securities
according to the last sale price in the market in which they are primarily
traded (either a national securities exchange or the over-the-counter market).
The Fund's current NAV and public offering price may be found in the mutual
funds section of 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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
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.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a
money market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of
another Federated Fund. You must meet the minimum initial investment requirement
for purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through
a depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans
and IRAs or transfer or rollover of assets). Call your investment professional
or the Fund for information on retirement investments. We suggest that you
discuss retirement investments with your tax adviser. You may be subject to an
annual IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional
by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o 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:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o 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:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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 Class A 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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 Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
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.
HENRY J. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 until 1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
FEDERATED ASIA PACIFIC GROWTH FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Funds and their investments is contained in the Fund's SAI and Annual and
Semi-Annual Report to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
INVESTMENT COMPANY ACT FILE NO. 811-7141
CUSIP 31428U102
CUSIP 31428U201
CUSIP 31428U300
G01470-02 (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED ASIA PACIFIC GROWTH FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
G01470-03 (31/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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 classes of 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
additional securities, not described in the prospectus, for any purpose that is
consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
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.
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.
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 generally have less potential for gain or loss than
common stocks. Convertible securites generally provide yields higher than the
underlying common stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
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:
o Buy call options on foreign currencies, securities, securities indices and
future contracts in anticipation of an increase in the value of the
underlying asset; and
o Buy put options on foreign currencies, securities, securities indices and
futures contracts in anticipation of a decrease in the value of the
underlying asset.
The Fund may also write call options on foreign currencies, securities indices,
and future contracts to generate income from premiums, and in anticipation of a
decrease or only limited increase in the value of the underlying asset. If a
call written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the exercise
price plus the premium received.
The Fund may also write put options on foreign currencies, securities indices
and future contracts to generate income from premiums, and in anticipation of an
increase or only limited decrease in the value of the underlying asset. 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.
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 interest rate 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 interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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 interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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.
BOND MARKET RISKS
o 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.
o 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.
LIQUIDITY RISKS
o 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.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security, and the Fund could incur losses.
LEVERAGE RISKS
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
CREDIT RISKS
o 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.
o 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.
o 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.
o 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
o 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.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
The Fund's Investment objective is to provide long-term growth of capital
INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of purchase
under normal market conditions and are based on a percentage of the Fund's net
assets unless otherwise noted.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitations
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration".
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly fashion.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisitions, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and repurchase agreements collateralized by such U.S.
government securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested in 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.
BUYING SECURITIES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN 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.
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o 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
o 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(To be filed by amendment).
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.
(To be filed by amendment).
<TABLE>
<CAPTION>
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NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 4354 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: Fund Complex; Director, Member of for the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 4354 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
conduits/computer storage equipment); companies
DIRECTOR formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $128,455.37125,264.48
Birth Date: June Fund Complex; President, Investment for the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 4354 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
CorporationWood/Commerventures in Southwest Florida; in the Fund
Dept. formerly: President, Naples Property Complex
John R. Wood Management, Inc. and Northgate Village
Associates, Inc. Development Corporation.
Realtors
3201255 Tamiami
Trail North
Naples, FL
DIRECTOR
- ---------------------
NICHOLAS Director or Trustee of the Federated $1,514.23 $73,191.247,958.02
CONSTANTAKIS Fund Complex; Director, Michael Baker for the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 3729 other
175 Woodshire Drive services);formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- ---------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $93,190.480 for
Birth Date: March Federated Fund Complex; Chairman, the
5, 1943 President and Chief Executive Officer, Corporation and
353 El Brillo Way Cunningham & Co., Inc. (strategic 46 other
Palm Beach, FL business consulting); Trustee investment
DIRECTOR Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
M.D.* Fund Complex; Professor of Medicine, for the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 4354 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated $1,792.22 $125,264.48 for
JR., ESQ. Fund Complex; Attorney of Counsel, the
Birth Date: June Miller, Ament, Henny & Kochuba; Corporation and
18, 1924 Director Emeritus, Eat'N Park 54 other
Miller, Ament, Restaurants, Inc.; formerly: Counsel, investment
Henny & Kochuba Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund
Pittsburgh, PA Complex
DIRECTOR
- ---------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $109,153.60113,860.22
Birth Date: March Fund Complex; formerly: for the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 4354 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $102,573.910
MANSFIELD, JR.++ Federated Fund Complex; Executive for the
Birth Date: April Vice President, Legal and External Corporation and
10, 1945 Affairs, Dugan Valva Contess, Inc. 50 other
80 South Road (marketing, communications, technology investment
Westhampton Beach, and consulting); formerly Management companies
NY DIRECTOR Consultant. in the Fund
Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $128,455.37113,860.22
JR., J.D., S.J.D.# Fund Complex; President, Law for the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 4354 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: June Fund Complex; Public for the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 4354 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $94,536.850 for
Birth Date: Federated Fund Complex; President and the
November 28, 1957 Director, Heat Wagon, Inc. Corporation and
2007 Sherwood Drive (manufacturer of construction 3948 other
Valparaiso, IN temporary heaters); President and investment
DIRECTOR Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+ of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 3016 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT AND Investment Counseling; President and
DIRECTOR Director, 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
Birth Date: Funds in the Federated Fund Complex; Corporation and
October 22, 1930 President, Executive Vice President 421 other
Federated Investors and Treasurer of some of the Funds in investment
Tower the Federated Fund Complex; Vice company
1001 Liberty Avenue Chairman, Federated Investors, Inc.; in the Fund
Pittsburgh, PA Vice President, Federated Investment Complex
EXECUTIVE VICE Management Company and Federated
PRESIDENT 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
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 4354 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT AND Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- ---------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 4354 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May 17, the Funds in the Federated Fund Corporation and
1923 Complex; Director or Trustee of some 416 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
DIRECTOR* Corp.
- ---------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
- ---------------------
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 2000, JANUARY 1, 1999 AND JANUARY 1, 2000,
RESPECTIVELY.
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 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, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, Boston, Massachusetts,
plans and performs its audit so that it may provide an opinion as to whether the
Fund's financial statements and financial highlights are free of material
misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 330
Advisory Fee Earned $ $122,689 $100,152
Advisory Fee Reduction $ $122,689 $100,152
Brokerage Commissions $ $350,186 $200,241
Administrative Fee $ $185,000 $185,000
12b-1 Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
Shareholder Services Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
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.
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 are given for the one-year, five-year and Start of Performance
periods ended November 30, 1999.
Yield are given for the 30-day period ended November 30, 1999.
- -----------------
Start of
30-DAY PERIOD 1 Year 5 Years Performance on
January 25, 1994.
- -----------------
CLASS A SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
CLASS B SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
CLASS C SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1billion and $115
million, 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,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Asia Pacific Growth Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S 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.
63
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 Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
March 31, 2000
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 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 adviser uses the bottom-up approach
to stock selection.
In selecting portfolio securities, the adviser evaluates a company's financial
strength including its earnings, cash flow and growth history; its competitive
position in domestic and export markets; earnings potential. The Fund combines
its growth strategy with a strong value component. The adviser seeks to invest
in companies with above-average potential for earnings and revenue growth that
are also trading at attractive market valuations. 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 European equity securities in foreign
securities
marfluctuations in the exchange rate between the U.S. dollar and European
currencies;
o the European 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;
o the possibility that certain sectors may underperform other sectors or the
market as a whole; and
o the growth stocks in which the Fund invests are typically more volatile than
pure 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.
RISK/RETURN BAR CHART AND TABLE -
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of A SHARES of the Fund as of the calendar year-end for
each of three years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 0% up to 30%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended 1999. The light gray shaded chart features three 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 for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1997
through 1999, The percentages noted are: 17.96%, 21.66% and 27.59%.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 27.18% (quarter ended December 31, 1999). Its lowest
quarterly return was 12.36% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares and
Class C Shares Average Annual Total Returns, reduced to reflect applicable sales
charges, for the calendar periods ended 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Morgan Stanley Capital
International Europe Index (MSCI-EUROPE), a broad-based market index. The
MSCI-EUROPE is a market-value-weighted average of over 580 ssecurities listed on
the stock exchanges of over 15 countries in the European region. Total returns
for the index shown does not reflect sales charges, expenses or other fees that
the SEC requires to be reflected in the Fund's performance. This index is
unmanaged, and it is not possible to invest directly in an index.
CALENDAR PERIOD CLASS A CLASS B CLASS C MSCI-EUROPE
SHARES SHARES SHARES
1 Year 20.57% 21.11% 25.72% 15.89%
Start of 21.30% 21.71% 22.09% 23.07%
Performance1
1 THE FUND'S START OF PERFORMANCE DATE WAS FEBRUARY 28, 1996.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES? -
FEDERATED EUROPEAN GROWTH FUND
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.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT CLASS
A CLASS B CLASS 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 purchaseprice 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 PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee2...........................1.00%
1.00% 1.00%
Distribution (12b-1) Services Fee3........0.25%
0.75% 0.75%
Shareholder Services Fee ............ 0.25%
0.25% 0.25%
Other Expenses ...........................1.03%
1.03% 1.03%
Total Annual Fund Operating
Expenses 2.53%
3.03%4 3.03%
- ------------------------------------------------------------------
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, 1999.
Total Waivers of Fund Expenses
0.69% 0.44%
0.44%
Total Actual Annual Fund Operating Expenses (after waivers).......1.84
% 2.59% 2.59%
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 0.56% for the fiscal year ended November
30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) services fee
during the fiscal year ended November 30, 1999. Class A Shares has no present
intention of paying or accruing the distribution (12b-1) fee during the fiscal
year ending November 30, 2000.
4 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, B, and 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, B, and 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, B, and 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:
SHARE CLASS.......1 YEAR...... 3 YEARS 5 YEARS
- -------------------------------------------------------------
10 YEARS
CLASS A.......................
- ------------------------------
Expenses assuming
REDEMPTION........$792 $1,294
- -----------------------------------------------
$1,821 $3,258
- --------------------------------
Expenses assuming
NO REDEMPTION...........$792 $1,294
- -----------------------------------------------------
$1,821 $3,258
- --------------------------------
CLASS B.......................
- ------------------------------
Expenses assuming
REDEMPTION........$856 $1,336
- -------------------------------------------------
$1,791 $3,229
- ------------------------------
Expenses assuming
NO REDEMPTION...........$306
- ----------------------------
$936 $1,591 $3,229
- ------------------------------------------------------
CLASS C.......................
- ------------------------------
Expenses assuming
REDEMPTION $406
- ---------------------------------------
$936 $1,591 $3,346
- ------------------------------------------------------
Expenses assuming
NO REDEMPTION $306
- -------------------------------------
$936 $1,591 $3,346
- ------------------------------------------------------
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 employs a "bottom-up" approach
and attempts to identify companies with competitive positions within key sectors
of the economy. 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 the company's price to
earnings, price to cash flow, earnings before interest, taxes, depreciation and
amortization. The portfolio is weighted heavily towards large and mid-cap
stocks, which, in the opinion of the adviser, have good growth potential and
which are trading at attractive market valuations. 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 such as
telecommunications, technology, banking and insurance. A security is typically
sold when its relative fundamentals are no longer as attractive as other similar
investment opportunities available to the Fund. This may be a function of the
security having achieved a target valuation, deterioration in fundamentals
relative to the Fund's expectations, or because the adviser has lost confidence
in the company's management ability to increase the company's valuation relative
to its peers in the same 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 and shorter-term 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?
EUROPEAN SECURITIES
European equity securities are equity securities of issuers based in
Europe. The Fund considers an issuer to be in Europe if:
o it is organized under the laws of, or has a principal office located in, a
European country;
o the principal trading market for its securities is a European country; or
o 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 European country.
European securities are often denominated in European currencies including the
euro. Along with the risks normally associated with domestic equity securities,
European securities are subject to currency risks and risks of foreign
investing.
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.
Common stocks are the most prevalent typed of equity security. Common stocks
receive the issuer's earnings after the issuer pays it creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its commons stock.
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stocks. Some preferred stocks
also participate in dividends and distributions paid on common stocks. Preferred
stocks may also permit the issuer to reclaim the stock.
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 European
security, or to convert European currency received from the sale of a European
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.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
EUROPEAN MONETARY UNION
On January 1, 1999, eleven European countries adopted a single currency-the
euro. The conversion to the euro is being phased in over a three-year period.
During this time, valuation, systems and other operational problems may occur in
connection with the Fund's investments quoted in the euro. Participating
countries will share a single currency and single official interest rate and
adhere to agreed upon limits on government borrowing. Budgetary decisions will
remain in the hands of each participating country, but will be subject to each
country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. European Central Bank is responsible for setting the
official interest rate to maintain price stability within the Euro Zone.
The European Monetary Union (EMU) was formed with the expectation of a number of
economic benefits including lower transaction costs, reduced exchange risk,
greater competition and a broadening and deepening of European financial
markets. However, there are a number of significant risks associated with the
EMU. Monetary and economic union on this scale has never been attempted before.
There is a significant degree of uncertainty as to whether participating
countries will remain committed to the EMU in the face of challenging economic
conditions. This uncertainty may increase the volatility of European markets.
STOCK MARKET RISKS
o The value of equity securities in the Fund's portfolio will rise and fall.
These price movements may result from factors affecting individual companies,
industries or the securities markets as a whole. These fluctuations could be
a sustained trend or a drastic movement. As a result, the Fund's portfolio
will reflect changes in prices of individual portfolio stocks or general
changes in stock valuations, and the Fund's share price may decline and you
could lose money.
o 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
o 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.
o The Fund makes significant investments in securities denominated in the euro,
the new single currency of the European Monetary Union . 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
o European securities pose additional risks because European economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections. The Fund
may have difficulty voting proxies, exercising shareholder rights, pursuing
legal remedies and obtaining and enforcing judgments in European courts.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o European companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. European companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, European
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 European companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
o European 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.
The adviser manages these risks by generally investing in highly liquid
securities of companies with large capitalizations. In addition, the adviser
seeks investments with relatively low valuations within its sector as well as a
strong potential for growth.
WHAT DO SHARES COST?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund generally values equity securities according to the last sale price in
the market in which they are primarily traded (either a national securities
exchange or the over-the-counter market).
The Fund's current NAV and public offering price may be found in the mutual
funds section of 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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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 If your investment
qualifies for a reduction or elimination of the sales charge as described below,
you or your investment professional should notify the Fund's Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
o within 120 days of redeeming Shares of an equal or lesser amount;
o when the Fund's Distributor does not advance payment to the investment
professional for your purchase;
o by exchanging shares from the same share class of another Federated Fund;
o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its
affiliates to purchase shares without a sales charge; or
o through investment professionals that receive no portion of the sales
charge.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
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.
If your investment qualifies for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a
money market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares described in
this prospectus to institutions or to individuals, directly or through
investment professionals.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A, B and C 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o 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.
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
o Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o 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:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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 Class A 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
FRANK SEMACK
Frank Semack has been a portfolio manager of the 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. Mr. Semack received his M.Sc. in
economics from the London School of Economics.
HENRY A. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992-1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
FEDERATED EUROPEAN GROWTH FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No.811-7141
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STATEMENT OF ADDITIONAL INFORMATION
FEDERATED EUROPEAN GROWTH FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
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G01469-02 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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. On March 31, 2000, the
Corporation changed its name from World Investment Series, Inc. to Federated
World Investment Series, Inc.
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 classes of 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
additional securities for any purpose that is consistent with its investment
objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
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.
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 are a speculative
instrument. The value of a warrant may decline because of a decrease in the
value of the underlying stock, the passage of time or a change in perception as
to the potential of the underlying stock, or any combination thereof. If the
market price of the underlying stock is below the exercise price set forth in
the warrant on the exercise date, the warrant will expire worthless. Warrants
issued by European companies generally are freely transferable and are generally
traded on one or more of the major European stock exchanges. 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.
In selecting fixed income securities for the Fund, the adviser gives
primary consideration to the Fund's investment objective, the attractiveness of
the market for debt securities given the adviser's outlook for the equity
markets and the Fund's liquidity requirements. Once the adviser determines to
allocate a portion of the Fund's assets to debt securities, the adviser
generally focuses on short-term instruments to provide liquidity and may invest
in a range of fixed income securities if the Fund is investing in such
instruments for income or capital gains. The adviser selects individual
securities based on macroeconomic and issuer specific factors including the
terms of the securities (such as yields compared to the U.S. Treasuries or
comparable issues), liquidity and rating, sector and issuer diversification. 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, but they rank senior to common stocks in an issuer's capital
structure and consequently may be of higher quality and entail less risk than
the issuer's common stock. 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.
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:
o Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and
o 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.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
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.
RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
o 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.
o 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
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
LIQUIDITY RISKS
o 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.
o 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.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS RELATED TO COMPANY SIZE
o 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.
o 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
o 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.
o 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
o 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.
o 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.
o 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.
o 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
o 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
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide long-term growth of capital. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
DIVERSIFICATION
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.
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
CONCENTRATION
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
For purposes of this restriction, the term concentration has the meaning set
forth in the 1940 Act, any rule or order thereunder, or any SEC staff
interpretation thereof. Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
CONCENTRATION
In applying the concentration restriction: (a) utility companies will be divided
according to their services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); (b) financial service
companies will be classified according to the end users of their services (for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry); and (c) asset-backed securities will be
classified according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
`concentration.'
INVESTING IN COMMODITIES
Investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
PURCHASES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets.
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." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
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;
o for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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; and
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(TO BE FILED BY AMENDMENT.)
As of March ____, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: [Name & Address of
Shareholder, % and Name of Share Class Owned.]
IF ANY SHAREHOLDER OWNS 25% OR MORE, INCLUDE THE FOLLOWING:
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 ten 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 ___, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B and C Shares.
<TABLE>
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NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------
- ---------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 54 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
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THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: Fund Complex; Director, Member of the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 54 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
DIRECTOR conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $125,264.48 for
Birth Date: June Fund Complex; President, Investment the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 54 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
DIRECTOR
- ---------------------
NICHOLAS P. Director or Trustee of the Federated $1,514.23 $47,958.02 for
CONSTANTAKIS Fund Complex; Director, Michael Baker the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 29 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- ---------------------
WILLIAM J. COPELAND Director or Trustee of the Federated $1,806.12 $125,264.48 for
Birth Date: July 4, Fund Complex; Director and Member of the
1918 the Executive Committee, Michael Baker Corporation and
One PNC Plaza-23rd Corp. (engineering, construction, 54 other
Floor operations, and technical services); investment
Pittsburgh, PA Chairman, Pittsburgh Foundation; companies
DIRECTOR Director, Forbes Fund (philanthropy); in the Fund
formerly: Vice Chairman and Director, Complex
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; Chairman, Health Systems Agency
of Allegheny County; Vice President,
United Way of Allegheny County;
President, St. Clair Hospital;
Director, Allegheny Hospital.
- ---------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $0 for the
Birth Date: March Federated Fund Complex; Chairman, Corporation and
5, 1943 President and Chief Executive Officer, 46 other
353 El Brillo Way Cunningham & Co., Inc. (strategic investment
Palm Beach, FL business consulting); Trustee companies
DIRECTOR Associate, Boston College; Director, in the Fund
Iperia Corp. Complex
(communications/software); formerly:
Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $113,860.22 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 54 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $113,860.22 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 54 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $0 for the
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice Corporation and
Birth Date: April President, Legal and External Affairs, 50 other
10, 1945 Dugan Valva Contess, Inc. (marketing, investment
80 South Road communications, technology and companies
Westhampton Beach, consulting).; formerly Management in the Fund
NY DIRECTOR Consultant. Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $113,860.22 for
JR., J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 54 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: June Fund Complex; Public the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $0 for the
Birth Date: Federated Fund Complex; President and Corporation and
November 28, 1957 Director, Heat Wagon, Inc. 48 other
2007 Sherwood Drive (manufacturer of construction investment
Valparaiso, IN temporary heaters); President and companies
DIRECTOR Director, Manufacturers Products, Inc. in the Fund
(distributor of portable construction Complex
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+* of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 16 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT and Investment Counseling; President and
DIRECTOR Director, 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
Birth Date: Funds in the Federated Fund Complex; Corporation and
October 22, 1930 President, Executive Vice President 1 other
Federated Investors and Treasurer of some of the Funds in investment
Tower the Federated Fund Complex; Vice company
1001 Liberty Avenue Chairman, Federated Investors, Inc.; in the Fund
Pittsburgh, PA Vice President, Federated Investment Complex
EXECITIVE VICE Management Company and Federated
PRESIDENT 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
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 54 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECITIVE VICE Federated Global Investment Management
PRESIDENT Corp, Federated Services Company and
Federated Securities Corp.
- ---------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 54 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May the Funds in the Federated Fund Corporation and
17, 1923 Complex; Director or Trustee of some 6 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
PRESIDENT Corp.
- ---------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.
# A POUND SIGN DENOTES A MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH
HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE ,EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MR. MANSFIELD BECAME A MEMBER OF THE BOARD OF DIRECTORS ON JANUARY 1,
1999. MESSRS. CUNNINGHAM AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON
DECEMBER 7, 1999. THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE
THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. MESSRS.
CUNNINGHAM AND WALSH DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE
COMPANY.
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 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, 1999, the Funds' Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the
Funds paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
NOVEMBER 30 1999 1998 1997
Advisory Fee Earned $ $4,436,654 $1,677,789
Advisory Fee Reduction $ $0 $231,231
Brokerage Commissions $ $9,125,592 $3,378,511
Administrative Fee $ $267,666 $185,588
12b-1 Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
Shareholder Services Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield is given for the 30-day period ended November 30, 1999.
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
FEBRUARY 28, 1996
- -----------------
CLASS A SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
FEBRUARY 28, 1996
- -----------------
CLASS B SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
FEBRUARY 28, 1996
- -----------------
CLASS C SHARES
- -----------------
Total Return
- -----------------
Yield
- ----------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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 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.
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. 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.
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
Including 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 managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated European Growth Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & 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.
110
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 Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
March 31, 2000
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 objectives, 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 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:
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly or over a sustained period
of time.
CURRENCY RISKS
Because the exchange rates for currencies fluctuate daily, prices of the
emerging market securities in which the Fund invests are more volatile than
prices of securities traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
Because the Fund invests in securities issued by emerging market companies, the
Fund's share price may be more affected by economic and political conditions,
taxation policies and accounting and auditing standards in those emerging market
countries than would otherwise be the case.
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
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Emerging Markets Fund Class A Shares as of the
calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "-40.00%" and
increasing in increments of 20.00%% up to 80.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features three 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 Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1997
through 1999, The percentages noted are: (1.56%), (25.02%), and 79.08%.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 42.70% (quarter ended December 31, 1999). Its lowest
quarterly return was (25.24)% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns , reduced to reflect applicable
sales charges, for the calendar periods ended December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to the
International Financial Corporation Investable Composite Index (IFCIC), a
broad-based market index The IFCIC is a market capitalization-weighted index of
over 1,000 securities in 26 emerging market countries. Total returns for the
index shown do not reflect sales charges, expenses or other fees that the SEC
requires to be reflected in the Fund's performance. Indexes are unmanaged, and
it is not possible to invest directly in an index.
CALENDAR PERIOD CLASS A CLASS B CLASS C IFCIC
SHARES SHARES SHARES
1 Year 69.15% 72.50% 76.91% 67.11%
Start of 9.97% 10.18% 10.78% 3.30%
Performance1
1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was February 28, 1996. Past performance does not necessarily
predict future performance. This information provides you with historical
performance information so that you can analyze whether the Fund's investment
risks are balanced by its potential returns.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED EMERGING MARKETS FUND
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as 5.50% None None a
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage 0.00% 5.50% 1.00% of original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, None None None if
applicable) Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Rembursements)(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 1.70 1.70% 1.70%
%
Total Annual Fund Operating Expenses 3.45% 3.95%(43.95%
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, 1999.
Waivers and Reimbursements of Fund Expenses 0.84% 0.59% 0.59%
Total Actual Annual Fund Operating Expenses (after 2.61% 3.36% 3.36%
waivers)
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 0.66% for the fiscal year ended
November 30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) services fee
during the fiscal year ended November 30, 1999.
Class A Shares has no present intention of paying or accruing the
distribution (12b-1) services fee during the fiscal year ended
November 30, 2000.
4 Class B Shares convert to Class A Shares (which pay lower ongoing expenses )
approximately eight years after purchse.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and 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:
SHARE CLASS 1 3 YEARS 5 10
YEAR YEARS YEARS
CLASS A
Expenses assuming $879 $1,551 $2,244 $4,074
redemption
Expenses assuming no $879 $1,551 $2,244 $3,074
redemption
CLASS B
Expenses assuming $947 $1,604 $2,228 $4,058
redemption
Expenses assuming no $397 $1,204 $2,028 $4,058
redemption
CLASS C
Expenses assuming $497 $1,204 $2,028 $4,164
redemption
Expenses assuming no $397 $1,204 $2,028 $4,164
redemption
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. Some of
the factors the adviser looks for in selecting investments include:
o Issuers in countries expected to have economic and market environments that
will be positive;
o Estimated market value in excess of current stock price; o Favorable
expected returns relative to perceived risk; o Low debt levels relative to
equity; o Companies expected to benefit from long-term trends in the
economy and society;
o Low market valuations relative to earnings forecast, book value, cash flow
and sales; and
o Turnaround potential for companies that have been through difficult
periods.
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 and shorter-term 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?
EMERGING MARKETS
Under normal circumstances, at least 65% of the Fund's total assets are invested
in securities of companies that are domiciled or primarily doing business I
emerging countries. For purposes of the Fund's investments, "emerging Countries"
are countries with economies or securities markets that are not considered by
the Fund's adviser to be developed and typically have gross domestic product per
capita below $10,000 per year.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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 may invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
An investment in the Fund involves a substantial degree of risk. Even though the
Fund seeks long-term capital growth, you could lose money on your investment or
not make as much as if you invested elsewhere if:
o Stock markets of emerging market countries go down or perform poorly
relative to other stock markets (this risk may be greater if you are a
short-term investor);
o Securities of emerging market issuers or value stocks fall out of favor
with investors; or
o The Fund's assets remain undervalued or do not have the potential value
initially expected.
Investing in emerging market issuers involves unique risks compared to investing
in securities of issuers in the U.S. and other developed countries. These risks
are more pronounced to the extent the Fund invests in issuers in the lesser
developed emerging markets or in any one region. These risks may include:
o The U.S. dollar may appreciate against emerging market currencies or an
emerging market government may impose restrictions on currency conversion
or trading:
o Less information about emerging market issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory
practices;
o Many emerging markets are smaller, less liquid and more volatile than
developed markets. In a changing market, the advisor may not be able to
sell the Fund's portfolio securities in amounts and at prices Federated
considers reasonable;
o Economic, political or social instability in an emerging market country or
region may significantly disrupt the principal financial markets in which
the Fund invests;
o The economies of emerging market countries may grow at slower rates than
expected or may experience a downturn or recession;
o Emerging market countries may experience rising interest rates, or, more
significantly, rapid inflation or hyperinflation;
o The Fund could experience a loss from settlement and custody practices in
some emerging markets; and
o Witholding and other non-U.S. taxes may decrease the Fund's return.
WHAT DO SHARES COST?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally
values equity securities according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market).
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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
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.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a
money market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged; and
o signatures of all shareholders exactly as registered; and
o 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:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days; or
o a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
CHRISTOPHER MATYSZEWSKI
Christopher Matyszewski has been the Fund's portfolio manager since July 1999.
Mr. Matyszewski joined Federated in 1997 as an Investment Analyst. He was named
a Portfolio Manager and an Assistant Vice President of the Adviser in July 1999.
He was a Securities Trader for Brandes Investment from September 1994 through
January 1996; he served as a Medical Mission Coordinator with Operation Smile
International from January 1993 through March 1994. Mr. Matyszewski earned his
Masters of International Management from The American Graduate School for
International Management.
HENRY J. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 until 1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
141
FEDERATED EMERGING MARKETS FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Report to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov You can purchase copies of this information by contacting the
SEC by email at [email protected]. or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for information on the
Public Reference Room's operations and copying fees.
INVESTMENT COMPANY ACT FILE NO. 811-7141
CUSIP 31428U409
CUSIP 31428U508
CUSIP 31428U607
G01472-02 (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED EMERGING MARKETS FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
G01472-03 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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 classes of 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
The prospectuses present the investment objective and the principal investment
strategies and risks of the Fund. This section supplements the disclosure in the
Fund's prospectuses and provides additional information on the Fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the Fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable. Accordingly, any
later increase or decrease resulting from a change in values, net assets or
other circumstances will not be considered in determining whether the investment
complies with the Fund's restrictions and policies.
PRIMARY INVESTMENTS
Under normal circumstances, at least 65% of the Fund's total assets are invested
in securities of companies that are domiciled or primarily doing business in
emerging countries and securities of these countries' governmental issuers. For
purposes of the Fund's investments, "emerging countries" are countries with
economies or securities markets that are not considered by Federated Global
Investment Management Corp. ("FedGlobal"), the Fund's investment adviser, to be
developed. Currently, emerging countries include: Algeria, Argentina,
Bangladesh, Brazil, Bulgaria, Chile, China, Columbia, Costa Rica, Czech
Republic, Ecuador, Egypt, Ghana, Greece, Hong Kong, Hungary, India, Indonesia,
Israel, Jamaica, Jordan, Kenya, Kuwait, Malaysia, Mexico, Morocco, Nigeria,
Pakistan, Peru, the Philippines, Poland, Portugal, Russia, Singapore, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe. At FedGlobal's discretion, the Fund may invest in other
emerging countries. The Fund may also invest up to 35% of its total assets in
equity and debt securities of companies in any developed country, other than the
U.S., and of such countries' governmental issuers and in short-term investments.
Although the Fund may invest in both equity and debt securities, FedGlobal
expects that equity and equity-related securities will constitute the majority
of the Fund's assets.
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.
CONVERTIBLE DEBT SECURITIES
The Fund may invest in convertible debt securities. Convertible securities rank
senior to common stocks in an issuer's capital structure and consequently may be
of higher quality and entail less risk than the issuer's common stock. As with
all debt securities, the market values of convertible securities tend to
increase when interest rates decline and, conversely, tend to decline when
interest rates increase. 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.
DEBT OBLIGATIONS OF FOREIGN GOVERNMENTS
The Fund may invest in debt obligations of foreign governments. An investment in
debt obligations of foreign governments and their political subdivisions
(sovereign debt) involves special risks which are not present when investing in
corporate debt obligations. The foreign issuer of the sovereign debt or the
foreign governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and the Fund may
have limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of U.S. debt issues. In the past, certain foreign countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend Funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
BRADY BONDS
The Fund may invest in Brady Bonds of countries that have restructured or are in
the process of restructuring sovereign debt pursuant to the "Brady Plan." Brady
Bonds are debt securities issued under the framework of the Brady Plan as a
mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund. The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt for newly issued
bonds (Brady Bonds).
Brady Bonds may involve a high degree of risk, may be in default or present the
risk of default. Investors should recognize that Brady Bonds have been issued
only recently, and, accordingly, they do not have a long payment history.
Agreements implemented under the Brady Plan to date are designated to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ.
DEBT SECURITIES RATING CRITERIA
Investment grade debt securities are those rated "BBB" or higher by Standard &
Poor's Ratings Group ("Standard & Poor's") or the equivalent rating of other
national statistical rating organizations. Debt securities rated BBB are
considered medium grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken the issuer's
ability to pay interest and repay principal. If the rating of an investment
grade debt security falls below investment grade, FedGlobal will consider if any
action is appropriate in light of the Fund's investment objective and policies.
Below investment grade debt securities are those rated "BB" and below by
Standard & Poor's or the equivalent rating of other national statistical rating
organizations. See Appendix B for a description of rating categories.
Below investment grade debt securities or comparable unrated securities are
commonly referred to as "junk bonds" and are considered predominantly
speculative and may be questionable as to principal and interest payments.
Changes in economic conditions are more likely to lead to a weakened capacity to
make principal payments and interest payments. The amount of junk bond
securities outstanding has proliferated in conjunction with the increase in
merger and acquisition and leveraged buyout activity. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Factors having an
adverse impact on the market value of lower quality securities will have an
adverse effect on the Fund's net asset value to the extent that it invests in
such securities. In addition, the Fund may incur additional expenses to the
extent it is required to seek recovery upon a default in payment of principal or
interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on the
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Fund could find it more difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
Certain proposed and recently enacted federal laws including the required
divestiture by federally insured savings and loan associations of their
investments in junk bonds and proposals designed to limit the use, or tax and
other advantages, of junk bond securities could adversely affect the Fund's net
asset value and investment practices. Such proposals could also adversely affect
the secondary market for junk bond securities, the financial condition of
issuers of these securities and the value of outstanding junk bond securities.
The form of such proposed legislation and the possibility of such legislation
being passed are uncertain.
Since investors generally perceive that there are greater risks associated with
lower quality debt securities of the type in which the Fund may invest a portion
of its assets, the yields and prices of such securities may tend to fluctuate
more than those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers' creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes in
higher quality segments of the debt securities market, resulting in greater
yield and price volatility.
Lower rated and comparable unrated debt securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. However, lower rated securities generally
involve greater risks of loss of income and principal than higher rated
securities. FedGlobal will attempt to reduce these risks through portfolio
diversification and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends and corporate
developments.
SHORT-TERM INVESTMENTS
For temporary defensive or cash management purposes, the Fund may invest in
short-term investments consisting of: corporate commercial paper and other
short-term commercial obligations issued by international or domestic companies
which have issued similar securities that are rated A-1, AA or better by
Standard & Poor's; obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks located in the U.S.
or foreign countries with securities outstanding that are rated A-1, AA of
better by Standard & Poor's; obligations of comparable quality issued or
guaranteed by the U.S. Government or the government of a foreign country or
their respective agencies or instrumentalities; and repurchase agreements.
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.
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.
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 interest rate 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 interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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 interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
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 derivative 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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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
o 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.
o 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
o 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.
o 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
o 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.
o 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.
o 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
o 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.
o 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.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
BOND MARKET RISKS
o 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
o Interest rate changes have a greater effect on the price of a fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
LEVERAGE RISKS
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
CREDIT RISKS
o 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.
o 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.
o 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.
o 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.
CUSTODIAL SERVICES AND RELATED RISKS
o Custodial services and other costs relating to investment in international
securities markets generally are more expensive than in the U.S.
o Such markets have settlement and clearance procedures that differ from those
in the U.S. In certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making
it difficult to conduct such transactions.
o The inability of the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities.
o Inability to dispose of a portfolio security caused by settlement problems
could result either in losses to the Fund due to a subsequent decline in
value of the portfolio security or could result in possible liability to the
Fund.
o Security settlement and clearance procedures in some emerging countries may
not fully protect the Fund against loss or theft of its assets.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o 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
O 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.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of purchase
under normal market conditions and are based on a percentage of the Fund's net
assets unless otherwise noted.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentrations of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration".
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
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 may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignment and participation interest.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisitions, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.
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 or, its
agencies or instrumentalities, and repurchase agreements collateralized by such
U.S. government securities; and securities of other investment companies) if, as
a result, more than 5% of the value of its total assets would be invested in the
securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING SECURITIES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN 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.
For purposes of the above 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." Except with
respect to borrowing money, if a percentage limitations is adhered to at the
time of investment, a later increase or decrease in percentage resulting from
any change in value or net assets will not result in a violation of such
limitation.
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o 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
o 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(To be filed by amendment).
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.
(To be filed by amendment).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS
<S> <C> <C> <C>
- ----------------------
- ----------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July 28, or Trustee of the Federated Fund Corporation and
1924 Complex; Chairman and Director, 43 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND CHAIRMAN Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ----------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $116,760.63for
Birth Date: February Fund Complex; Director, Member of the
3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 43 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
conduits/computer storage equipment); companies
DIRECTOR formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ----------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $128,455.37 for
Birth Date: June 23, Fund Complex; President, Investment the
1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 43 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation3201 ventures in Southwest Florida; in the Fund
Tamiami Trail North formerly: President, Naples Property Complex
Naples, FL Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
- ----------------------
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated $1,514.23 $73,191.2 for
Birth Date: Fund Complex; Director, Michael Baker the
September 3, 1939 Corporation (engineering, Corporation and
175 Woodshire Drive construction, operations and technical 37 other
Pittsburgh, PA services);formerly: Partner, Andersen investment
DIRECTOR Worldwide SC. companies
in the Fund
Complex
- ----------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $93,190.48 for
Birth Date: March 5, Federated Fund Complex; Chairman, the
1943 President and Chief Executive Officer, Corporation and
353 El Brillo Way Cunningham & Co., Inc. (strategic 46 other
Palm Beach, FL business consulting); Trustee investment
DIRECTOR Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ----------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $116,760.63 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 43 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ----------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated $1,792.22 $125,264.48 for
JR., ESQ. Fund Complex; Attorney of Counsel, the
Birth Date: June 18, Miller, Ament, Henny & Kochuba; Corporation and
1924 Director Emeritus, Eat'N Park 54 other
Miller, Ament, Henny Restaurants, Inc.; formerly: Counsel, investment
& Kochuba Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund
Pittsburgh, PA Complex
DIRECTOR
- ----------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $109,153.60 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 43 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ----------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $102,573.91 for
MANSFIELD, JR.++ Federated Fund Complex; Executive the
Birth Date: April Vice President, Legal and External Corporation and
10, 1945 Affairs, Dugan Valva Contess, Inc. 50 other
80 South Road (marketing, communications, technology investment
Westhampton Beach, and consulting); formerly Management companies
NY DIRECTOR Consultant. in the Fund
Complex
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice
President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.
- ----------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated $1,665.92 $128,455.37 for
J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: December Professor, Duquesne University; Corporation
20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 43 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ----------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $116,760.63 for
Birth Date: June 21, Fund Complex; Public the
1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 43 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ----------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $94,536.85 for
Birth Date: November Federated Fund Complex; President and the
28, 1957 Director, Heat Wagon, Inc. Corporation and
2007 Sherwood Drive (manufacturer of construction 39 other
Valparaiso, IN temporary heaters); President and investment
DIRECTOR Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ----------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+ of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 30 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT AND Investment Counseling; President and
DIRECTOR Director, 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
Birth Date: October Funds in the Federated Fund Complex; Corporation and
22, 1930 President, Executive Vice President 42 other
Federated Investors and Treasurer of some of the Funds in investment
Tower the Federated Fund Complex; Vice company
1001 Liberty Avenue Chairman, Federated Investors, Inc.; in the Fund
Pittsburgh, PA Vice President, Federated Investment Complex
EXECUTIVE VICE Management Company and Federated
PRESIDENT 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
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 43 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT AND Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- ----------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June 17, Complex; Vice President - Funds Corporation and
1954 Financial Services Division, Federated 43 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ----------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May 17, the Funds in the Federated Fund Corporation and
1923 Complex; Director or Trustee of some 41 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
DIRECTOR* Corp.
- ----------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: November and various other Funds in the Corporation and
28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 2000, JANUARY 1, 1999 AND JANUARY 1, 2000,
RESPECTIVELY.
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 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, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, Boston, Massachusetts,
plans and performs its audit so that it may provide an opinion as to whether the
Fund's financial statements and financial highlights are free of material
misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 30
Advisory Fee Earned $ $758,455 $775,299
Advisory Fee Reduction $ $115,548 $408,722
Brokerage Commissions $ $1,057,866 $777,632
Administrative Fee $ $185,000 $185,000
12b-1 Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
Shareholder Services Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield are given for the 30-day period ended November 30, 1999.
- -----------------
Start of
30-DAY PERIOD 1 Year Performance on
February 28, 1996
- -----------------
CLASS A SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
Start of
30-DAY PERIOD 1 Year Performance on
February 28, 1996
- -----------------
CLASS B SHARES
- -----------------
Total Return
- -----------------
Yield
- ------------------------------------------------------------------------
Start of
30-DAY PERIOD 1 Year Performance on
February 28, 1996
- -----------------
CLASS C SHARES
- -----------------
Total Return
- -----------------
Yield
- ------------------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on how
such developments could impact the Fund; and
o 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 einvestment 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, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1billion and $115
million, 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Emerging Markets Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample
asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal
cash generation; and
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S 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.
159
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.
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 Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
March 31, 2000
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;o fluctuations
in the value of equity securities in foreign securities markets;
o 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;
o 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;
o the possibility that a certain sector may underperform other sectors or the
market as a whole;
o fluctuations in the exchange rate between the U.S. dollar and foreign
currencies; and
o 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.
RISK/RETURN BAR CHART AND TABLE -
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of A SHARES of the Fund as of the calendar year-end.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 0% up to 30%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended 1999. The light gray shaded chart features one distinct vertical bar,
shaded in charcoal, and 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 for each calendar year is stated directly
at the top of the bar, for the calendar year 1999, The percentages noted is:
___%.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was ___% (quarter ended December 31, 1999). Its lowest
quarterly return was ____% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares and
Class C Shares Average Annual Total Returns, reduced to reflect applicable sales
charges, for the calendar periods ended 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Morgan Stanley Capital
International All Country World Finance (MSCI-ACW), a broad-based market index.
The MSCI-ACW is a medium-cap to large-cap unmanaged index comprising the
banking, financial services, insurance and real estate industries Total returns
for the index shown does not reflect sales charges, expenses or other fees that
the SEC requires to be reflected in the Fund's performance. This index is
unmanaged, and it is not possible to invest directly in an index.
CALENDAR PERIOD CLASS A CLASS B CLASS C MSCI-ACWE
SHARES SHARES SHARES
1 Year _____% ____% ____% ____%
Start of _____% ____% ____% ____%
Performance1
1 THE FUND'S START OF PERFORMANCE DATE WAS SEPTEMBER 30, 1998. Past performance
does not necessarily predict future performance. This information provides you
with historical performance information so that you can analyze whether the
Fund's investment risks are balanced by its potential returns.
WHAT ARE THE FUND'S FEES AND EXPENSES? -
FEDERATED GLOBAL FINANCIAL SERVICES FUND
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.
Shareholder Fees
FEES PAID DIRECTLY FROM YOUR INVESTMENT
<TABLE>
<CAPTION>
....................................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 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/Reimbursement)1
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS 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 .................... 3.72% 3.72% 3.72%
Total Annual Fund Operating Expenses..... 5.22%
5.72%5 5.72%
- -----------------------------------------------------------------------------------------
</TABLE>
1 Although not contractually obligated to do so, the adviser waived and
reimbursed and the distributor waived certain amounts.
These are described below along with the net expenses the Fund ACTUALLY PAID for
the fiscal year ended November 30, 1999.
Total Waivers/Reimbursement of Fund Expenses
.................................. 3.62%
3.37% 3.37%
Total Actual Annual Fund Operating Expenses (after waivers/reimbursement)...
1.60% 2.35% 2.35%
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 fiscal year ended November
30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended November 30, 1999. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the fiscal year ending
November 30, 2000.
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) was 1.35% for the
fiscal year ended November 30, 1999.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and C Shares operating expenses are BEFORE
WAIVER/REIMBURSEMENT 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:
SHARE CLASS.......1 YEAR............3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$1,043............$2,025 $3,003 $5,429
- ------------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$1,043...... $2,025 $3,003 $5,429
- ------------------------------------------------------------------------------
CLASS B.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$1,116............$2,089 $3,002 $5,429
- ------------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$570........$1,698 $2,809 $5,429
- ------------------------------------------------------------------------------
CLASS C.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$669........$1,698 $2,809 $5,518
- ------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$570........$1,698 $2,809 $5,518
- ------------------------------------------------------------------------------
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. Stock selection is based on
fundamental "bottom-up" analysis that seeks to identify companies whose current
stock prices appear to be undervalued in terms of earnings, projected cash flow,
or asset value per share, that have growth potential temporarily unrecognized by
the market. 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 and shorter-term 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: o.....it
is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o 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. The adviser manages this risk by diversifying 35% of the
portfolio outside of the Financial Service Index.
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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund generally values equity securities according to the last sale price in
the market in which they are primarily traded (either a national securities
exchange or the over-the-counter market).
The Fund's current NAV and public offering price may be found in the mutual
funds section of 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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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 If your investment
qualifies for a reduction or elimination of the sales charge as described below,
you or your investment professional should notify the Fund's Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
o within 120 days of redeeming Shares of an equal or lesser amount;
o when the Fund's Distributor does not advance payment to the investment
professional for your purchase;
o by exchanging shares from the same share class of another Federated Fund;
o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its
affiliates to purchase shares without a sales charge; or
o through investment professionals that receive no portion of the sales
charge.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
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.
If your investment qualifies for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a money
market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares described in
this prospectus to institutions or to individuals, directly or through
investment professionals.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A, B and C 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o 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.
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
o Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o 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:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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 Class A 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
MARK HALPERIN
Mark Halperin joined the Fund's Adviser as a Senior 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.
HENRY A. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992-1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
FEDERATED GLOBAL FINANCIAL SERVICES FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No.811-7141
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STATEMENT OF ADDITIONAL INFORMATION
FEDERATED GLOBAL FINANCIAL SERVICES FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
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G02455-02 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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. On March 31, 2000, the
Corporation changed its name from World Investment Series, Inc. to Federated
World Investment Series, Inc.
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 classes of 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
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.
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.
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:
o Buy call options on foreign currencies, securities, securities indices and
futures contracts involving these items to manage interest rate and currency
risks; and
o 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.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
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.
PREPAYMENT RISKS
o 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.
o 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.
o 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.
LEVERAGE RISKS
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
BOND MARKET RISKS
o 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.
o 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
o 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.
o 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.
o 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.
o 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
o 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.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide long-term growth of capital. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
CONCENTRATION
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry,
provided that the Fund may concentrate its investments in issuers in the
financial services industry. Government securities, municipal securities and
bank instruments will not be deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
DIVERSIFICATION
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
CONCENTRATION
In applying the concentration restriction: (a) financial service companies will
be classified according to the end users of their services (for example,
automobile finance, bank finance and diversified finance will each be considered
a separate industry); and (b) asset-backed securities will be classified
according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
`concentration.'
INVESTING IN COMMODITIES
Investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
PURCHASES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets.
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." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
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;
o for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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; and
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(TO BE FILED BY AMENDMENT.)
As of March ____, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: [Name & Address of
Shareholder, % and Name of Share Class Owned.]
IF ANY SHAREHOLDER OWNS 25% OR MORE, INCLUDE THE FOLLOWING:
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 ten 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 ___, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B and C Shares.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------
- ---------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 54 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: Fund Complex; Director, Member of the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 54 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
DIRECTOR conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $125,264.48 for
Birth Date: June Fund Complex; President, Investment the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 54 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
DIRECTOR
- ---------------------
NICHOLAS P. Director or Trustee of the Federated $1,514.23 $47,958.02 for
CONSTANTAKIS Fund Complex; Director, Michael Baker the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 29 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- ---------------------
WILLIAM J. COPELAND Director or Trustee of the Federated $1,806.12 $125,264.48 for
Birth Date: July 4, Fund Complex; Director and Member of the
1918 the Executive Committee, Michael Baker Corporation and
One PNC Plaza-23rd Corp. (engineering, construction, 54 other
Floor operations, and technical services); investment
Pittsburgh, PA Chairman, Pittsburgh Foundation; companies
DIRECTOR Director, Forbes Fund (philanthropy); in the Fund
formerly: Vice Chairman and Director, Complex
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; Chairman, Health Systems Agency
of Allegheny County; Vice President,
United Way of Allegheny County;
President, St. Clair Hospital;
Director, Allegheny Hospital.
- ---------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $0 for the
Birth Date: March Federated Fund Complex; Chairman, Corporation and
5, 1943 President and Chief Executive Officer, 46 other
353 El Brillo Way Cunningham & Co., Inc. (strategic investment
Palm Beach, FL business consulting); Trustee companies
DIRECTOR Associate, Boston College; Director, in the Fund
Iperia Corp. Complex
(communications/software); formerly:
Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $113,860.22 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 54 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $113,860.22 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 54 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $0 for the
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice Corporation and
Birth Date: April President, Legal and External Affairs, 50 other
10, 1945 Dugan Valva Contess, Inc. (marketing, investment
80 South Road communications, technology and companies
Westhampton Beach, consulting).; formerly Management in the Fund
NY DIRECTOR Consultant. Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $113,860.22 for
JR., J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 54 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: June Fund Complex; Public the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $0 for the
Birth Date: Federated Fund Complex; President and Corporation and
November 28, 1957 Director, Heat Wagon, Inc. 48 other
2007 Sherwood Drive (manufacturer of construction investment
Valparaiso, IN temporary heaters); President and companies
DIRECTOR Director, Manufacturers Products, Inc. in the Fund
(distributor of portable construction Complex
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+* of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 16 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT and Investment Counseling; President and
DIRECTOR Director, 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
Birth Date: Funds in the Federated Fund Complex; Corporation and
October 22, 1930 President, Executive Vice President 1 other
Federated Investors and Treasurer of some of the Funds in investment
Tower the Federated Fund Complex; Vice company
1001 Liberty Avenue Chairman, Federated Investors, Inc.; in the Fund
Pittsburgh, PA Vice President, Federated Investment Complex
EXECITIVE VICE Management Company and Federated
PRESIDENT 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
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 54 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECITIVE VICE Federated Global Investment Management
PRESIDENT Corp, Federated Services Company and
Federated Securities Corp.
- ---------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 54 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May the Funds in the Federated Fund Corporation and
17, 1923 Complex; Director or Trustee of some 6 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
PRESIDENT Corp.
- ---------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE ,EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++MR. MANSFIELD BECAME A MEMBER OF THE BOARD OF DIRECTORS ON JANUARY 1,
1999. MESSRS. CUNNINGHAM AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON
DECEMBER 7, 1999. THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE
THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. MESSRS.
CUNNINGHAM AND WALSH DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE
COMPANY.
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 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, 1999, the Funds' Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the
Funds paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
NOVEMBER 30 1999 1998*
Advisory Fee Earned $114,212 $9,535
Advisory Fee Reduction $114,212 $9,535
Brokerage Commissions $ $9366
Administrative Fee $185,000 $30,918
12b-1 Fee
Class A Shares $0 --
Class B Shares $47,432 --
Class C Shares $5,007 --
Shareholder Services Fee
Class A Shares $11,073 --
Class B Shares $15,810 --
Class C Shares $1,669 --
For the period from September 30, 1998 (start of performance) to November 30,
1998.
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield is given for the 30-day period ended November 30, 1999.
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
SEPTEMBER 30, 1998
- -----------------
CLASS A SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
SEPTEMBER 30, 1998
- -----------------
CLASS B SHARES
- -----------------
Total Return
- -----------------
Yield
- -----------------
- -----------------
30-DAY PERIOD 1 YEAR START OF
PERFORMANCE ON
SEPTEMBER 30, 1998
- -----------------
CLASS C SHARES
- -----------------
Total Return
- -----------------
Yield
- ----------------------------------------------------------------
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Small Company Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & 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.
Latest Update: November 10, 1999
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 GLOBAL EQUITY INCOME FUND
A Portfolio of Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
March 31, 2000
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:
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly or over a sustained period
of time.
CURRENCY RISKS
Because the exchange rates for currencies fluctuate daily, prices of the foreign
securities in which the Fund invests are more volatile than prices of securities
traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
Because the Fund invests in securities issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be
the case.
DIVIDEND RISK
An issuer's dividend policy may change in response to strategic changes or other
management decisions affecting the need for available funds. The adviser manages
these risks by periodically investing in cash and cash equivalent instruments.
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
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Global Equity Income Fund's Class A Shares 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 5.00%% up to 50.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. 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 Fund for the calendar year is stated
directly at the top of the bar, for the calendar year 1999. The percentage noted
is: 48.61%.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 36.14% (quarter ended December 31, 1999). Its lowest
quarterly return was (1.92)% (quarter ended September 30,1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns , reduced to reflect applicable
sales charges, for the calendar periods ended December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to the Morgan
Stanley Capital International World Equity Index (MSCI-WE), a broad-based market
index The MSCI-WE Index reflects the stock markets of 22 countries, including
the United States, Europe, Canada, Australia, New Zealand and the Far East,
comprising approximately 1, 482 securities with values expressed in U.S.
dollars. Total returns for the index shown do not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
CLASS A --------- CLASS C
SHARES SHARES ------------
CALENDAR PERIOD --------- MSCI-WE
CLASS B
SHARES
1 Year 40.49% 42.30% 46.64% 23.56%
Start of 47.43% 50.14% 53.73% 32.78%
Performance1
1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was October 27, 1998.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED ASIA PACIFIC FUND
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as 5.50% None None a
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage 0.00% 5.50% 5.50% of original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, None None None if
applicable) Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Rembursements)(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(3) 1.87% 1.87% 1.87%
Total Annual Fund Operating Expenses 3.37% 3.87%(43.87%
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, 1999.
Waivers and Reimbursements of Fund Expenses 1.37% 1.37% 1.37%
Total Actual Annual Fund Operating Expenses (after 2.00% 2.50% 2.50%
waivers/reimbursements )
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 fiscal year ended
November 30, 1999.
3 The adviser voluntarily reimbursed certain operating expense 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 1.50% for
the fiscal year ended November 30, 1999.
- --------------------------------------------------------------------------
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses )
approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and C Shares operating expenses are BEFORE
WAIVERS/REIMBURSEMENTS 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:
SHARE CLASS 1 3 YEARS 5 10
YEAR YEARS YEARS
CLASS A
Expenses assuming $871 $1,529 $2,208 $4,007
redemption
Expenses assuming no $871 $1,529 $2,208 $4,007
redemption
CLASS B
Expenses assuming $939 $1,581 $2,190 $3,989
redemption
Expenses assuming no $389 $1,181 $1,990 $3,989
redemption
CLASS C
Expenses assuming $489 $1,181 $1,990 $4,096
redemption
Expenses assuming no $389 $1,181 $1,990 $4,096
redemption
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 takes a bottom-up approach to stock selection and searches for
companies with sound economic fundamentals with the potential for appreciation
in stock price. 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. Securities may be sold when they no longer represent good long-term
value.
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 and shorter-term 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 equity securities are equity securities of issuers based outside the
United States. The Fund considers an issuer to be based outside the United
States if: o.....it is organized under the laws of, or has a principal office
located in, another country;
o the principal trading market for its securities is in another country; or
o 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 equity securities are often denominated in foreign currencies. Along
with the risks normally associated with domestic equity securities, foreign
equity securities are subject to currency risks and risks of foreign investing.
Trading in certain foreign markets is also subject to liquidity risks.
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 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 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. Although it has historically not done so because of the increased
risk to the portfolio, 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.
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 Custodial services and other costs relating to investment in
international securities markets are generally more expensive than in the U.S.
Such markets have settlement and clearance procedures that differ from those in
the U.S. In certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of the Fund to make
intended securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. The inability to dispose of a
portfolio security caused by settlement problems could result either in losses
to the Fund due to a subsequent decline in value of the portfolio security or
could result in possible liability to the Fund. In addition, security settlement
and clearance procedure in some emerging countries may not fully protect the
Fund against loss or theft of its assets.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the U.S. or in other
foreign countries. The laws of some foreign countries may limit the Fund's
ability to invest in securities of certain issuers organized under the laws of
those foreign countries.
DIVIDEND RISK
An issuer's dividend policy may change in response to strategic changes or other
management decisions affecting the need for available 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally
values equity securities according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market).
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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
- -----------------------------------------
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.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a money
market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged; and
o signatures of all shareholders exactly as registered; and
o 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:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days; or
o a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
RICHARD J. LAZARCHIC
Richard J. Lazarchic has been a Portfolio Manager of the Fund since its
inception. Mr. Lazarchic joined Federated in 1998 as a Senior 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.
RICHARD WINKOWSKI
Richard Winkowski has been the Fund's Portfolio Manager since December
1999. Mr Winkowski joined Federated as a Senior Investment Analyst in April 1998
and became an Assistant Vice President of the Fund's Adviser in July 1999. 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 1994 through January 1995 and then as a Portfolio
Manager Assistant until September 1997. Mr. Winkowski earned his B.A. from the
University of Wisconsin.
HENRY J. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 until 1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
FEDERATED GLOBAL EQUITY INCOME FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Report to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to
or visiting the Public Reference Room in Washington, DC. You may also access
fund information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
INVESTMENT COMPANY ACT FILE NO. 811-7141
CUSIP 31428U870
CUSIP 31428U862
CUSIP 31428U854
G01472-02 (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED GLOBAL EQUITY INCOME FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
G02337-01 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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 classes of 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, in addition to those described in the prospectus, for any purpose
that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
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 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.
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.
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:
o 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.
o 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.
o 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.
o 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.
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.
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 derivative 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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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.
CREDIT RISKS
o 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.
o 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.
o 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.
o 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
o 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.
o Mortgage backed securities generally compensate for greater prepayment
risks 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.
o 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
o 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.
o 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.
EMERGING MARKET RISKS
o 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.
o 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.
o The Adviser is seeking information regarding the year 2000 readiness of
countries, issuers and 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, 19999, or experience other date related problems. However,
this information may be incomplete, inaccurate or difficult to obtain. As a
result, the Adviser may not be able to asses accurately the potential
effects of the Year 2000 problem on these countries and companies, and
these problems could result in material losses to the Fund.
SECTOR RISKS
o 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
o 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.
o 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.
RISKS RELATED TO COMPANY SIZE
o 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.
o 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
o 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.
o 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
o 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
o 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.
o The adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as
well as by monitoring broad economic trends and corporate and legislature
developments.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
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. The investment objective may not be
changed by the Fund's Directors without shareholder approval.
INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of purchase
under normal market conditions and are based on a percentage of the Fund's net
assets unless otherwise noted.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentrations of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration".
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
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 may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisitions, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and repurchase agreements collateralized by such U.S.
government securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested in 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.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN 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.
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o 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;
o 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
o 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
[To be filed by amendment.]
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.
[To be filed by amendment.]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS ----------------
- --------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 43 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $116,760.63for
Birth Date: Fund Complex; Director, Member of the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 43 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
- -------------------- conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
- -------------------- Young LLP; Director, MED 3000 Group, Complex
DIRECTOR Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $128,455.37 for
Birth Date: June Fund Complex; President, Investment the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 43 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation3201 ventures in Southwest Florida; in the Fund
Tamiami Trail North formerly: President, Naples Property Complex
Naples, FL Management, Inc. and Northgate Village
DIRECTOR Development Corporation.
- ---------------------------------------------------------------------------------------------
NICHOLAS Director or Trustee of the Federated $1,514.23 $73,191.2 for
CONSTANTAKIS Fund Complex; Director, Michael Baker the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 37 other
175 Woodshire Drive services);formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- -------------------- --------------------------------------- ----------- ----------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $93,190.48 for
Birth Date: March Federated Fund Complex; Chairman, the
5, 1943 President and Chief Executive Officer, Corporation and
353 El Brillo Way Cunningham & Co., Inc. (strategic 46 other
Palm Beach, FL business consulting); Trustee investment
DIRECTOR Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $116,760.63 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 43 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------------------------------------------------------------------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated $1,792.22 $125,264.48 for
JR., ESQ. Fund Complex; Attorney of Counsel, the
Birth Date: June Miller, Ament, Henny & Kochuba; Corporation and
18, 1924 Director Emeritus, Eat'N Park 54 other
Miller, Ament, Restaurants, Inc.; formerly: Counsel, investment
Henny & Kochuba Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund
Pittsburgh, PA Complex
DIRECTOR
- ---------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $109,153.60 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 43 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------------------------------------------------------------------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $102,573.91 for
MANSFIELD, JR.++ Federated Fund Complex; Executive the
Birth Date: April Vice President, Legal and External Corporation and
10, 1945 Affairs, Dugan Valva Contess, Inc. 50 other
80 South Road (marketing, communications, technology investment
Westhampton Beach, and consulting); formerly Management companies
NY DIRECTOR Consultant. in the Fund
Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------------------------------------------------------------------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $128,455.37 for
JR., J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 43 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------------------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $116,760.63 for
Birth Date: June Fund Complex; Public the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 43 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- -------------------- -----------------------------------------------------------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $94,536.85 for
Birth Date: Federated Fund Complex; President and the
November 28, 1957 Director, Heat Wagon, Inc. Corporation and
2007 Sherwood Drive (manufacturer of construction 39 other
Valparaiso, IN temporary heaters); President and investment
DIRECTOR Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------------------------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+ of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 30 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT AND Investment Counseling; President and
DIRECTOR Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
- --------------------
EDWARD C. GONZALES -------------------------------------------------------------------------
Birth Date: Trustee or Director of some of the $0 $0 for the
October 22, 1930 Funds in the Federated Fund Complex; Corporation and
Federated Investors President, Executive Vice President 42 other
Tower and Treasurer of some of the Funds in investment
1001 Liberty Avenue the Federated Fund Complex; Vice company
Pittsburgh, PA Chairman, Federated Investors, Inc.; in the Fund
EXECUTIVE VICE Vice President, Federated Investment Complex
PRESIDENT Management Company and Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ---------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 43 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT AND Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- ---------------------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 43 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May 17, the Funds in the Federated Fund Corporation and
1923 Complex; Director or Trustee of some 41 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
DIRECTOR* Corp.
- ---------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 2000, JANUARY 1, 1999 AND JANUARY 1, 2000,
RESPECTIVELY.
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 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, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, Boston, Massachusetts,
plans and performs its audit so that it may provide an opinion as to whether the
Fund's financial statements and financial highlights are free of material
misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998
NOVEMBER 30
Advisory Fee Earned $ $14,621
Advisory Fee Reduction $ $14,621
Brokerage Commissions $ $19,167
Administrative Fee $ $15,205
12b-1 Fee
Class A Shares $ --
Class B Shares $ --
Class C Shares $ --
Shareholder Services Fee
Class A Shares $ --
Class B Shares $ --
Class C Shares $ --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield are given for the 30-day period ended November 30, 1999.
Start of
Performance-of
30-DAY PERIOD 1 Year October 27, 1998
CLASS A SHARES
Total Return
Yield
Start of
Performance-of
30-DAY PERIOD 1 Year October 27, 1998
CLASS B SHARES
Total Return
Yield
Start of
Performance-of
30-DAY PERIOD 1 Year February 28, 1996
CLASS C SHARES
Total Return
Yield
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
o 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.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1billion and $115
million, 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Emerging Markets Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S 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.
66
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 INTERNATIONAL GROWTH FUND
A Portfolio of Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
March 31, 2000
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 is incidental. While there is no assurance that the Fund will
achieve its investment objectives, 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 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:
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly or over a sustained period
of time.
CURRENCY RISKS
Because the exchange rates for currencies fluctuate daily, prices of the foreign
securities in which the Fund invests are more volatile than prices of securities
traded exclusively in the U.S.
RISKS OF FOREIGN INVESTING
Because the Fund invests in securities issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be
the case.
LIQUIDITY RISKS
The non-investment grade securities and complex CMOs in which the Fund invests
may be less readily marketable and may be subject to greater fluctuation in
price than other securities.
EMERGING MARKETS RISKS
The Fund invests in emerging as well as developed markets in Asia and the
Pacific Rim. Countries in emerging markets can have relatively unstable
government economies based on only a few industries, and securities markets that
trade a small number of issues.
RISKS RELATED TO COMPANY SIZE
Because the smaller companies in which the Fund may invest may have unproven
track records, a limited product or service base and limited access to capital,
they may be more likely to fail than larger companies.
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
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated International Growth Fund Class A Shares 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 10.00%% up to 70.00%%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. 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 Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1998
and 1999, The percentages noted are: 0.49% and 63.54%.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 33.68% (quarter ended December 31, 1999). Its lowest
quarterly return was (15.92)% (quarter ended September 30, 1997).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns , reduced to reflect applicable
sales charges, for the calendar periods ended December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to the Morgan
Stanley Capital International All Country World Index (MSCI-ACW) and the Morgan
Stanley Capital Europe Australia Far East Index (MSCI-EAFE), a broad-based
market index The MSCI-ACW is a market capitalization-weighted securities index
of the performance, by industry, of securities in the stock exchanges of 22
countries. The MSCI-EAFE is a market capitalization-weighted foreign securities
index widely used to measure the performance of the Europe, Australian, Nex
Zealand and Far Eastern stock markets. Total returns for the index shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.
CLASS A --------- CLASS C
SHARES SHARES -----------------
CALENDAR PERIOD --------- MSCI-ACW
CLASS B MSCI-EAFE
SHARES
1 Year 54.59% 56.91% 61.53% 29.68%
25.27%
Start of 12.87% 13.30% 14.76% 10.80%
Performance1 12.45%
1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was July 1, 1997.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED ASIA PACIFIC FUND
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as 5.50% None None a
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage 0.00% 5.50% 1.00% of original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, None None None if
applicable) Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Rembursements)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee(2) 0.00% 0.00% 0.00%
Distribution (12b-1) Fee(3) 0.25% 0.75% 0.75%
Shareholder Services Fee(4) 0.25% 0.25% 0.25%
Other Expenses(5) 1.31% 1.31% 1.31%
Total Annual Fund Operating Expenses 1.81% 2.31%(62.31%
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 November 30, 1999.
Waivers and Reimbursements of Fund Expenses 1.74% 1.49% 1.49%
Total Actual Annual Fund Operating Expenses (after 0.07% 0.82% 0.82%
waivers and reimbursements )
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, 1999. The Fund has no present intention of paying or accruing the
asset allocation fee during the fiscal year ending November 30, 2000.
- --------------------------------------------------------------------------
3 Class A Shares did not pay or accrue the distribution (12b-1) services fee
during the fiscal year ended November 30, 1999.
Class A Shares has no present intention of paying or accruing the
distribution (12b-1) services fee during the fiscal year ended
November 30, 2000.
4 The shareholder services provider voluntarily waived the shareholder services
fee. The shareholder services provider can terminated this waiver at any time.
The shareholder services fee paid by the Fund's Class A, B, and C Shares
(after the voluntary waiver) was 0.00% for the fiscal year ended November 30,
1999.
5 The adviser voluntarily reimbursed certain operating expense 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 0.07% for
the fiscal year ended November 30, 1999.
6 Class B Shares convert to Class A Shares (which pay lower ongoing expenses )
approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and C Shares operating expenses are BEFORE WAIVERS AND
REIMBURSEMENTS 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:
SHARE CLASS 1 3 YEARS 5 10
YEAR YEARS YEARS
CLASS A
Expenses assuming $724 $1,088 $1,476 $2,560
redemption
Expenses assuming no $724 $1,088 $1,476 $2,560
redemption
CLASS B
Expenses assuming $784 $1,121 $1,435 $2,521
redemption
Expenses assuming no $234 $721 $1,235 $2,521
redemption
CLASS C
Expenses assuming $334 $721 $1,235 $2,646
redemption
Expenses assuming no $234 $721 $1,235 $2,646
redemption
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 and shorter-term 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 as an efficient means of carrying out its investment policies. The
principal securities in which the underlying fund 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: o.....it
is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o 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.
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 underlying Funds
may invest and in which the Fund may directly invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the Untied States may issue securities
comparable to common or preferred stock.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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 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.
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?
The specific risks associated with foreign securities are as follows:
STOCK MARKET RISKS
The foreign exchanges on which foreign securities may be listed for trading may
be less developed technologically or less regulated than those in the U.S.
possibly increasing the volatility and decreasing the efficiency of those
markets. In addition, 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.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the U.S. or in other
foreign countries. The laws of some foreign countries may limit the Fund's
ability to invest in securities of certain issuers organized under the laws of
those foreign countries.
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.
CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS
Custodial services and other costs relating to investment in international
securities markets generally are more expensive than in the U.S. Such markets
have settlement and clearance procedures that differ from those in the U.S. In
certain markets those have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of the Fund to make intended securities
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Fund due to a
subsequent decline in value of the portfolio security. In addition, security
settlement and clearance procedures in some emerging countries may not fully
protect the Fund against loss of its assets.
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 downturn ( 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally
values equity securities according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market).
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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate
family members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
- -----------------------------------------
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.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a
money market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged; and
o signatures of all shareholders exactly as registered; and
o 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:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days; or
o a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
ALEXANDRE DE BETHMANN
Alexandre de Bethmann has been the portfolio manager of Federated Asia
Pacific Growth Fund and Federated Latin American Growth Fund 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.
HENRY J. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 until 1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
94
FEDERATED INTERNATIONAL GROWTH FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Report to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov You can purchase copies of this information by contacting the
SEC by email at [email protected]. or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for information on the
Public Reference Room's operations and copying fees.
INVESTMENT COMPANY ACT FILE NO. 811-7141
CUSIP 31428U813
CUSIP 31428U797
CUSIP 31428U789
G02118-01-ABC (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL GROWTH FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
G02118-02 (1/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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 classes of Shares. The Fund's investment adviser is
Federated Global Investment Management Corp. (Adviser).
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests a significant portion of its assets in securities of other
investment companies as and efficient means of carrying out its investment
policies. In pursuing its investment strategy, the Fund may also invest in the
following securities for any purpose that is consistent with its investment
objective.
FOREIGN EQUITY SECURITIES
Foreign equity securities are equity securities of issuers based outside the
United States. The Fund considers an issuer to be based outside the United
States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o 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 equity securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign equity securities are subject to currency risks and risks of foreign
investing. Trading in certain foreign markets is also subject to liquidity
risks.
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 invest
and in which the Fund may directly invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund [may also/will]
treat such redeemable preferred stock as a fixed income security.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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 and the
Fund may also do so when investing directly in foreign securities. In a spot
trade, the underlying funds or, in the case of a direct investment, the Fund
agrees to exchange one currency for another at the current exchange rate. The
underlying funds or the Fund in the case of a direct investment, 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' or the Fund in the case of a direct investment,
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 (IMF) 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 nor the
IMF 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.
WARRANTS
Warrants give the owner 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 owner of the warrant 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 and in which the Fund may directly 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 Fund and the
underlying funds has the option to exchange for equity securities at a specified
conversion price. The option allows the owner to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, the owner 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 owner 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.
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:
o Buy call options on foreign currencies, securities, securities indices and
futures contracts in anticipation of an increase in the value of the
underlying asset; and
o Buy put options on foreign currencies, securities indices and futures
contracts in anticipation of a decrease in the value of the underlying asset.
The Fund may also write call options on foreign currencies, securities indices
and future contracts to generate income from premiums, and in anticipation of a
decrease or only limited increase in the value of the underlying asset. If a
call written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the exercise
price plus the premium received.
The Fund may also write put options on foreign currencies, securities indices
and future contracts to generate income from premiums, and in anticipation of an
increase or only limited decrease in the value of the underlying asset. 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.
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 interest rate 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 interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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 interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
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 derivative 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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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.
BOND MARKET RISKS
o 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
o Interest rate changes have a greater effect on the price of a fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
o 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.
o 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.
o 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.
o 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.
LEVERAGE RISKS
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o 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.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of purchase
under normal market conditions and are based on a percentage of the Fund's net
assets unless otherwise noted.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry,
provided that the Fund may concentrate its investments in investment company
securities. Government securities, municipal securities and bank instruments
will not be deemed to constitute an industry. To conform to the current view of
the SEC staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration".
INVESTING IN COMMODITIES
The Fund may not purchases or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
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 may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its securities, under the circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities, and repurchase agreements collateralized by
such U.S. securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested in the
securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that 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.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN 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.
For purposes of the above 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." Except with
respect to borrowing money, if a percentage limitations is adhered to at the
time of investment, a later increase or decrease in percentage resulting from
any change in value or net assets will not result in a violation of such
limitation.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o 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
o 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(To be filed by amendment).
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.
(To be filed by amendment).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS ----------------
- --------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 4354 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: Fund Complex; Director, Member of for the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 4354 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
- -------------------- conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
- -------------------- Young LLP; Director, MED 3000 Group, Complex
DIRECTOR Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $128,455.37125,264.48
Birth Date: June Fund Complex; President, Investment for the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 4354 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
CorporationWood/Commerventures in Southwest Florida; in the Fund
Dept. formerly: President, Naples Property Complex
John R. Wood Management, Inc. and Northgate Village
Associates, Inc. Development Corporation.
Realtors
3201255 Tamiami
Trail North
Naples, FL
DIRECTOR
- ---------------------------------------------------------------------------------------------
NICHOLAS Director or Trustee of the Federated $1,514.23 $73,191.247,958.02
CONSTANTAKIS Fund Complex; Director, Michael Baker for the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 3729 other
175 Woodshire Drive services);formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- -------------------- --------------------------------------- ----------- ----------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $93,190.480 for
Birth Date: March Federated Fund Complex; Chairman, the
5, 1943 President and Chief Executive Officer, Corporation and
353 El Brillo Way Cunningham & Co., Inc. (strategic 46 other
Palm Beach, FL business consulting); Trustee investment
DIRECTOR Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
M.D.* Fund Complex; Professor of Medicine, for the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 4354 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------------------------------------------------------------------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated $1,792.22 $125,264.48 for
JR., ESQ. Fund Complex; Attorney of Counsel, the
Birth Date: June Miller, Ament, Henny & Kochuba; Corporation and
18, 1924 Director Emeritus, Eat'N Park 54 other
Miller, Ament, Restaurants, Inc.; formerly: Counsel, investment
Henny & Kochuba Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund
Pittsburgh, PA Complex
DIRECTOR
- ---------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $109,153.60113,860.22
Birth Date: March Fund Complex; formerly: for the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 4354 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------------------------------------------------------------------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $102,573.910
MANSFIELD, JR.++ Federated Fund Complex; Executive for the
Birth Date: April Vice President, Legal and External Corporation and
10, 1945 Affairs, Dugan Valva Contess, Inc. 50 other
80 South Road (marketing, communications, technology investment
Westhampton Beach, and consulting); formerly Management companies
NY DIRECTOR Consultant. in the Fund
Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------------------------------------------------------------------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $128,455.37113,860.22
JR., J.D., S.J.D.# Fund Complex; President, Law for the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 4354 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------------------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: June Fund Complex; Public for the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 4354 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------------------------------------------------------------------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $94,536.850 for
Birth Date: Federated Fund Complex; President and the
November 28, 1957 Director, Heat Wagon, Inc. Corporation and
2007 Sherwood Drive (manufacturer of construction 3948 other
Valparaiso, IN temporary heaters); President and investment
DIRECTOR Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------------------------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+ of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 3016 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT AND Investment Counseling; President and
DIRECTOR Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
- --------------------
EDWARD C. GONZALES -------------------------------------------------------------------------
Birth Date: Trustee or Director of some of the $0 $0 for the
October 22, 1930 Funds in the Federated Fund Complex; Corporation and
Federated Investors President, Executive Vice President 421 other
Tower and Treasurer of some of the Funds in investment
1001 Liberty Avenue the Federated Fund Complex; Vice company
Pittsburgh, PA Chairman, Federated Investors, Inc.; in the Fund
EXECUTIVE VICE Vice President, Federated Investment Complex
PRESIDENT Management Company and Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ---------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 4354 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT AND Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- ---------------------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 4354 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- -----------------------------------------------------------------------------$0 for the
RICHARD B. FISHER President or Vice President of some of $0 Corporation and
Birth Date: May 17, the Funds in the Federated Fund 416 other
1923 Complex; Director or Trustee of some investment
Federated Investors of the Funds in the Federated Fund companies
Tower Complex; Executive Vice President, in the Fund
1001 Liberty Avenue Federated Investors, Inc.; Chairman Complex
Pittsburgh, PA and Director, Federated Securities
DIRECTOR* Corp.
- ---------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
- --------------------------------------------------------------------------------------
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 2000, JANUARY 1, 1999 AND JANUARY 1, 2000,
RESPECTIVELY.
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 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, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, Boston, Massachusetts,
plans and performs its audit so that it may provide an opinion as to whether the
Fund's financial statements and financial highlights are free of material
misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 30
Advisory Fee Earned $ $0 $0
Advisory Fee Reduction $ $0 $0
Brokerage Commissions $ $0 $0
Administrative Fee $ $185,000 $185,000
12b-1 Fee
Class A Shares $ $0 --
Class B Shares $ 57,148 --
Class C Shares $ 8,174 --
Shareholder Services Fee
Class A Shares $ 40,448 --
Class B Shares $ 19,050 --
Class C Shares $ 2,724 --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield are given for the 30-day period ended November 30, 1999.
Start of
Performance-on
30-DAY PERIOD 1 Year July 1, 1997
CLASS A SHARES
Total Return
Yield
Start of
Performance-on
30-DAY PERIOD 1 Year July 1, 1997
CLASS B SHARES
Total Return
Yield
Start of
Performance-on
30-DAY PERIOD 1 Year February 28, 1996
CLASS C SHARES
Total Return
Yield
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 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, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1billion and $115
million, 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Emerging Markets Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S 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.
109
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.
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 Federated 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 market capitalization at the
time of purchase of 1.5 billion or less.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
March 31, 2000
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:
o fluctuations in the exchange rate between the U.S. dollar and foreign
currencies;
o fluctuations in the value of equity securities in foreign securities
markets;
o 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;
o the foreign securities in which the Fund invests may trade infrequently
and may be subject to greater fluctuation in price than other securities;
o 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
o 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 -
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of B SHARES of the Fund as of the calendar year-end for
each of three years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 0% up to 140%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended 1999. The light gray shaded chart features three 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 for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1997
through 1999, The percentages noted are: 1997, 1998 and 1999.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's highest quarterly return was
48.14% (quarter ended December 31, 1999). Its lowest quarterly return was 15.05%
(quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares and
Class C Shares Average Annual Total Returns, reduced to reflect applicable sales
charges, for the calendar periods ended 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Morgan Stanley Capital
International World (ex. U.S.) Small Cap Index (MSCI_SCW), a broad-based market
index. The MSCI-SCW includes stocks having market capitalizations between U.S.
$200-800 million. This index tracks small-cap stock performance worldwide by
defining a consistent market capitalization range across 23 developed markets
(ex. U.S.) Total returns for the index shown does not reflect sales charges,
expenses or other fees that the SEC requires to be reflected in the Fund's
performance. This index is unmanaged, and it is not possible to invest directly
in an index.
----------
--------- ----------
CALENDAR PERIOD ------------
CLASS A --------- ---------- MSCI-SCW
SHARES CLASS B CLASS C
SHARES SHARES
1 Year 113.72% 119.12% 123.58% 18.38%
Start of 42.92% 43.68% 43.93%
Performance1
1 THE FUND'S START OF PERFORMANCE DATE WAS FEBRUARY 28, 1996.
- ---------------------------------------------------------------------
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES? -
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a 5.50% None None
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage of 0.00% 5.50% 1.00% original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable) 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%
2.70%3
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 1.95% 2.70% 2.70%
waivers)
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.
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:
SHARE CLASS 1 YEAR 3 5 10
YEARS YEARS YEARS
CLASS A
Expenses
assuming $761 $1,200 $1,665 $2,945
redemption
Expenses
assuming $761 $1,200 $1,665 $2,945
no redemption
CLASS B
Expenses
assuming $823 $1,238 $1,630 $2,912
redemption
Expenses
assuming $273 $838 $1,430 $2,912
no redemption
CLASS C
Expenses
assuming $373 $838 $1,430 $3,032
redemption
Expenses
assuming $273 $838 $1,430 $3,032
no redemption
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. Foreign equity
securities are equity securities of issuers based outside the United States. The
Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o 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 equity securities are often denominated in foreign currencies. Along
with the risks normally associated with domestic equity securities, foreign
equity securities are subject to currency risks and risks of foreign investing.
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 takes a "bottom-up"
approach and looks for companies which are positioned for rapid growth in
revenues or earnings and assets. The adviser evaluates the company's historical
financial statements, the quality of each company's management, its market
share, and the uniqueness of its product line as part of its stock selection
process. 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 such as
technology, telecommunications and local consumption stocks that exhibit
stronger growth potential or higher profit margins. The adviser also may invest
in downstream beneficiaries of large capitalization stocks such as parts and
software suppliers for the technology and telecommunication business stocks.
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 and shorter-term 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 SPECIFIC RISKS OF INVESTING IN THE FUND?
STOCK MARKET RISKS
o The value of equity securities in the Fund's portfolio will rise and fall.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole. These fluctuations could be a
sustained trend or a drastic movement. As a result, the Fund's portfolio will
reflect changes in prices of individual portfolio stocks or general changes
in stock valuations and the Fund's share price may decline and you could lose
money.
o 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
o 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.
o Many of the fund's investments are denominated in foreign currencies. Changes
in foreign currency exchange rates will affect the value of what the fund
owns and the Fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of a currency
by a country's government or banking authority also will have a significant
impact on the value of any securities denominated in that currency. Currency
markets generally are not as regulated as securities markets.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
The risk of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions or removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
o Foreign financial markets may also have fewer investor protections. The Fund
may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining and enforcing judgments in foreign
courts. Securities in foreign markets may also be subject to taxation
policies that reduce returns for U.S. investors.
o 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.
o 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
o 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.
o 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.
o Smaller companies may lack depth of management, they may be unable to
generate funds necessary for growth or development or they may be developing
or marketing new products or services for which markets are not yet
established and may never become established. Therefore, while smaller
companies may offer greater opportunities for capital growth than larger,
more established companies, they also involve greater risks and should be
considered speculative.
LIQUIDITY RISKS
o 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
o 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund generally values equity securities according to the last sale price in
the market in which they are primarily traded (either a national securities
exchange or the over-the-counter market).
The Fund's current NAV and public offering price may be found in the mutual
funds section of 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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate
family members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
o within 120 days of redeeming Shares of an equal or lesser amount;
o when the Fund's Distributor does not advance payment to the investment
professional for your purchase;
o by exchanging shares from the same share class of another Federated Fund;
o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its affiliates
to purchase shares without a sales charge; or
o through investment professionals that receive no portion of the sales
charge.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
- -----------------------------------------
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.
If your investment qualifies for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a money
market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares described in
this prospectus to institutions or to individuals, directly or through
investment professionals.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A, B and C 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 Payment should be made in U.S. dollars and drawn on
a U.S. bank. The Fund will not accept third-party checks (checks originally
payable to someone other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of
another Federated Fund. You must meet the minimum initial investment requirement
for purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o 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.
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
o Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of
record; or
o 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:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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 Class A 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
LEONARDO A. VILA
Leonardo A. Vila has been a portfolio manager of the Fund since July 1999.
Mr. Vila joined Federated in 1995 as a Quantitative Analyst. He served as an
Assistant Vice President of the Fund's Adviser from January 1998 to July 1999;
in April 1998 he was named a Senior Investment Analyst. He was named a Portfolio
Manager and a Vice President of the Adviser in July 1999. From April 1994 to
September 1995, Mr. Vila was an Equity Research Manager with the American Stock
Exchange. Mr. Vila earned his M.B.A. from St. John's University.
HENRY A. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992-1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
FEDERATED INTERNATIONAL
SMALL COMPANY FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No.811-7141
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G01473- 02 (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL SMALL COMPANY FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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 31428U 74 8
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G01743-02 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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. On March 31, 2000, the Corporation changed
its name from World Investment Series, Inc. to Federated World Investment
Series, Inc.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 classes of 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
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.
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.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
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 affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
EMERGING MARKET RISKS
o 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.
o 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
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
LIQUIDITY RISKS
o 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
o 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
o 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.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o 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.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide long-term growth of capital. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
DIVERSIFICATION
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.
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
CONCENTRATION
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
For purposes of this restriction, the term concentration has the meaning set
forth in the 1940 Act, any rule or order thereunder, or any SEC staff
interpretation thereof. Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
CONCENTRATION
In applying the concentration restriction: (a) utility companies will be divided
according to their services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); (b) financial service
companies will be classified according to the end users of their services (for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry); and (c) asset-backed securities will be
classified according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
`concentration.'
INVESTING IN COMMODITIES
Investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
PURCHASES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets.
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." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
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;
o for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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; and
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(TO BE FILED BY AMENDMENT.)
As of March ____, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: [Name & Address of
Shareholder, % and Name of Share Class Owned.]
IF ANY SHAREHOLDER OWNS 25% OR MORE, INCLUDE THE FOLLOWING:
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 ten 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 ___, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B and C Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS ----------------
- -------------------- -----------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 54 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: Fund Complex; Director, Member of the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 54 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
DIRECTOR conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $125,264.48 for
Birth Date: June Fund Complex; President, Investment the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 54 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
DIRECTOR
- ---------------------------------------------------------------------------------------------
NICHOLAS P. Director or Trustee of the Federated $1,514.23 $47,958.02 for
CONSTANTAKIS Fund Complex; Director, Michael Baker the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 29 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- ---------------------------------------------------------------------------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated $1,806.12 $125,264.48 for
Birth Date: July 4, Fund Complex; Director and Member of the
1918 the Executive Committee, Michael Baker Corporation and
One PNC Plaza-23rd Corp. (engineering, construction, 54 other
Floor operations, and technical services); investment
Pittsburgh, PA Chairman, Pittsburgh Foundation; companies
DIRECTOR Director, Forbes Fund (philanthropy); in the Fund
formerly: Vice Chairman and Director, Complex
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; Chairman, Health Systems Agency
of Allegheny County; Vice President,
United Way of Allegheny County;
President, St. Clair Hospital;
Director, Allegheny Hospital.
- -------------------- --------------------------------------- ----------- ----------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $0 for the
Birth Date: March Federated Fund Complex; Chairman, Corporation and
5, 1943 President and Chief Executive Officer, 46 other
353 El Brillo Way Cunningham & Co., Inc. (strategic investment
Palm Beach, FL business consulting); Trustee companies
DIRECTOR Associate, Boston College; Director, in the Fund
Iperia Corp. Complex
(communications/software); formerly:
Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $113,860.22 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 54 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $113,860.22 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 54 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------------------------------------------------------------------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $0 for the
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice Corporation and
Birth Date: April President, Legal and External Affairs, 50 other
10, 1945 Dugan Valva Contess, Inc. (marketing, investment
80 South Road communications, technology and companies
Westhampton Beach, consulting).; formerly Management in the Fund
NY DIRECTOR Consultant. Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------------------------------------------------------------------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $113,860.22 for
JR., J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 54 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ---------------------------------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: June Fund Complex; Public the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- -------------------- -----------------------------------------------------------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $0 for the
Birth Date: Federated Fund Complex; President and Corporation and
November 28, 1957 Director, Heat Wagon, Inc. 48 other
2007 Sherwood Drive (manufacturer of construction investment
Valparaiso, IN temporary heaters); President and companies
DIRECTOR Director, Manufacturers Products, Inc. in the Fund
(distributor of portable construction Complex
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------------------------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+* of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 16 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT and Investment Counseling; President and
DIRECTOR Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
- --------------------
EDWARD C. GONZALES -------------------------------------------------------------------------
Birth Date: Trustee or Director of some of the $0 $0 for the
October 22, 1930 Funds in the Federated Fund Complex; Corporation and
Federated Investors President, Executive Vice President 1 other
Tower and Treasurer of some of the Funds in investment
1001 Liberty Avenue the Federated Fund Complex; Vice company
Pittsburgh, PA Chairman, Federated Investors, Inc.; in the Fund
EXECITIVE VICE Vice President, Federated Investment Complex
PRESIDENT Management Company and Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ---------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 54 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECITIVE VICE Federated Global Investment Management
PRESIDENT Corp, Federated Services Company and
Federated Securities Corp.
- ---------------------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 54 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May the Funds in the Federated Fund Corporation and
17, 1923 Complex; Director or Trustee of some 6 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
PRESIDENT Corp.
- ---------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
- -------------------------------------------------------------------------------
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A MEMBER
OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S RESPONSIBILITIES
BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE ,EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MR. MANSFIELD BECAME A MEMBER OF THE BOARD OF DIRECTORS ON JANUARY 1,
1999. MESSRS. CUNNINGHAM AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON
DECEMBER 7, 1999. THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE
THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. MESSRS.
CUNNINGHAM AND WALSH DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE
COMPANY.
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 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, 1999, the Funds' Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the
Funds paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
NOVEMBER 30 1999 1998 1997
- --------------------------
Advisory Fee Earned $ $4,436,654 $1,677,789
Advisory Fee Reduction $ $0 $231,231
Brokerage Commissions $ $9,125,592 $3,378,511
Administrative Fee $ $267,666 $185,588
12b-1 Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
Shareholder Services Fee
Class A Shares $ -- --
Class B Shares $ -- --
Class C Shares $ -- --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield is given for the 30-day period ended November 30, 1999.
30-DAY PERIOD 1 YEAR START OF
- ---------------------------------------------PERFORMANCE ON
FEBRUARY 28, 1996
CLASS A SHARES
Total Return
Yield
30-DAY PERIOD 1 YEAR START OF
- ---------------------------------------------PERFORMANCE ON
FEBRUARY 28, 1996
CLASS B SHARES
Total Return
Yield
30-DAY PERIOD 1 YEAR START OF
- ---------------------------------------------PERFORMANCE ON
FEBRUARY 28, 1996
CLASS C SHARES
Total Return
Yield
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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.
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.
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.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Small Company Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & 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.
157
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 WORLD UTILITY FUND
A Portfolio of Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
March 31, 2000
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 -
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of A SHARES of the Fund as of the calendar year-end for
each of five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 0% up to 40%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended 1999. The light gray shaded chart features five 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 for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1999. The percentages noted are: 23.46%, 17.64%, 21.11%, 23.69%, and
39.25%
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 28.91% (quarter ended December 31, 1999). Its lowest
quarterly return was (4.54%) (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Class A Shares, Class B Shares and
Class C Shares Average Annual Total Returns, reduced to reflect applicable sales
charges, for the calendar periods ended 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Standard & Poor's 500
Index (S&P 500), and the FT/S&P Global Utility Index (FTGU), broad-based market
indexes. The S&P 500 Index is a composite index of common stocks in industrial,
transportation, and financial and public utility companies, can be used to gauge
general market performance and to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. The FTGU is a market
capitalization weighted index of approximately 174 utility securities from 24
countries including developed and emerging markets Total returns for the index
shown does not reflect sales charges, expenses or other fees that the SEC
requires to be reflected in the Fund's performance. This index is unmanaged, and
it is not possible to invest directly in an index.
CALENDAR PERIOD ------------
CLASS A --------- ---------- S & P 500 FTGU
SHARES CLASS B CLASS C
SHARES SHARES
1 Year 31.63% 32.75% 21.05% 21.05%
5 Years 23.41% -- -- 28.56%
Start of 19.40% 21.71% 23.89% 23.07%
Performance1
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.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES? -
FEDERATED WORLD UTILITY FUND
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.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT CLASS
A CLASS B CLASS 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 Waiver)1
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS 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 .................................0.73% 0.73%
0.73%
Total Annual Fund Operating Expenses ...........1.98% 2.73%3
2.73%
- -----------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser waived certain
amounts. These are shown below along with the net expenses the Fund ACTUALLY
PAID for the fiscal year ended November 30, 1999.
Total Waiver of Fund Expenses
................................................. 0.37%
0.37% 0.37%
Total Annual Fund Operating Expenses (after waiver).........
1.61% 2.36% 2.36%
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 0.63% for the fiscal year ended November
30, 1999.
3 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and C Shares operating expenses are BEFORE WAIVER as shown in
the table and remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
SHARE CLASS.......1 YEAR............3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$740........$1,137 $1,559 $2,729
- ------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$740........$1,137 $1,559 $2,729
- ------------------------------------------------------------------------------
CLASS B.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$826........$1,247 $1,645 $2,881
- ------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$276........$ 847 $1,445 $2,881
- ------------------------------------------------------------------------------
CLASS C.............................
- ------------------------------------
Expenses assuming
REDEMPTION........$376........$ 847 $1,445 $3,061
- ------------------------------------------------------------------------
Expenses assuming
NO REDEMPTION...........$276........$ 847 $1,445 $3,061
- ------------------------------------------------------------------------------
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. Utility companies may include companies that provide
electricity, gas, water, cable television, radio, telecommunications services or
sanitary services to the public.
The stock selection process usually begins with those companies 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 is not limited to Index stocks and frequently evaluates
and purchases stocks not represented in the Index if they meet the adviser's
investment criteria. Although utility companies have traditionally paid
above-average dividends, the Fund tends to emphasize those utility companies
that have strong growth potential rather than high current dividends.
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. The adviser uses
a bottom-up approach to selecting stocks in this sector and is not constrained
by country weightings or industry weightings within the utilities sector in
determining the contents of the 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 and shorter-term 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. Although not prohibited from doing so, historically, the Fund
has not entered into derivative contracts.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Many factors affect the Fund's performance. The Fund's share price changes daily
based on changes in market conditions and interest rates and in response to
other economic, political or financial developments. The Fund's reaction to
these developments will be affected by the types of the securities in which the
Fund invests, the financial condition, industry and economic sector and
geographic location of an issuer, and the Fund's level of investment in the
securities of that issuer. When you sell your shares of the Fund, they could be
worth more or less than what you paid for them.
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will rise and fall in
response to issuer, political, market and economic developments. In the short
term, equity prices can fluctuate dramatically in response to these
developments. Different parts of the market and different types of equity
securities can react differently to these developments. For example, large cap
stocks can react differently than small cap stocks, and "growth" stocks can
react differently than "value" stocks. Issuer, political or economic
developments can affect a single issuer, issuers within an industry or economic
sector or geographic region, or market as a whole. These fluctuations could be a
sustained trend or a drastic movement.
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.
The adviser attempts to manage this risk by diversifying the Fund's investments
within the sector. For example, the adviser will invest in a number of
traditional utilities as well as more volatile growth oriented ones in the
technology and telecommunications industries. However, diversification will not
protect the Fund from extreme volatility 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.
The Adviser is seeking information regarding the Year 2000 readiness of
countries, issuers, and 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
be incomplete, inaccurate or difficult to obtain. As a result, the Adviser might
not be able to assess accurately the potential effects of the Year 2000 problem
on these countries and companies, and these problems could result in material
losses to the Fund.
WHAT DO SHARES COST?
You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The Fund generally values equity securities according to the last sale price in
the market in which they are primarily traded (either a national securities
exchange or the over-the-counter market).
The Fund's current NAV and public offering price may be found in the mutual
funds section of 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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate
family members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
o within 120 days of redeeming Shares of an equal or lesser amount;
o when the Fund's Distributor does not advance payment to the investment
professional for your purchase;
o by exchanging shares from the same share class of another Federated Fund;
o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its affiliates
to purchase shares without a sales charge; or
o through investment professionals that receive no portion of the sales
charge.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
- -----------------------------------------
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.
If your investment qualifies for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a money
market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting
the minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares described in
this prospectus to institutions or to individuals, directly or through
investment professionals.
When the Distributor receives marketing fees and sales charges, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A, B and C 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of
another Federated Fund. You must meet the minimum initial investment requirement
for purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o 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.
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
o Call your investment professional or the Fund if you need special
instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o 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:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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 Class A 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
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 in 1998 as a Senior 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.
RICHARD WINKOWSKI
Richard Winkowski has been a portfolio manager of the Fund since December
1999. Mr. Winkowski joined Federated as a Senior Investment Analyst in April
1998 and was promoted to Assistant Vice President of the Fund's Adviser in July
1999. 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 through January 1995 and then as
a Portfolio Manager Assistant until September 1997. Mr. Winkowski earned his
B.A. from the University of Wisconsin."
HENRY A. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992-1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
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.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
FEDERATED WORLD UTILITY FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No.811-7141
CUSIP 31428U 67 2
CUSIP 31428U 66 4
CUSIP 31428U 65 6
G00440-02 (3/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED WORLD UTILITY FUND
A Portfolio of Federated 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),
dated March 31, 2000.
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, 2000
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 31428U 67 2
CUSIP 31428U 66 4
CUSIP 31428U 65 6
G00440-02 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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. On March 31, 2000, the
Corporation changed its name from World Investment Series, Inc. to Federated
World Investment Series, Inc.
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 classes of 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
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 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.
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. 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.
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.
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 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.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
ASSET COVERAGE
In order to secure its obligations in connection with 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.
CREDIT RISKS
o 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.
o 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.
o 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.
o 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.
EURO RISKS
o 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.
o 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
o 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.
o 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.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS RELATED TO COMPANY SIZE
o 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.
o 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
o 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.
o 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
o 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
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide total return. The investment
objective may not be changed by the Fund's Directors without shareholder
approval.
INVESTMENT LIMITATIONS
DIVERSIFICATION
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
LENDING
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
CONCENTRATION
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry,
provided that the Fund may concentrate its investments in issuers in the
utilities industry. Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
CONCENTRATION
In applying the concentration restriction: (a) utility companies will be divided
according to their services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); and (b) asset-backed
securities will be classified according to the underlying assets securing such
securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration limitation tests so long as the policy of the SEC
remains in effect. In addition, investments in bank instruments, and investments
in certain industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an industry, except when
held for temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
`concentration.'
INVESTING IN COMMODITIES
Investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
PURCHASES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases and sales
of securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets.
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." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
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;
o for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE 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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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; and
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements.
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 (CLASS B SHARES AND CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment 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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(TO BE FILED BY AMENDMENT.)
As of March ____, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: [Name & Address of
Shareholder, % and Name of Share Class Owned.]
IF ANY SHAREHOLDER OWNS 25% OR MORE, INCLUDE THE FOLLOWING:
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 ten 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 ___, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B and C Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS ----------------
- -------------------- -----------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Corporation and
28, 1924 Complex; Chairman and Director, 54 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND Counseling and Federated Global
CHAIRMAN Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ---------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: Fund Complex; Director, Member of the
February 3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 54 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
DIRECTOR conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $125,264.48 for
Birth Date: June Fund Complex; President, Investment the
23, 1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 54 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
DIRECTOR
- ---------------------------------------------------------------------------------------------
NICHOLAS P. Director or Trustee of the Federated $1,514.23 $47,958.02 for
CONSTANTAKIS Fund Complex; Director, Michael Baker the
Birth Date: Corporation (engineering, Corporation and
September 3, 1939 construction, operations and technical 29 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
DIRECTOR in the Fund
Complex
- ---------------------------------------------------------------------------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated $1,806.12 $125,264.48 for
Birth Date: July 4, Fund Complex; Director and Member of the
1918 the Executive Committee, Michael Baker Corporation and
One PNC Plaza-23rd Corp. (engineering, construction, 54 other
Floor operations, and technical services); investment
Pittsburgh, PA Chairman, Pittsburgh Foundation; companies
DIRECTOR Director, Forbes Fund (philanthropy); in the Fund
formerly: Vice Chairman and Director, Complex
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; Chairman, Health Systems Agency
of Allegheny County; Vice President,
United Way of Allegheny County;
President, St. Clair Hospital;
Director, Allegheny Hospital.
- -------------------- --------------------------------------- ----------- ----------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $0 for the
Birth Date: March Federated Fund Complex; Chairman, Corporation and
5, 1943 President and Chief Executive Officer, 46 other
353 El Brillo Way Cunningham & Co., Inc. (strategic investment
Palm Beach, FL business consulting); Trustee companies
DIRECTOR Associate, Boston College; Director, in the Fund
Iperia Corp. Complex
(communications/software); formerly:
Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ---------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $113,860.22 for
M.D.* Fund Complex; Professor of Medicine, the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 54 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $113,860.22 for
Birth Date: March Fund Complex; formerly: the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 54 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------------------------------------------------------------------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $0 for the
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice Corporation and
Birth Date: April President, Legal and External Affairs, 50 other
10, 1945 Dugan Valva Contess, Inc. (marketing, investment
80 South Road communications, technology and companies
Westhampton Beach, consulting).; formerly Management in the Fund
NY DIRECTOR Consultant. Complex
Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
- ---------------------------------------------------------------------------------------------
JOHN E. MURRAY, Director or Trustee of the Federated $1,665.92 $113,860.22 for
JR., J.D., S.J.D.# Fund Complex; President, Law the
Birth Date: Professor, Duquesne University; Corporation
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 54 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- -------------------- -----------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $113,860.22 for
Birth Date: June Fund Complex; Public the
21, 1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 54 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------------------------------------------------------------------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $0 for the
Birth Date: Federated Fund Complex; President and Corporation and
November 28, 1957 Director, Heat Wagon, Inc. 48 other
2007 Sherwood Drive (manufacturer of construction investment
Valparaiso, IN temporary heaters); President and companies
DIRECTOR Director, Manufacturers Products, Inc. in the Fund
(distributor of portable construction Complex
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ---------------------------------------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+* of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 16 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT and Investment Counseling; President and
DIRECTOR Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
- --------------------
EDWARD C. GONZALES -------------------------------------------------------------------------
Birth Date: Trustee or Director of some of the $0 $0 for the
October 22, 1930 Funds in the Federated Fund Complex; Corporation and
Federated Investors President, Executive Vice President 1 other
Tower and Treasurer of some of the Funds in investment
1001 Liberty Avenue the Federated Fund Complex; Vice company
Pittsburgh, PA Chairman, Federated Investors, Inc.; in the Fund
EXECITIVE VICE Vice President, Federated Investment Complex
PRESIDENT Management Company and Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ---------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 54 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECITIVE VICE Federated Global Investment Management
PRESIDENT Corp, Federated Services Company and
Federated Securities Corp.
- ---------------------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June Complex; Vice President - Funds Corporation and
17, 1954 Financial Services Division, Federated 54 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May the Funds in the Federated Fund Corporation and
17, 1923 Complex; Director or Trustee of some 6 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
PRESIDENT Corp.
- ---------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: and various other Funds in the Corporation and
November 28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE ,EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++MR. MANSFIELD BECAME A MEMBER OF THE BOARD OF DIRECTORS ON JANUARY 1,
1999. MESSRS. CUNNINGHAM AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON
DECEMBER 7, 1999. THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE
THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. MESSRS.
CUNNINGHAM AND WALSH DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE
COMPANY.
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 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, 1999, the Funds' Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the
Funds paid $_______ 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:
MAXIMUM
AVERAGE AGGREGATE DAILY NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED FUNDS
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
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
NOVEMBER 30 1999 1998 1997
- --------------------------
Advisory Fee Earned $ $587,621 $360,983
Advisory Fee Reduction $ $409,202 $358,986
Brokerage Commissions $ $302,937 $117,108
Administrative Fee $ $215,000 $215,000
12b-1 Fee
Class A Shares NA --
Class B Shares $ --
Class C Shares $ --
Shareholder Services Fee
Class A Shares $ --
Class B Shares $ --
Class C Shares $ --
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.
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 are given for the one-year, five-year and Start of Performance
periods ended November 30, 1999.
Yield is given for the 30-day period ended November 30, 1999.
30-DAY PERIOD 1 YEAR 5-YEAR START OF
- ---------------------------------------------------------------PERFORMANCE ON
----------------
APRIL 22, 1994
CLASS A SHARES
Total Return
Yield
30-DAY PERIOD 1 YEAR 5-YEAR START OF
- ---------------------------------------------------------------PERFORMANCE ON
---------------
JULY 27, 1995
CLASS B SHARES
Total Return
Yield
30-DAY PERIOD 1 YEAR 5-YEAR START OF
- ---------------------------------------------------------------PERFORMANCE ON
---------------
JULY 27, 1995
CLASS C SHARES
Total Return
Yield
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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
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.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $5 trillion to the more than 7,300 funds
available, according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Small Company Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & 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.
209
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
PROSPECTUS
FEDERATED INTERNATIONAL HIGH INCOME FUND
A Portfolio of Federated 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 (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the
Fund Invests?
What are the Specific Risks of Investing in
the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
March 31, 2000
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 objectives, 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 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
as well as developed countries. Many emerging market countries and corporations
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. There is no minimum rating standard for the Fund's
securities. 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:
CURRENCY RISKS
Because the exchange rates for currencies fluctuate daily, prices of the foreign
securities in which the Fund invests are more volatile than prices of securities
traded exclusively in the U.S.
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
There the actual or perceived risk that issuers of securities in which the Fund
may invest may default in the payment of interest or principal on the securities
when due, which would cause the Fund to lose money.
RISKS OF FOREIGN INVESTING
Because the Fund invests in securities issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be
the case.
LIQUIDITY RISKS
The non-investment grade securities and complex CMOs in which the Fund invests
may be less readily marketable and may be subject to greater fluctuation in
price than other securities.
SECTOR RISK
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
The Fund may invest a portion of its assets in securities rated below investment
grade which may be subject to greater interest rate, credit and liquidity risks
than investment grade securities.
EMERGING MARKETS RISKS
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
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated international High Income Fund Class A Shares
as of the calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "-8.00%" and
increasing in increments of 2.00%% up to 10.00%.
The `x' axis represents calculation periods: from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features three 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 Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1997
through 1999, The percentages noted are: 2.17%, (6.54%), and 9.99%.
The bar chart shows the variability of the Fund's Class A Shares total returns
on a calendar year-end basis.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
Within the period shown in the Chart, the Fund's Class A 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
The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns , reduced to reflect applicable
sales charges, for the calendar periods ended December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to JP Morgan
Emerging Market Bond Index (JPM-EMB), a broad-based market index The JPM-EMB
tracks the total returns of external currency debt instrurments of 14 emerging
market countries. Total returns for the index shown do not reflect sales
charges, expenses or other fees that the SEC requires to be reflected in the
Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index.
CLASS A --------- CLASS C
SHARES SHARES ------------
CALENDAR PERIOD --------- JP-EMB
CLASS B
SHARES
1 Year 5.90% 4.51% 9.00% 25.97%
Start of 2.00% 1.98% 2.67% 8.10%
Performance1
1 The Fund's Class A Shares, Class B Shares and Class C Shares start of
performance date was October 2, 1996.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED INTERNATIONAL HIGH INCOME FUND
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.
SHAREHOLDER FEES CLASS CLASS CLASS
A B C
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as 4.50% None None a
percentage of offering price) Maximum Deferred Sales Charge (Load) (as a
percentage 0.00% 5.50% 1.00% of original purchase price or redemption proceeds,
as applicable) Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, None None None if
applicable) Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Rembursements)(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 0.65% 0.65% 0.65%
Total Annual Fund Operating Expenses 2.00% 2.50%(42.50%
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, 1999.
Waivers and Reimbursements of Fund Expenses 1.04% 0.79% 0.79%
Total Actual Annual Fund Operating Expenses (after 0.96% 1.71% 1.71%
waivers)
2 The adviser voluntarily waived 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 0.06% for the fiscal year ended November 30, 1999.
3 Class A Shares did not pay or accrue the distribution (12b-1) services fee
during the fiscal year ended November 30, 1999.
- --------------------------------------------------------------------------
Class A Shares has no present intention of paying or accruing the
distribution (12b-1) services fee during the fiscal year ended
November 30, 2000.
5 Class B Shares convert to Class A Shares (which pay lower ongoing expenses )
approximately eight years after purchse.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A, B, and 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, B, and 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, B, and 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:
SHARE CLASS 1 3 YEARS 5 10
YEAR YEARS YEARS
CLASS A
Expenses assuming $644 $1,049 $1,479 $2,672
redemption
Expenses assuming no $644 $1,049 $1,479 $2,672
redemption
CLASS B
Expenses assuming $803 $1,179 $1,531 $2,713
redemption
Expenses assuming no $253 $779 $1,331 $2,713
redemption
CLASS C
Expenses assuming $353 $779 $1,331 $2,836
redemption
Expenses assuming no $253 $779 $1,331 $2,836
redemption
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 and corporations 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 considers "emerging markets" to include any country that is
defined as an emerging market or developing country by any of the following: the
International Bank for reconstruction and development (i.e., the World Bank),
the International Finance Corporation or the United Nations or its authorities.
The adviser may pursue investment opportunities in Asia, Africa, Latin America,
the Middle East and the developing countries of Europe (primarily in Eastern
Europe) as well as developed countries. 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. For investments in corporate
issuers, the adviser 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 and shorter-term 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?
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
The Fund will also invest in high-yield debt securities of foreign corporations.
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.
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.
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if: o.....it
is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o 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.
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.
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.
There is no minimum rating standard for the Fund's securities.
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, real or perceived, that an issuer will default
on a security by failing to pay interest or principal when due. If an issuer
defaults or is perceived as being endangering of defaulting, 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.
The foreign sovereign debt securities and "Brady Bonds" the Fund purchases
involve specific risks, including that: (i) the governmental entity that
controls the repayment of sovereign debt may not be willing or able to repay the
principal and/or interest when it becomes due because of political constraints,
cash flow problems and other national economic factors; (ii) governments may
default on their sovereign debt, which may require holders of such sovereign
debt to participate in debt rescheduling or additional lending to defaulting
governments; and (iii) there is no bankruptcy proceedings by which defaulted
sovereign debt may be collected in whole or in part. 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.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the U.S. or in other
foreign countries. The laws of some foreign countries may limit the Fund's
ability to invest in securities of certain issuers organized under the laws of
those foreign countries.
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.
The Fund will manage this risk by investing in a wide range of issuers within a
particular sector.
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
creditworthiness and consequently their prices can be significantly more
volatile than prices in developed countries. Emerging market economies may also
experience more actual or perceived 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
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price).
If the Fund purchases foreign securities that trade in foreign markets on days
the NYSE is closed, the value of the Fund's assets may change on days you cannot
purchase or redeem Shares. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally
values equity securities according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market).
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.
MAXIMUM SALES CHARGE
MINIMUM FRONT-END CONTINGENT
SHARES OFFERED INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE2 SALES CHARGE3
AMOUNTS1
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%
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
CLASS A SHARES
Sales Charge as a Sales Charge as
Purchase Amount Percentage of a Percentage of
Public Offering NAV
Price
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 greater1 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
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor 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.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:
o purchasing Shares in greater quantities to reduce the applicable sales
charge;
o 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);
o 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
o 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:
o within 120 days of redeeming Shares of an equal or lesser amount;
O by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);
o through wrap accounts or other investment programs where you pay the
investment professional directly for services;
o through investment professionals that receive no portion of the sales
charge;
o as a Federated Life Member (Class A Shares only) and their immediate family
members; or
o as a Director or employee of the Fund, the Adviser, the Distributor and
their affiliates, and the immediate family members of these individuals.
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
CLASS 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.
- -----------------------------------------
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.
YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser amount;
o that you exchanged into the same share class of another Federated Fund if
the shares were held for the applicable CDSC holding period (other than a
money market fund);
o purchased through investment professionals who did not receive advanced
sales payments;
O if, after you purchase Shares, you become disabled as defined by the IRS;
o if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;
o if your redemption is a required retirement plan distribution; or
o upon the death of the last surviving shareholder of the account.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:
o Shares that are not subject to a CDSC; and
o 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, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, 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
o Establish an account with the investment professional; and
o 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
o Establish your account with the Fund by submitting a completed New Account
Form; and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions.
If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem or exchange Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
o Fund Name and Share Class, account number and account registration;
o amount to be redeemed or exchanged; and
o signatures of all shareholders exactly as registered; and
o 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:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days; or
o a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o 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:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o 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:
o you redeem 12% or less of your account value in a single year;
o you reinvest all dividends and capital gains distributions; and
o 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 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. 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 Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. 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.
THE FUND'S PORTFOLIO MANAGERS ARE:
MICHEAL W. CASEY, PHD.
Micheal W. Casey, Ph.D. has been the Fund's Portfolio Manager since January
1997. Mr. Casey joined Federated in 1996 as a Senior Investment Analyst and an
Assistant Vice President. Mr. Casey currently serves as a Senior 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 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.
HENRY J. FRANTZEN
Henry A. Frantzen is the Fund's Chief Investment Officer. Mr. Frantzen
joined Federated in 1995 as an Executive Vice President of the Fund's Adviser
and has overseen the operations of the Adviser since its formation. Mr. Frantzen
served as Chief Investment Officer of international equities at Brown Brothers
Harriman & Co. from 1992 until 1995. Mr. Frantzen earned his bachelors degree in
Business Administration from the University of North Dakota.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.85% of
the Fund's average daily net assets. The Advisor may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
FEDERATED INTERNATIONAL HIGH INCOME FUND
A Portfolio of Federated World Investment Series, Inc.
CLASS A SHARES ...
CLASS B SHARES
CLASS C SHARES
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Report to shareholders as they become available. The Annual Report's
Management Discussion and Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov You can purchase copies of this information by contacting the
SEC by email at [email protected] or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for information on the
Public Reference Room's operations and copying fees.
INVESTMENT COMPANY ACT FILE NO. 811-7141
CUSIP31428U771
CUSIP 31428U763
CUSIP 31428U755
GO1745-01 (31/00)
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED INTERNATIONAL HIGH INCOME FUND
A Portfolio of Federated 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), dated March 31, 2000.
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, 2000
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
G01745-02 (3/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated 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 classes of 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, in addition to those described in the prospectus, 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.
BRADY BONDS
The Fund may invest in Brady Bonds which are U.S. dollar denominated debt
obligations that foreign governments issue in exchange for commercial bank
loans. Debt restructuring involving Brady Bonds have been implemented in several
countries, most notably Argentina, Bulgaria, Brazil, Costa Rica, Dominican
Republic, Ecuador, Mexico, Morocco, Nigeria, the Philippines, Poland and
Uruguay. 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. Interest
payments on many Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case fixed rate bonds, is equal to at least one year
of rolling interest payments or, in the case of floating rate bonds, initially
is equal to at least one year's rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. However, neither the U.S. government not the International Monetary
Fund has guaranteed the repayment of any Brady Bond.
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). While interest payments are not made on such securities,
holders of such securities are deemed to have received "phantom income"
annually. Investors buy zero coupon securities at a price below the amount
payable at maturity. The amount of this discount is accreted over the life of
the security, and the accretion constitutes the income earned on the security
for both accounting and tax purposes. 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.
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.
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. If the seller defaults, the
Fund could realize a loss on the sale of the underlying security to the extent
that the proceeds of the resale are less than the sale price.
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.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially or
become insolvent.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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.
EURO RISKS
o 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.
o 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.
PREPAYMENT RISKS
o 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.
o 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.
o 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.
LEVERAGE RISKS
o 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.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a high level of current income. The
investment objective may not be changed by the Fund's Directors without
shareholder approval.
INVESTMENT LIMITATIONS
The following limitations and guidelines are considered at the time of purchase
under normal market conditions and are based on a percentage of the Fund's net
assets unless otherwise noted.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentrations of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute "concentration".
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly fashion.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignment and participation interest.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisitions, disposition or
resale of its portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act of 1933.
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 or, its
agencies or instrumentalities, and repurchase agreements collateralized by such
U.S. government securities; and securities of other investment companies) if, as
a result, more than 5% of the value of its total assets would be invested in the
securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING SECURITIES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN 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.
As a matter of non-fundamental policy, (a) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (b) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limitation tests so long as the policy of the SEC remains
in effect. In addition, investments in bank instruments, and investments in
certain industrial development bonds funded by activities in a single industry
will be deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the value of
the fund's total assets in any one industry will constitute `concentration.'
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities may be determined as follows or
any other manner which the Board, or a committee of the Board, has determined is
appropriate in light of the situation or information available at the time:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o 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
o 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
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 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 CLASS A SHARES
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 Share 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:
o the Directors, employees and sales representatives of the Fund, the
Adviser, the Distributor and their affiliates;
o any associated person of an investment dealer who has a sales agreement
with the Distributor; and
o 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:
o 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;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;
o of Shares that represent a reinvestment within 120 days of a previous
redemption;
o 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;
o 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;
o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and
CLASS B SHARES ONLY
o which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program.
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 professionals.
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:
o 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:
AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF
PUBLIC OFFERING PRICE
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
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.
(To be filed by amendment).
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.
(To be filed by amendment).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS FROM FROM CORPORATION
POSITION WITH PRINCIPAL OCCUPATIONS CORPORATION AND FUND COMPLEX
CORPORATION FOR PAST FIVE YEARS ----------------
- --------------------
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0 $0 for the
Birth Date: July 28, or Trustee of the Federated Fund Corporation and
1924 Complex; Chairman and Director, 4354 other
Federated Investors Federated Investors, Inc.; Chairman investment
Tower and Trustee, Federated Investment companies
1001 Liberty Avenue Management Company; Chairman and in the Fund
Pittsburgh, PA Director, Federated Investment Complex
DIRECTOR AND CHAIRMAN Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
- ----------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: February Fund Complex; Director, Member of for the
3, 1934 Executive Committee, Children's Corporation and
15 Old Timber Trail Hospital of Pittsburgh; Director, 4354 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
- --------------------- conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
DIRECTOR Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ----------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,665.92 $128,455.37125,264.48
Birth Date: June 23, Fund Complex; President, Investment for the
1937 Properties Corporation; Senior Vice Corporation and
Grubb & President, John R. Wood and 4354 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
CorporationWood/Commercventures in Southwest Florida; in the Fund
Dept. formerly: President, Naples Property Complex
John R. Wood Management, Inc. and Northgate Village
Associates, Inc. Development Corporation.
Realtors
3201255 Tamiami
Trail North
Naples, FL
DIRECTOR
- ----------------------------------------------------------------------------------------------
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated $1,514.23 $73,191.247,958.02
Birth Date: Fund Complex; Director, Michael Baker for the
September 3, 1939 Corporation (engineering, Corporation and
175 Woodshire Drive construction, operations and technical 3729 other
Pittsburgh, PA services);formerly: Partner, Andersen investment
DIRECTOR Worldwide SC. companies
in the Fund
Complex
- --------------------- --------------------------------------- ----------- -----------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $0 $93,190.480 for
Birth Date: March 5, Federated Fund Complex; Chairman, the
1943 President and Chief Executive Officer, Corporation and
353 El Brillo Way Cunningham & Co., Inc. (strategic 46 other
Palm Beach, FL business consulting); Trustee investment
DIRECTOR Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
- ----------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
M.D.* Fund Complex; Professor of Medicine, for the
Birth Date: October University of Pittsburgh; Medical Corporation and
11, 1932 Director, University of Pittsburgh 4354 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
DIRECTOR Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ----------------------------------------------------------------------------------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated $1,792.22 $125,264.48 for
JR., ESQ. Fund Complex; Attorney of Counsel, the
Birth Date: June 18, Miller, Ament, Henny & Kochuba; Corporation and
1924 Director Emeritus, Eat'N Park 54 other
Miller, Ament, Henny Restaurants, Inc.; formerly: Counsel, investment
& Kochuba Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund
Pittsburgh, PA Complex
DIRECTOR
- ----------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated $1,429.52 $109,153.60113,860.22
Birth Date: March Fund Complex; formerly: for the
16, 1942 Representative, Commonwealth of Corporation and
One Royal Palm Way Massachusetts General Court; 4354 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
DIRECTOR in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ----------------------------------------------------------------------------------------------
CHARLES F. Director or Trustee of some of the $1,595.28 $102,573.910 for
MANSFIELD, JR.++ Federated Fund Complex; Executive the
Birth Date: April Vice President, Legal and External Corporation and
10, 1945 Affairs, Dugan Valva Contess, Inc. 50 other
80 South Road (marketing, communications, technology investment
Westhampton Beach, and consulting); formerly Management companies
NY DIRECTOR Consultant. in the Fund
Complex
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice
President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.
- ----------------------------------------------------------------------------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated $1,665.92 $128,455.37113,860.22
J.D., S.J.D.# Fund Complex; President, Law for the
Birth Date: December Professor, Duquesne University; Corporation
20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 4354 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
DIRECTOR in the Fund
Previous Positions: Dean and Professor Complex
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
- ----------------------------------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated $1,514.23 $116,760.63113,860.22
Birth Date: June 21, Fund Complex; Public for the
1935 Relations/Marketing/Conference Corporation and
4905 Bayard Street Planning. 4354 other
Pittsburgh, PA investment
DIRECTOR Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ----------------------------------------------------------------------------------------------
JOHN S. WALSH++ Director or Trustee of some of the $0 $94,536.850 for
Birth Date: November Federated Fund Complex; President and the
28, 1957 Director, Heat Wagon, Inc. Corporation and
2007 Sherwood Drive (manufacturer of construction 3948 other
Valparaiso, IN temporary heaters); President and investment
DIRECTOR Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
- ----------------------------------------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President $0 $0 for the
DONAHUE+ of the Federated Fund Complex; Corporation and
Birth Date: April Director or Trustee of some of the 3016 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President and Trustee, Federated Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT AND Investment Counseling; President and
DIRECTOR Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
- ---------------------
EDWARD C. GONZALES -------------------------------------------------------------------------
Birth Date: October Trustee or Director of some of the $0 $0 for the
22, 1930 Funds in the Federated Fund Complex; Corporation and
Federated Investors President, Executive Vice President 421 other
Tower and Treasurer of some of the Funds in investment
1001 Liberty Avenue the Federated Fund Complex; Vice company
Pittsburgh, PA Chairman, Federated Investors, Inc.; in the Fund
EXECUTIVE VICE Vice President, Federated Investment Complex
PRESIDENT Management Company and Federated
Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
- ----------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 $0 for the
Birth Date: October of the Federated Fund Complex; Corporation and
26, 1938 Executive Vice President, Secretary 4354 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Trustee, Federated Investment companies
1001 Liberty Avenue Management Company and Federated in the Fund
Pittsburgh, PA Investment Counseling; Director, Complex
EXECUTIVE VICE Federated Global Investment Management
PRESIDENT AND Corp, Federated Services Company and
SECRETARY Federated Securities Corp.
- -----------------------------------------------------------------------------$0 for the
RICHARD J. THOMAS Treasurer of the Federated Fund $0 Corporation and
Birth Date: June 17, Complex; Vice President - Funds 4354 other
1954 Financial Services Division, Federated investment
Federated Investors Investors, Inc.; formerly: various companies
Tower management positions within Funds in the Fund
1001 Liberty Avenue Financial Services Division of Complex
Pittsburgh, PA Federated Investors, Inc.
TREASURER
- ----------------------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of $0 $0 for the
Birth Date: May 17, the Funds in the Federated Fund Corporation and
1923 Complex; Director or Trustee of some 416 other
Federated Investors of the Funds in the Federated Fund investment
Tower Complex; Executive Vice President, companies
1001 Liberty Avenue Federated Investors, Inc.; Chairman in the Fund
Pittsburgh, PA and Director, Federated Securities Complex
DIRECTOR* Corp.
- ----------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund $0 $0 for the
Birth Date: November and various other Funds in the Corporation and
28, 1942 Federated Fund Complex; Executive Vice 3 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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.
- --------------------------------------------------------------------------------------
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON
AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A
MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S
RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 2000, JANUARY 1, 1999 AND JANUARY 1, 2000,
RESPECTIVELY.
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 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, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ 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:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS OF THE ADMINISTRATIVE FEE FEDERATED
FUNDS 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 The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst & Young LLP, Boston, Massachusetts,
plans and performs its audit so that it may provide an opinion as to whether the
Fund's financial statements and financial highlights are free of material
misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 30
Advisory Fee Earned $ $698,226 $272,638
Advisory Fee Reduction $ $698,226 $272,638
Brokerage Commissions $ $16,156 $8,081
Administrative Fee $ $185,000 $185,000
12b-1 Fee
Class A Shares $ $0 --
Class B Shares $ N/A --
Class C Shares $ N/A --
Shareholder Services Fee
Class A Shares $ N/A --
Class B Shares $ N/A --
Class C Shares $ N/A --
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.
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 are given for the one-year and Start of Performance periods ended
November 30, 1999.
Yield are given for the 30-day period ended November 30, 1999.
Start of
- ----------------------------------------------------------Performance-on
30-DAY PERIOD 1 Year October 2, 1996
CLASS A SHARES
Total Return
Yield
Start of
- ----------------------------------------------------------Performance-on
30-DAY PERIOD 1 Year October 2, 1996
CLASS B SHARES
Total Return
Yield
Start of
- ----------------------------------------------------------Performance-on
30-DAY PERIOD 1 Year February 28, 1996
CLASS C SHARES
Total Return
Yield
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o 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;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o 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.
FEDERATED FUNDS OVERVIEW
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 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 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 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, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 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, 1999, Federated managed 9
mortgage backed, 11 government/agency and 16government money market mutual
funds, with assets approximating $4.7 billion, $1.6 billion and $34.1 billion,
respectively. Federated trades approximately $450 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 $43.8 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,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime and 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1billion and $115
million, 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Emerging Markets Fund dated November 30, 1999.
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:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S 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
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; (16)
(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)
+ 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)
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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed March 31, 1999. (File Nos. 33-52149 and
811-7141)
(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)
(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) (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); (16)
+ All exhibits have been filed electronically.
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)
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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed March 31, 1999. (File Nos. 33-52149 and
811-7141)
(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; (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) (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); (16)
(vii) Copy of Schedule A to Principal Servicer's
Agreement (Class B Shares); (16)
(viii)Copy of Amended and Restated Shareholder Services
Agreement Exhibit; (16)
(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);
- ----------------------------------------
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)
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)
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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed March 31, 1999. (File Nos. 33-52149 and
811-7141)
(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; (16) (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; (16)
(n) (i) Conformed copy of Multiple Class Plan; (5)
(ii)Exhibits to Multiple Class Plan (18f-3); (14)
(o) (i) Conformed copy of Power of Attorney; +
(ii)Conformed copy of Power of Attorney of Chief Investment
Officer of the Registrant; +
(iii)Conformed copy of Power of Attorney of Director; + (iv)
Conformed copy of Power of Attorney of Director; + (v)
Conformed copy of Power of Attorney of Director. +
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
--------------------------------------------------------------
None
- ----------------------------------------
+ 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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed March 31, 1999. (File Nos. 33-52149 and
811-7141)
Item 25. INDEMNIFICATION (1).
---------------
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed February 4, 1994. (File Nos. 33-52149 and
811-7141)
Item 26. Business and Other Connections of Investment Adviser:
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
David A. Briggs
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Jeffrey A. Kozemchak
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
G. Andrew Bonnewell
Micheal W. Casey
Robert E. Cauley
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
James E. Grefenstette
Marc Halperin
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Robert M. Kowit
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
William M. Painter
Jeffrey A. Petro
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Edward J. Tiedge
Leonardo A. Vila
Paige M. Wilhelm
George B. Wright
Assistant Vice Presidents: Arminda Aviles
Nancy J. Belz
Lee R. Cunningham, II
James H. Davis, II
Jacqueline A. Drastal
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
Gary E. Farwell
Eamonn G. Folan
John T. Gentry
John W. Harris
Nathan H. Kehm
John C. Kerber
Grant K. McKay
Christopher Matyszewski
Natalie F. Metz
Thomas Mitchell
Joseph M. Natoli
Trent Neville
Ihab Salib
Roberto Sanchez-Dahl, Sr.
James W. Schaub
John Sheehy
John Sidawi
Matthew K. Stapen
Diane Tolby
Timothy G. Trebilcock
Steven J. Wagner
Lori A. Wolff
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: C. Grant Anderson
Karen M. Brownlee
Leslie K. Ross
Assistant Treasurer: Dennis McAuley, III
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:
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 Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal 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.;
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; 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; and Trust for Financial Institutions.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Richard B. Fisher Chairman, Chief Executive President
Federated Investors Tower Officer, Chief Operating
1001 Liberty Avenue Officer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Arthur L. Cherry Director,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales
Federated Investors Tower and Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Treasurer,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Ronald M. Petnuch 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Matthew W. Brown 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
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Robert J. Deuberry 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
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp 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
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Dennis M. Laffey Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss 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
Amy Michalisyn 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. Peter 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Larry Sebbens Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
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
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Edward R. Bozek 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
Donald C. Edwards 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
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane 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
Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Denis McAuley III Assistant Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
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 P.O. Box 8600
- ---------------------
SERVICES COMPANY Boston, MA 02266-8600
- ----------------
(Transfer Agent and Dividend
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
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(Adviser)
STATE STREET BANK AND TRUST COMPANY P.O. Box 8600
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(Custodian) Boston, MA 02266-8600
Item 29. MANAGEMENT SERVICES: Not applicable.
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Item 30. UNDERTAKINGS:
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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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED WORLD INVESTMENT
SERIES, INC., has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 31st day of January, 2000.
WORLD INVESTMENT SERIES, INC.
BY: /s/ James O. Perry IV
James O. Perry IV, Assistant Secretary
Attorney in Fact for John F. Donahue
January 31, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
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By: /s/James O. Perry Attorney In Fact January 31, 2000
James O. Perry 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
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit o(iii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of _WORLD INVESTMENT SERIES, INC.___ and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
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/S/ CHARLES F. MANSFIELD Director January 3, 2000
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Charles F. Mansfield
Sworn to and subscribed before me this _3RD___ day of _JANUARY, 2000
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/s/ Madaline P. Kelly
Madaline P. Kelly
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Notary Public
Exhibit o(ii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of _WORLD INVESTMENT SERIES, INC.___ and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
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/S/ HENRY A. FRANTZEN Chief Investment Officer 12-14-99
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Henry A. Frantzen
Sworn to and subscribed before me this _3RD___ day of _JANUARY, 2000
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/s/ Madaline P. Kelly
Madaline P. Kelly
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Notary Public
Exhibit o(i) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of _WORLD INVESTMENT SERIES, INC.___ and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
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/S/ JOHN F. DONAHUE Chairman and Director January 3, 2000
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John F. Donahue (Chief Executive Officer)
/S/ RICHARD B. FISHER
Richard B. Fisher President and Director January 3, 2000
/S/ RICHARD J. THOMAS Treasurer January 3, 2000
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Richard J. Thomas (Principal Financial and
Accounting Officer)
/S/ T. G. BIGLEY Director January 3, 2000
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Thomas G. Bigley
/S/ N. P. CONSTANTAKIS Director January 3, 2000
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Nicholas P. Constantakis
/S/ JOHN T. CONROY Director January 3, 2000
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John T. Conroy
/S/ WILLIAM COPELAND Director*
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William J. Copeland
/S/ JAMES E. DOWD Director*
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James E. Dowd
/S/ LAWRENCE D. ELLIS Director January 3, 2000
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Lawrence D. Ellis
/S/ EDWARD L. FLAHERTY Director**
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Edward L. Flaherty, Jr.
/S/ PETER E. MADDEN Director January 3, 2000
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Peter E. Madden
/S/ JOHN E. MURRAY Director January 3, 2000
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John E. Murray, Jr.
/S/ WESLEY W. POSVAR Director**
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Wesley W. Posvar
/S/ MARJORIE P. SMUTS Director January 3, 2000
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Marjorie P. Smuts
Sworn to and subscribed before me this _3RD___ day of _JANUARY, 2000
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* Resigned as of May 23, 1999
** Resigned as of 12/31/99
/s/ Madaline P. Kelly
Madaline P. Kelly
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Notary Public
Exhibit o(iv) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of _WORLD INVESTMENT SERIES, INC.___ and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
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/S/ JOHN F. CUNNINGHAM Director January 3, 2000
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John F. Cunningham
Sworn to and subscribed before me this _3RD___ day of _JANUARY, 2000
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/s/ Madaline P. Kelly
Madaline P. Kelly
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Notary Public
Exhibit o(v) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of _WORLD INVESTMENT SERIES, INC.___ and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
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/S/ JOHN S. WALSH Director January 3, 2000
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John S. Walsh
Sworn to and subscribed before me this _3RD___ day of _JANUARY, 2000
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/s/ Madaline P. Kelly
Madaline P. Kelly
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Notary Public