-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sa0XT4vRVvlOR8IK58Ap9IwfLi4+vNMKdbiGNmBAJPtamOvp6pNduGmepu4ghRyH UEaA5bhQ9wtl7BZ3oQiLfQ== /in/edgar/work/20000731/0000898432-00-000533/0000898432-00-000533.txt : 20000921 0000898432-00-000533.hdr.sgml : 20000921 ACCESSION NUMBER: 0000898432-00-000533 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONEY MARKET OBLIGATIONS TRUST /NEW/ CENTRAL INDEX KEY: 0000856517 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 251415329 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-31602 FILM NUMBER: 682195 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 BUSINESS PHONE: 8003417400 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURG STATE: PA ZIP: 15222-3779 497 1 0001.txt IAI BOND FUND (A SERIES OF IAI INVESTMENT FUNDS I, INC.) IAI GROWTH FUND (A SERIES OF IAI INVESTMENT FUNDS II, INC.) IAI INTERNATIONAL FUND (A SERIES OF IAI INVESTMENT FUNDS III, INC.) IAI REGIONAL FUND (A SERIES OF IAI INVESTMENT FUNDS IV, INC.) IAI BALANCED FUND IAI CAPITAL APPRECIATION FUND IAI EMERGING GROWTH FUND IAI MIDCAP GROWTH FUND IAI MONEY MARKET FUND (EACH A SERIES OF IAI INVESTMENT FUNDS VI, INC.) IAI GROWTH AND INCOME FUND (A SERIES OF IAI INVESTMENT FUNDS VII, INC.) IAI LONG TERM GROWTH FUND* (A SERIES OF IAI INVESTMENT FUNDS VIII, INC.) 601 SECOND AVENUE SOUTH SUITE 3600 MINNEAPOLIS, MINNESOTA 55402 Dear Shareholder: The Board of Directors of the mutual funds managed by Investment Advisers, Inc. (collectively, the "IAI Funds") is pleased to submit for your vote a proposal to reorganize each of the above-listed IAI Funds into a comparable mutual fund advised by a subsidiary of Federated Investors, Inc. (each, a "Federated Fund"). The Board of the IAI Funds and the management of Investment Advisers, Inc. ("IAI") believe this reorganization is in the best interests of IAI Fund shareholders. As a result of the reorganization, IAI Fund shareholders would receive shares of a mutual fund managed and serviced by subsidiaries of Federated Investors, Inc. ("Federated Investors"). Federated Investors was established in 1955 and is one of the largest mutual fund investment managers in the United States. It advises 175 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of March 31, 2000, and maintains 1.3 million shareholder accounts. This reorganization is being proposed in conjunction with the sale by IAI of its - --------------- * Formerly, IAI Value Fund. On June 12, 2000 the Board of Directors of the IAI Funds approved the Fund's new name and amendments to the Fund's non-fundamental investment policies. mutual fund advisory business to Federated. On June 16, 2000, IAI and Federated reached a definitive agreement covering such sale. The Board considered various factors in reviewing this proposal on behalf of IAI Fund shareholders, including the following: First, the Board considered the fact that the Federated Funds have investment objectives and policies substantially similar to those of corresponding IAI Funds. Second, because the Federated Funds have a larger asset base, the Board believes the reorganization may provide shareholders the benefit of economies of scale, increased diversification, more efficient execution of portfolio transactions, and improved services to shareholders. Third, you will not pay a sales charge to become a shareholder of the Federated Funds nor will you have to pay any front-end sales charges in the future if you wish to exchange into or purchase shares of any other Federated mutual fund, assuming you meet that fund's minimum investment requirements.+ Fourth, the reorganization is expected to be tax-free; it is anticipated you will pay no federal income tax as a result of the reorganization. And finally, the Board considered that the historical performance of the respective Federated Funds generally compares favorably to that of the corresponding IAI Funds, and the expense ratios after voluntary fee waivers of the Federated Funds are within industry norms. If the proposal is approved, each Federated Fund would acquire all of the assets of an IAI Fund that has substantially similar investment objectives, policies, and strategies, and Federated Fund shares would be distributed pro rata to you in complete liquidation of the IAI Fund. In order to exchange your IAI Fund shares for Federated Fund shares, the Board of Directors of the IAI Funds submits for your approval an Agreement and Plan of Reorganization and Termination ("Plan") that relates to your IAI Fund. Please note that in the case of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all of which are series of IAI Investment Funds VI, Inc. ("IAI VI"), a vote in favor of the Plan also will be considered a vote in favor of an amendment to the Articles of Incorporation of IAI VI required to effect the reorganization. Your vote on the transaction is critical to its success. The reorganization of your IAI Fund will occur only if approved by a majority of the outstanding shares on the record date of your IAI Fund voted in person or represented by proxy. Whether or not you plan to attend the meeting, please vote your shares by telephone or by the Internet or by mail. If you are a shareholder of more than one IAI Fund, you will receive more than one prospectus/proxy statement and will need to vote your shares of each Fund. Following this letter is a Q&A summarizing the reorganization and information on how you vote your shares. Please read the entire prospectus/proxy statement carefully before you vote. THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST INTERESTS OF EACH IAI FUND AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL. - --------------- 2 IAI Money Market Fund will be reorganized into Automated Cash Management Trust ("ACMT"), which has a $25,000 minimum investment requirement. This minimum investment requirement will be waived for IAI Fund shareholders in connection with the reorganization and any subsequent purchases or exchanges into ACMT. 2 Thank you for your prompt attention and participation. Sincerely, /s/ J. Peter Thompson --------------------- J. Peter Thompson Chairman of the Board /s/ Keith Wirtz --------------- Keith Wirtz President Dated: July 20, 2000 3 IAI FUNDS/FEDERATED FUNDS PROXY Q&A THE FOLLOWING IS IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSALS ON WHICH YOU ARE BEING ASKED TO VOTE. PLEASE READ THE ENTIRE PROSPECTUS/PROXY STATEMENT. WHY IS THIS REORGANIZATION TAKING PLACE? Over the past several months, IAI management has given extensive consideration to our company's ability to remain competitive in an environment where scale is becoming more and more important. IAI and the Board of Directors believe that larger mutual fund companies will be in the best position to offer excellent products and services in the years ahead, as the mutual fund industry matures. Management concluded that Federated Investors, with $125 billion of assets under management across a broad product line, is in a good position to provide the high-quality investment management and related services that our shareholders deserve. Thus, the reorganization is being proposed in conjunction with the sale by IAI of its mutual fund advisory business to Federated. On June 16, 2000, IAI and Federated reached a definitive agreement covering such sale. WHEN WILL THIS REORGANIZATION BECOME EFFECTIVE? The reorganization is scheduled to be effective in mid-September. Shortly after the reorganization has been approved, you will receive new account information on your new ownership in the corresponding Federated Fund. WHAT DO I HAVE TO DO TO BECOME A SHAREHOLDER IN THE FEDERATED FUNDS? Shareholders are being asked to approve this reorganization through voting at the Special Meeting of Shareholders, which is scheduled to occur in September. Your vote is very important. You have the flexibility to cast your vote either by phone, Internet or mail. Upon shareholder approval of the reorganization, shareholders' accounts will automatically be transferred to the corresponding Federated Fund. WHAT WILL HAPPEN TO MY IAI ACCOUNT? After the reorganization, shareholders will be assigned a new account at Federated and then IAI accounts will be closed. This process will occur automatically, with no action required by you. WILL ALL OF MY CURRENT ACCOUNT OPTIONS SUCH AS SYSTEMATIC PURCHASES AND WITHDRAWAL PLANS TRANSFER OVER TO FEDERATED? Various types of account servicing features will transfer automatically to new Federated accounts. Shortly after the reorganization, shareholders will receive information that further describes these options, along with Federated's diversified product line and world-class shareholder services. WHAT BENEFITS WILL I HAVE AS A FEDERATED SHAREHOLDER? With over 45 years of investment management experience, Federated has made a significant commitment to the development of superior portfolio management strategies and world-class shareholder services. Federated has a diversified product line, strong performance history and competitive fund expenses. Shareholders of record at the time of the reorganization will be allowed to exchange into or purchase the shares of any Federated mutual fund in the future without paying any front-end sales charge, assuming shareholders meet the Federated Fund's minimum investment requirement.3 WILL I INCUR TAXES AS A RESULT OF THIS REORGANIZATION? This reorganization is expected to be a tax-free event. Except as described below, shareholders generally will not realize capital gains or losses on the conversion from IAI Fund shares to Federated Fund shares in connection with the proposed transactions. Furthermore, the cost basis of each fund investment will remain the same. Shareholders will realize capital gains or losses if they sell their IAI Fund shares before the reorganization becomes effective or sell/exchange their Federated Fund shares after the reorganization becomes effective. Shareholders will also be responsible for tax obligations associated with monthly or periodic distributions that occur prior to or after the reorganization, which distributions may include realized gains from sales of portfolio securities. Please note that retirement accounts are exempt from such tax consequences. WHERE CAN I GET MORE INFORMATION ABOUT THIS REORGANIZATION? Contact IAI at 1-800-945-3863. WHERE CAN I GET MORE INFORMATION ABOUT THE FEDERATED FUNDS? Visit Federated's website at www.federatedinvestors.com or call Federated Investors at 1-800-341-7400. Additionally, we encourage you to contact your financial advisor. - --------------- 3 IAI Money Market Fund will be reorganized into Automated Cash Management Trust ("ACMT"), which has a $25,000 minimum investment requirement. This minimum investment requirement will be waived for IAI Fund shareholders in connection with the reorganization and any subsequent purchases or exchanges into ACMT. IAI BOND FUND (A SERIES OF IAI INVESTMENT FUNDS I, INC.) IAI GROWTH FUND (A SERIES OF IAI INVESTMENT FUNDS II, INC.) IAI INTERNATIONAL FUND (A SERIES OF IAI INVESTMENT FUNDS III, INC.) IAI REGIONAL FUND (A SERIES OF IAI INVESTMENT FUNDS IV, INC.) IAI BALANCED FUND IAI CAPITAL APPRECIATION FUND IAI EMERGING GROWTH FUND IAI MIDCAP GROWTH FUND IAI MONEY MARKET FUND (EACH A SERIES OF IAI INVESTMENT FUNDS VI, INC.) IAI GROWTH AND INCOME FUND (A SERIES OF IAI INVESTMENT FUNDS VII, INC.) IAI LONG TERM GROWTH FUND (A SERIES OF IAI INVESTMENT FUNDS VIII, INC.) 601 SECOND AVENUE SOUTH SUITE 3600 MINNEAPOLIS, MINNESOTA 55402 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS A Special Meeting of Shareholders of each of the IAI Funds listed above (each an "IAI Fund") will be held on September 8, 2000, at 1 p.m., Central Time at 601 Second Avenue South, Suite 3700, Minneapolis, Minnesota 55402, for the following purposes: 1. TO APPROVE A PROPOSED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("PLAN")4 BETWEEN EACH IAI FUND AND A COMPARABLE MUTUAL FUND MANAGED BY A SUBSIDIARY OF FEDERATED INVESTORS, INC. (EACH A "FEDERATED FUND"), WHEREBY THE FEDERATED FUND WOULD ACQUIRE ALL OF THE ASSETS OF THE IAI FUND IN EXCHANGE SOLELY FOR THE FEDERATED FUND'S SHARES, TO BE DISTRIBUTED PRO RATA BY THE IAI - --------------- 4 Please note there are separate Plans, which are substantially similar. For example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on behalf of IAI Growth Fund) has entered into a Plan with Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For convenience purposes, only one Plan is referred to in this combined prospectus/proxy statement, and each separate reorganization of an IAI Fund into a Federated Fund is referred to as "the Reorganization." A form of the Plan is attached as Exhibit A. 5 Please note there are separate plans of reorganization, which are substantially similar. For example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on behalf of IAI Growth Fund) has contracted with Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For convenience purposes, only one Plan is referred to in this combined prospectus/proxy statement, and each separate reorganization of an IAI Fund into a Federated Fund is referred to as "the Reorganization." A Form of the Plan is attached as Exhibit A. FUND TO THE HOLDERS OF ITS SHARES, IN COMPLETE LIQUIDATION OF THE IAI FUND. IN THE CASE OF IAI BALANCED FUND, IAI CAPITAL APPRECIATION FUND, IAI EMERGING GROWTH FUND, IAI MIDCAP GROWTH FUND AND IAI MONEY MARKET FUND, ALL OF WHICH ARE SERIES OF IAI INVESTMENT FUNDS VI, INC. ("IAI VI"), A VOTE IN FAVOR OF THE PLAN ALSO WILL BE CONSIDERED A VOTE IN FAVOR OF AN AMENDMENT TO THE ARTICLES OF INCORPORATION OF IAI VI REQUIRED TO EFFECT THE REORGANIZATION. 2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. Dated: July 20, 2000 By Order of the Board of Directors, /s/ Michael J. Radmer Michael J. Radmer Secretary Shareholders of record at the close of business on July 14, 2000 are entitled to vote at the meeting. Whether or not you plan to attend the meeting, please vote your shares by returning the proxy card by mail, or by voting by telephone or the internet. Your vote is important. TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY ALSO VOTE BY TELEPHONE OR THE INTERNET. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU ATTEND THE MEETING. 2 FEDERATED BOND FUND (CLASS A SHARES) (A SERIES OF FEDERATED INVESTMENT SERIES FUNDS, INC.) FEDERATED AGGRESSIVE GROWTH FUND FEDERATED CAPITAL APPRECIATION FUND FEDERATED GROWTH STRATEGIES FUND FEDERATED LARGE CAP GROWTH FUND (CLASS A SHARES) (EACH A SERIES OF FEDERATED EQUITY FUNDS) FEDERATED INTERNATIONAL EQUITY FUND (CLASS A SHARES) (A SERIES OF FEDERATED INTERNATIONAL SERIES, INC.) FEDERATED STOCK AND BOND FUND, INC. (CLASS A SHARES) AUTOMATED CASH MANAGEMENT TRUST (INSTITUTIONAL SERVICE SHARES) (A SERIES OF MONEY MARKET OBLIGATIONS TRUST) FEDERATED AMERICAN LEADERS FUND, INC. (CLASS A SHARES) 5800 CORPORATE DRIVE PITTSBURGH, PA 15237-7000 1-800-341-7400 TO ACQUIRE THE ASSETS OF: THE IAI FUNDS 601 SECOND AVENUE SOUTH SUITE 3600 MINNEAPOLIS, MINNESOTA 55402 1-800-945-3863 PROSPECTUS/PROXY STATEMENT JULY 20, 2000 This Prospectus/Proxy Statement describes a proposed Agreement and Plan of Reorganization and Termination (the "Plan") related to your fund pursuant to which you would receive shares of a mutual fund advised by a subsidiary of Federated Investors, Inc. (each a "Federated Fund") in exchange for the shares of the fund you currently own, which is advised by Investment Advisers, Inc. (each an "IAI Fund"). Each Federated Fund and each IAI Fund is a diversified portfolio of securities of an open-end management investment company. If the Plan is approved with respect to your IAI Fund, the Federated Fund would acquire all of the assets of an IAI Fund that has substantially similar investment objectives and investment policies and strategies, and Federated Fund shares would be distributed pro rata by each IAI Fund to the holders of its shares, in complete liquidation of the IAI Fund. As a result of the Plan, each IAI Fund shareholder would become the owner of the Federated Fund's shares having a total net asset value equal to the total net asset value of such shareholder's holdings in the IAI Fund. For the name of the Federated Fund into which your IAI Fund would be reorganized, see "Summary - About the Proposed Reorganization." For a comparison of the investment policies of the IAI Fund and the Federated Fund into which your IAI Fund would be reorganized, see "Summary - Comparison of Investment Objectives, Policies, Strategies and Principal Risks of the IAI Funds and Federated Funds." In the case of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all of which are series of IAI Investment Funds VI, Inc. ("IAI VI"), a vote in favor of the Plan will be considered a vote in favor of an amendment to the Articles of Incorporation of IAI VI required to effect the reorganization.5 - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS OF THE IAI FUNDS UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN. - -------------------------------------------------------------------------------- You should retain this Prospectus/Proxy Statement for future reference. It sets forth concisely the information about each Federated Fund that a prospective investor should know before investing. This Prospectus/Proxy Statement is accompanied by the Prospectus of the Federated Fund into which your IAI Fund would be reorganized and that fund's Annual Report to Shareholders, which are incorporated herein by reference. Statements of Additional Information for each Federated Fund (one relating to the Federated Fund's Prospectus and a second one relating to this Prospectus/Proxy Statement), all containing additional information, have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of the Statements of Additional Information may be obtained without charge by writing or calling the Federated Fund at the address and telephone number shown above. This Prospectus/Proxy Statement was first mailed to shareholders the week of July 24, 2000. THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------- 5 Please note there are separate Plans, which are substantially similar. For example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on behalf of IAI Growth Fund) has entered into a Plan with Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For convenience purposes, only one Plan is referred to in this combined prospectus/proxy statement, and each separate reorganization of an IAI Fund into a Federated Fund is referred to as "the Reorganization." A form of the Plan is attached as Exhibit A. 5 Please note there are separate plans of reorganization, which are substantially similar. For example, IAI Investment Funds VI, Inc. (on behalf of IAI Capital Appreciation Fund, IAI Emerging Growth Fund and IAI Midcap Growth Fund), IAI Investment Funds IV, Inc. (on behalf of IAI Regional Fund), IAI Investment Funds VIII, Inc. (on behalf of IAI Long Term Growth Fund) and IAI Investment Funds II, Inc. (on behalf of IAI Growth Fund) has contracted with Federated Equity Funds, on behalf of Federated Aggressive Growth Fund, Federated Large Cap Growth Fund, Federated Growth Strategies Fund, and Federated Capital Appreciation Fund. For convenience purposes, only one Plan is referred to in this combined prospectus/proxy statement, and each separate reorganization of an IAI Fund into a Federated Fund is referred to as "the Reorganization." A Form of the Plan is attached as Exhibit A. 2 TABLE OF CONTENTS SUMMARY ......................................................................1 About the Proposed Reorganization......................................1 Comparative Fee Tables.................................................3 Shareholder Fees..............................................15 Comparison of Investment Objectives, Policies, Strategies and Principal Risks of the IAI Funds and Federated Funds..............16 Comparison of Potential Risks and Rewards: Performance Information...44 Comparison of Operations..............................................58 Investment Advisory Agreements................................58 Administrative and Shareholder Services.......................60 Distribution Services.........................................61 Purchase, Exchange and Redemption Procedures..................62 Dividends and Other Distributions.............................65 Tax Consequences......................................................66 INFORMATION ABOUT THE REORGANIZATION..........................................66 Agreement Between IAI and Federated Investors for Sale of IAI's Mutual Fund Advisory Business...................................66 Considerations by the Board of Directors of the IAI Funds.............67 Description of the Plan of Reorganization.............................69 Description of Federated Fund Shares..................................70 Federal Income Tax Consequences.......................................70 Comparative Information on Shareholder Rights and Obligations.........72 Capitalization........................................................75 INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS.......................77 Federated Funds.......................................................77 IAI Funds.............................................................77 VOTING INFORMATION............................................................78 Outstanding Shares and Voting Requirements............................78 Other Matters.........................................................86 Board Recommendation..................................................86 FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION - EXHIBIT A.....A-1 i SUMMARY This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Prospectus/Proxy Statement, the Prospectus and Statement of Additional Information of each Federated Fund, the Prospectus and Statement of Additional Information of each IAI Fund, and the Plan, a form of which is attached to this Prospectus/Proxy Statement as Exhibit A. ABOUT THE PROPOSED REORGANIZATION The Board of Directors of each corporation of which an IAI Fund is a series has voted to recommend approval of the Plan to shareholders of each IAI Fund. Under the Plan, each Federated Fund would acquire all of the assets of the corresponding IAI Fund in exchange for the Federated Fund's shares to be distributed pro rata by the IAI Fund to its shareholders in complete liquidation and dissolution of the IAI Fund (the "Reorganization"). As a result of the Reorganization, each shareholder of an IAI Fund will become the owner of a Federated Fund's shares having a total net asset value equal to the total net asset value of such shareholder's holdings in the IAI Fund on the date of the Reorganization. As a condition to the Reorganization, the Federated Fund and the IAI Fund will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), so that neither the Federated Fund nor the IAI Fund nor the shareholders of the IAI Fund will recognize any gain or loss on the Reorganization.6 The tax basis of the Federated Fund's shares received by IAI Fund shareholders will be the same as the tax basis of their shares in the IAI Fund. After the acquisition is completed, each IAI Fund will be dissolved. In the case of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all of which are series of IAI Investment Funds VI, Inc. ("IAI VI"), a vote in favor of the Plan will be considered a vote in favor of an amendment to the Articles of Incorporation of IAI VI required to effect the reorganization. This amendment is necessary under Minnesota law in order to bind the shareholders of these five IAI Funds. The amendment is attached to the form of Plan attached as Exhibit A to this Prospectus/Proxy Statement. - --------------- 6 Certain IAI Funds or their shareholders may recognize gain if IAI makes any payments to satisfy certain contingent liabilities of the IAI Fund(s). In addition, shareholders may incur tax liabilities with respect to capital gains distributed to them that are generated from sales of portfolio securities held by an IAI Fund, either before the Reorganization by the IAI Fund or after the Reorganization once those securities are held by the corresponding Federated Fund. See "Federal Income Tax Consequences." All references herein and in the accompanying documents to the Reorganization being "tax-free" or that an IAI Fund or its shareholders "will recognize no gain or loss" or statements of similar import are qualified by the foregoing. 1 The following chart shows the Federated Fund into which each IAI Fund would be reorganized if the Reorganization is approved. The chart is arranged alphabetically according to the name of the IAI Fund.
- ------------------------------------------------------------------------------------------------------------------------------ IAI Balanced Fund Would be reorganized into Federated Stock and Bond Fund, Inc. (a series of IAI Investment Funds VI, (Class A Shares) Inc.) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Bond Fund Would be reorganized into Federated Bond Fund (a series of IAI Investment Funds I, Inc.) (Class A shares) (a series of Federated Investment Series Funds, Inc.) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Capital Appreciation Fund Federated Aggressive Growth Fund IAI Emerging Growth Fund Would be reorganized into (Class A Shares) (each a series of IAI Investment Funds (a series of Federated Equity Funds) VI, Inc.) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Growth Fund Would be reorganized into Federated Large Cap Growth Fund (a series of IAI Investment Funds II, (Class A Shares) Inc.) (a series of Federated Equity Funds) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Growth and Income Fund Would be reorganized into Federated American Leaders Fund, Inc. (a series of IAI Investment Funds VII, (Class A Shares) Inc.) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI International Fund Would be reorganized into Federated International Equity Fund (a series of IAI Investment Funds III, (Class A Shares) Inc.) (a series of Federated International Series Inc.) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Long Term Growth Fund Federated Aggressive Growth Fund (a series of IAI Investment Funds VIII, Would be reorganized into (Class A Shares) Inc.) (a series of Federated Equity Funds) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Midcap Growth Fund Would be reorganized into Federated Growth (a series of IAI Investment Funds VI, Strategies Fund Inc.) (Class A Shares) (a series of Federated Equity Funds) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Money Market Fund Would be reorganized into Automated Cash Management Trust (a series of IAI Investment Funds VI, (Institutional Service Shares) Inc.) (a series of Money Market Obligations Trust) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ IAI Regional Fund Would be reorganized into Federated Capital Appreciation Fund (a series of IAI Investment Funds IV, (Class A Shares) Inc.) (a series of Federated Equity Funds) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
COMPARATIVE FEE TABLES The IAI Funds, like all mutual funds, incur certain expenses in their operations and as a shareholder of an IAI Fund, you pay these expenses indirectly. The Federated Funds also incur expenses in their operations. The expenses include management fees, as well as the costs of maintaining accounts, administration, providing shareholder liaison services and distribution services, and other activities. The following tables compare the expenses paid by the IAI Funds with the expenses that you will incur indirectly as a shareholder of the Federated Fund into which your shares will be exchanged. The tables also include any shareholder fees which are paid directly from your investment. YOU WILL NOT BE CHARGED ANY SALES LOADS FOR ACQUIRING SHARES OF THE FEDERATED FUND IN EXCHANGE FOR SHARES OF THE IAI FUND YOU CURRENTLY OWN, NOR WILL YOU BE CHARGED A FRONT-END SALES LOAD IF YOU WISH TO EXCHANGE OR PURCHASE THE SHARES OF ANY OTHER FEDERATED MUTUAL FUND, ASSUMING YOU MEET THAT FUND'S MINIMUM INVESTMENT REQUIREMENTS. Federated has agreed to waive permanently the initial investment minimum of $25,000 for Automated Cash Management Trust in connection with the Reorganization and any subsequent purchases or exchanges into that Fund by IAI Fund shareholders. 3 This table describes the fees and expenses of Federated Aggressive Growth Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis giving effect to the Reorganization, and the fees and expenses of IAI Emerging Growth Fund, IAI Long Term Growth Fund, and IAI Capital Appreciation Fund for each Fund's most recent fiscal year end.
Federated IAI Aggressive IAI Long IAI Federated Growth Emerging Term Capital Pro Forma Fund Growth Growth Appreciation Estimated (Class A) Fund Fund Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)................None2 None None None None2 Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................1.00%3 1.25% 1.25% 1.40% 1.00%3 Distribution (12b-1) Fee................................0.25%4 None None None 0.25%4 Shareholder Services Fee................................0.25% None None None 0.25% Other Expenses..........................................1.25% None None None 0.49% Total Annual Fund Operating Expenses....................2.75%1 1.25% 1.25% 1.40% 1.99%1 - -----------------------------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser and distributor waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999. Total Waivers of Fund Expenses.............................................0.99% Total Actual Annual Fund Operating Expenses (after waivers)................1.76% 2 The Fund's Class A shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 3 The Fund's adviser has 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 0.26% for the fiscal year ended October 31, 1999. 4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee during the year ended October 31, 1999. Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending October 31, 2000. 4 This table describes the fees and expenses of Federated American Leaders Fund, Inc. Class A Shares for its most recent fiscal year end as well as on a pro forma basis giving effect to the Reorganization, and the fees and expenses of IAI Growth and Income Fund Shares for its most recent fiscal year end.
Federated IAI Federated American Growth Pro Forma Leaders Fund, and Income Estimated Inc. (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None1 None None Annual Fund Operating Expenses Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.65% 1.25% 0.65% Distribution (12b-1) Fee................................None None None Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.26% None 0.26% Total Annual Fund Operating Expenses....................1.16% 1.25% 1.16% - -----------------------------------------------------------------------------------------------
1 The Fund's Class A Shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 5 This table describes the fees and expenses of Automated Cash Management Trust Institutional Service Shares for its most recent fiscal year end as well as on a pro forma basis giving effect to the Reorganization, and the fees and expenses of the IAI Money Market Fund Shares for its most recent fiscal year end.
Shareholder Fees........................................None None None Fees Paid Directly From Your Investment Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.50%2 0.60% 0.50%2 Distribution (12b-1) Fee................................None None None Shareholder Services Fee................................0.25%3 None 0.25%3 Other Expenses..........................................0.16% None 0.16% Total Annual Fund Operating Expenses....................0.91%1 0.60% 0.91%1 - --------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the Fund's adviser and shareholder services provider waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended July 31, 1999. Total Waivers of Fund Expenses.............................................0.32% Total Actual Annual Fund Operating Expenses (after waivers)................0.59% 2 The adviser has 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's Institutional Services Shares (after voluntary waiver) was 0.19% for the fiscal year ended July 31, 1999. 3 The shareholder services provider has voluntarily waived a portion of the shareholder services fee. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Institutional Services Shares (after the voluntary waiver) was 0.24% for the fiscal year ended July 31, 1999. 6 This table describes the fees and expenses of Federated Bond Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis giving effect to the Reorganization, and the fees and expenses of IAI Bond Fund Shares for its most recent fiscal year end.
Federated Federated IAI Pro Forma Bond Fund Bond Estimated (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None2 None None2 Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.75%3 1.10%6 0.75%3 Distribution (12b-1) Fee................................0.25%4 None 0.25%4 Shareholder Services Fee................................0.25%5 None 0.25%5 Other Expenses..........................................0.22% None 0.22% Total Annual Fund Operating Expenses....................1.47%1 1.10%6 1.47%1 - --------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the Fund's adviser, distributor and shareholder services provider waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999. Total Waivers of Fund Expenses.............................................0.41% Total Actual Annual Fund Operating Expenses (after waivers)................1.06% 2 The Fund's Class A Shares typically have a maximum sales charge of 4.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 3 The adviser has 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 0.64% for the fiscal year ended October 31, 1999. 4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee during the year ended October 31, 1999. The Fund's Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending October 31, 2000. 5 The shareholder services provider has voluntarily waived a portion of the shareholder services fee. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Class A Shares (after the voluntary waiver) was 0.20% for the fiscal year ended October 31, 1999. 6 Actual management fees and total Fund operating expenses were 1.07% for the fiscal year ended November 30, 1999 as a result of fee waivers by IAI. IAI will limit its management fee to 0.90% of average daily net assets through March 31, 2001. Although it has no current intention of doing so, IAI may discontinue this limitation at any time after March 31, 2001, upon 30 days written notice to shareholders. 7 This table describes the fees and expenses of Federated Capital Appreciation Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis after giving effect to the Reorganization, and the fees and expenses of IAI Regional Fund Shares for its most recent fiscal year end.
Federated Capital Federated Appreciation IAI Pro Forma Fund Regional Estimated (Class A) Fund Combined Shareholder Fees Fees Paid Directly from Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None2 None None2 Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.75% 1.25% 0.75% Distribution (12b-1) Fee................................0.25%3 None 0.25%3 Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.27% None 0.27% Total Annual Fund Operating Expenses....................1.52%1 1.25% 1.52%1 - -------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the distributor waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999. Total Waivers of Fund Expenses.............................................0.25% Total Actual Annual Fund Operating Expenses (after waivers)................1.27% 2 The Fund's Class A Shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 3 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee for the fiscal year ended October 31, 1999. The Fund's Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee for the fiscal year ending October 31, 2000. 8 This table describes the fees and expenses of Federated Growth Strategies Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis after giving effect to the Reorganization, and the fees and expenses of IAI Midcap Growth Fund Shares for its most recent fiscal year end.
Federated Growth IAI Federated Strategies Midcap Pro Forma Fund Growth Estimated (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None1 None None1 Annual Fund Operating Expenses Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.75% 1.25% 0.75% Distribution (12b-1) Fee................................None None None Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.24% None 0.24% Total Annual Fund Operating Expenses....................1.24% 1.25% 1.24% - ---------------------------------------------------------------------------------------
1 The Fund's Class A shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 9 This table describes the fees and expenses of Federated International Equity Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis after giving effect to the Reorganization, and the fees and expenses of IAI International Fund Shares for its most recent fiscal year end.
Federated Federated International IAI Pro Forma Equity Fund International Estimated (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None1 None None1 Annual Fund Operating Expenses Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................1.00% 1.70% 1.00% Distribution (12b-1) Fee................................None None None Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.42% 0.07%2 0.42% Total Annual Fund Operating Expenses....................1.67% 1.77% 1.67% - -------------------------------------------------------------------------------------------------
1 The Fund's Class A shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 2 "Other expenses" consist solely of interest expense. 10 This table describes the fees and expenses of Federated Large Cap Growth Fund Class A Shares for its most recent fiscal year end as well as on a pro forma basis after giving effect to the Reorganization, and the fees and expenses of IAI Growth Fund Shares for its most recent fiscal year end.
Federated Federated Large Cap IAI Pro Forma Growth Fund Growth Estimated (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None2 None None2 Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee.....................................................0.75%3 1.25% 0.75%3 Distribution (12b-1) Fee................................0.25%4 None 0.25%4 Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.59% None 0.59% Total Annual Fund Operating Expenses....................1.84%1 1.25% 1.84%1 - ----------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser and distributor waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999. Total Waivers of Fund Expenses.............................................0.64% Total Actual Annual Fund Operating Expenses (after waivers)................1.20% 2 The Fund's Class A shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 3 The Fund's adviser has 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 0.36% for the year ended October 31, 1999. 4 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee during the year ended October 31, 1999. The Fund's Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending October 31, 2000. 11 This table describes the fees and expenses of Federated Stock and Bond Fund, Inc. Class A Shares for its most recent fiscal year end as well as on a pro forma basis after giving effect to the Reorganization, and the fees and expenses of IAI Balanced Fund Shares for its most recent fiscal year end.
Federated Federated Stock and IAI Pro Forma Bond Fund, Balanced Estimated Inc. (Class A) Fund Combined Shareholder Fees Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).............None2 None None2 Annual Fund Operating Expenses (Before Waivers) Expenses That are Deducted From Fund Assets (as a percentage of average net assets) Management Fee..........................................0.73% 1.25% 0.73% Distribution (12b-1) Fee................................0.25%3 None 0.25%3 Shareholder Services Fee................................0.25% None 0.25% Other Expenses..........................................0.27% 0.01%4 0.27% Total Annual Fund Operating Expenses....................1.50%1 1.26% 1.50%1 - ---------------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the Fund's distributor waived certain amounts. These waivers are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 1999. Total Waivers of Fund Expenses.............................................0.25% Total Actual Annual Fund Operating Expenses (after waivers)................1.25% 2 The Fund's Class A shares typically have a maximum sales charge of 5.50%. However, you will not be charged a sales charge when receiving your Federated Fund shares in connection with the Reorganization nor will you be charged a sales charge if you decide to exchange your shares of the Federated Fund for another Federated mutual fund or purchase additional shares of any Federated mutual fund. 3 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee during the year ended October 31, 1999. The Fund's Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending October 31, 2000. 4 "Other expenses" consist solely of interest expense. 12 EXAMPLES The following Examples are intended to help you compare the cost of investing in the IAI Fund whose shares you currently own with the cost of investing in the Federated Fund into which your IAI Fund will be reorganized if the proposed Reorganization is approved. The Examples assume that you invest $10,000 in each fund for the time periods indicated and then redeem all of your Shares at the end of those periods. Each Example assumes that you invest $10,000 in the Federated Fund after the transfer of assets from the IAI Fund into the Federated Fund. Each Example assumes that your investment has a 5% return each year and that the Federated Fund, IAI Fund and each estimated Pro Forma Combined operating expenses are before waivers as shown above in the table and remain the same.* Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated American Leaders Fund, Inc................... $118 $368 $638 $1,409 IAI Growth and Income Fund............................. $127 $397 $686 $1,511 Pro Forma Combined..................................... $118 $368 $638 $1,409 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Automated Cash Management Trust........................ $93 $290 $504 $1,120 IAI Money Market Fund.................................. $61 $192 $335 $750 Pro Forma Combined..................................... $93 $290 $504 $1,120 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Bond Fund.................................... $150 $465 $803 $1,757 IAI Bond Fund.......................................... $112 $350 $606 $1,340 Pro Forma Combined..................................... $150 $465 $803 $1,757 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Capital Appreciation Fund.................... $155 $480 $829 $1,813 IAI Regional Fund...................................... $127 $397 $686 $1,511 Pro Forma Combined..................................... $155 $480 $829 $1,813 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Growth Strategies Fund....................... $126 $393 $681 $1,500 IAI Midcap Growth Fund................................. $127 $397 $686 $1,511 Pro Forma Combined..................................... $126 $393 $681 $1,500 13 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated International Equity Fund.................... $170 $526 $907 $1,976 IAI International Fund................................. $180 $557 $959 $2,084 Pro Forma Combined..................................... $170 $526 $907 $1,976 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Large Cap Growth Fund........................ $187 $579 $996 $2,159 IAI Growth Fund........................................ $127 $397 $686 $1,511 Pro Forma Combined..................................... $187 $579 $996 $2,159 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Stock and Bond Fund, Inc..................... $153 $474 $818 $1,791 IAI Balanced Fund...................................... $128 $400 $692 $1,523 Pro Forma Combined..................................... $153 $474 $818 $1,791 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Aggressive Growth Fund....................... $278 $853 $1,454 $3,080 IAI Emerging Growth Fund............................... $127 $397 $686 $1,511 IAI Long Term Growth Fund.............................. $127 $397 $686 $1,511 IAI Capital Appreciation Fund.......................... $143 $443 $766 $1,680 Pro Forma Combined..................................... $202 $624 $1,073 $2,317 - --------------- * The following Examples show your actual costs AFTER WAIVERS of the Federated Funds that have expense waivers: 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated American Leaders Fund, Inc................... $118 $368 $638 $1,409 IAI Growth and Income Fund............................. $127 $397 $686 $1,511 Pro Forma Combined..................................... $118 $368 $638 $1,409 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Automated Cash Management Trust........................ $60 $189 $329 $738 IAI Money Market Fund.................................. $61 $192 $335 $750 Pro Forma Combined..................................... $60 $189 $329 $738 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Bond Fund.................................... $108 $337 $585 $1,294 IAI Bond Fund.......................................... $109 $340 $590 $1,306 Pro Forma Combined..................................... $108 $337 $585 $1,294 14 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Capital Appreciation Fund.................... $129 $403 $697 $1,534 IAI Regional Fund...................................... $127 $397 $686 $1,511 Pro Forma Combined..................................... $129 $403 $697 $1,534 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Growth Strategies Fund....................... $126 $393 $681 $1,500 IAI Midcap Growth Fund................................. $127 $397 $686 $1,511 Pro Forma Combined..................................... $126 $393 $681 $1,500 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Large Cap Growth Fund........................ $122 $381 $660 $1,455 IAI Growth Fund........................................ $127 $397 $686 $1,511 Pro Forma Combined..................................... $122 $381 $660 $1,455 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Stock and Bond Fund, Inc..................... $127 $397 $686 $1,511 IAI Balanced Fund...................................... $128 $400 $692 $1,523 Pro Forma Combined..................................... $127 $397 $686 $1,511 1 year 3 years 5 years 10 years ---------- ----------- ---------- ------------ Federated Aggressive Growth Fund....................... $179 $554 $954 $2,073 IAI Emerging Growth Fund............................... $127 $397 $686 $1,511 IAI Long Term Growth Fund.............................. $127 $397 $686 $1,511 IAI Capital Appreciation Fund.......................... $143 $443 $766 $1,680 Pro Forma Combined..................................... $163 $505 $871 $1,900
SHAREHOLDER FEES - ---------------- The following table shows the fees you pay directly as a shareholder of the Federated Funds for certain services, such as wiring money to or from your account, maintaining an IRA account, using a debit card, and obtaining historical account information. You are not currently charged any of the fees reflected below in connection with your investment in the IAI Funds. IRA FEES* $15 (charged annually) DEBIT CARD FEES** $10 (charged annually) TRANSCRIPT FEES** $2 (only applies to any history files that have been purged) INTERNATIONAL WIRE FEES** $25 15 *The fee is $15 for each type of IRA registered under the same Social Security or Tax Identification Number. For example, if you have an Individual IRA and a Rollover IRA, the fee is $15; if you have an Individual IRA and an Education IRA, the charge is $30. **Optional service COMPARISON OF INVESTMENT OBJECTIVES, POLICIES, STRATEGIES AND PRINCIPAL RISKS OF THE IAI FUNDS AND FEDERATED FUNDS This section contains tables comparing the investment objectives, policies, strategies and the principal risks of investing of the IAI Fund and the Federated Fund into which it would be reorganized. The tables are arranged alphabetically according to the name of the Federated Fund. In addition to the policies and strategies set forth below, each Federated Fund and each IAI Fund is subject to certain additional investment policies and limitations, described in their respective Statements of Additional Information. Reference is hereby made to the Prospectus and Statement of Additional Information of each Federated Fund, and to the Prospectus and Statement of Additional Information of each IAI Fund, which set forth in full the investment objectives, policies, strategies, limitations and risks of each Federated Fund and each IAI Fund, all of which are incorporated herein by reference thereto.
- -------------------------------------------------------------------------------------------------------- IAI EMERGING GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide long-term capital appreciation. To provide appreciation of capital. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: IAI Emerging Growth Fund invests primarily Federated Aggressive Growth Fund pursues its in common stocks of small emerging and investment objective by investing in equity medium-sized U.S. companies that the Fund's securities of companies offering superior adviser believes have above-average prospects for earnings growth. The Fund is not prospects for growth. These companies are restricted to specific market capitalization expected to show earnings growth over time requirements. The Fund may also invest that is well above the growth rate of the in American Depositary Receipts, which represent overall economy and the rate of inflation. interests in underlying securities issued by a The Fund invests at least 65% of its total foreign company, but which are traded assets in stocks of emerging growth companies in the United States. with market capitalizations of $2 billion or less at the time of investment. INVESTMENT STYLE: INVESTMENT STYLE: The Fund's investment style is substantially The Fund invests primarily for growth by targeting similar to that of the Federated Aggressive equity securities with superior growth prospects. Growth Fund. INVESTMENT STRATEGIES: INVESTMENT STRATEGIES: The Fund focuses on companies with: superior The Fund limits its exposure to each business performance records; solid market positions; sector that comprises the Standard & Poor's strong balance sheets; and management 500 Index ("S&P 500") by limiting its teams that, in the opinion of the Fund's allocation to a sector to 300% of S&P 500's adviser, are capable of sustaining growth. allocation to that sector or 30% of the total portfolio, whichever is greater. The Fund's - -------------------------------------------------------------------------------------------------------- 16 - -------------------------------------------------------------------------------------------------------- PRINCIPAL RISKS: approach with respect to its analysis of securities, market capitalization, and The principal risks of investing in the IAI sector allocation is designed to produce a Emerging Growth Fund are substantially the portfolio of stocks whose long-term growth same as those of the Federated Aggressive prospects are significantly above those of Growth Fund, except that the IAI Emerging the S&P 500. Growth Fund is not subject, as a principal risk, to the risks of foreign investing. Using its own quantitative process, the Fund's adviser rates the future performance potential of companies. The adviser evaluates each company's earnings quality in light of their current valuation to narrow the list of attractive companies. The adviser then evaluates product positioning, management quality and sustainability of current growth trends of those companies. Using this type of fundamental analysis, the adviser selects the most promising companies for the Fund's portfolio. The Fund may attempt to manage market risk by buying and selling financial futures and options. This may include the purchase of index futures contracts as a substitute for direct investments in stocks. It may also include the purchase and sale of options to protect against general declines in small capitalization stocks economically. PRINCIPAL RISKS: Federated Aggressive Growth Fund is subject to the following principal risks: o 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. o LIQUIDITY RISKS. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o 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. o SECTOR RISKS. As the Fund's 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. - -------------------------------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------------------------------- o 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. o RISKS RELATED TO INVESTING FOR GROWTH. The growth growth stocks in which the Fund invests are typically more volatile than value stocks and may depend more on price changes than dividends for returns. - -------------------------------------------------------------------------------------------------------- 18 - -------------------------------------------------------------------------------------------------------- IAI LONG TERM GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide long-term capital appreciation. To provide appreciation of capital. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: IAI Long Term Growth Fund invests primarily Federated Aggressive Growth Fund pursues its in common stocks of small emerging U.S. investment objective by investing in equity companies that the Fund's adviser believes securities of companies offering superior have above-average prospects for growth. prospects for earnings growth. The Fund These companies are expected to show is not restricted to specific market earnings growth over time that is well capitalization requirements. The Fund above the growth rate of the overall may also invest in American Depositary economy and the rate of inflation. The Receipts, which represent interests in Fund invests at least 65% of its total underlying securities issued by a foreign assets in stocks of companies with market company, but which are traded in the capitalizations of $1 billion or less at United States. the time of investment. INVESTMENT STYLE: INVESTMENT STYLE: The Fund invests primarily for growth by The Fund's investment style is substantially targeting equity securities with superior similar to that of the Federated Aggressive growth prospects. Growth Fund. INVESTMENT STRATEGIES: INVESTMENT STRATEGIES: The Fund limits its exposure to each business In general, the Fund generally focuses on sector that comprises the Standard & Poor's companies with superior performance records; 500 Index ("S&P 500") by limiting its solid market positions; strong balance allocation to a sector to 300% of S&P 500's sheets; and management teams that are allocation to that sector or 30% of the total capable of sustaining growth. portfolio, whichever is greater. The Fund's approach with respect to its analysis of Prior to the IAI Board of Directors' securities, market capitalization, and sector approval of the change in the name of allocation is designed to produce a the IAI Value Fund to the IAI Long Term portfolio of stocks whose long-term growth Growth Fund and certain changes to the prospects are significantly above those of Fund's non-fundamental investment the S&P 500. limitations, the Fund had the following principal investments, investment style Using its own quantitative process, the and investment strategies: Fund's adviser rates the future performance potential of companies. The adviser evaluates PRINCIPAL INVESTMENTS: each company's earnings quality in light of their current valuation to narrow the list IAI Value Fund invested primarily in of attractive companies. The adviser then common stocks of U.S. companies that evaluates product positioning, management the Fund's adviser believed were quality and sustainability of current undervalued and offered opportunities growth trends of those companies. Using for capital growth. The Fund generally this type of fundamental analysis, the invested in small companies with market adviser selects the most promising capitalizations of less than $1 billion companies for the Fund's portfolio. at the time of purchase. The Fund may attempt to manage market risk INVESTMENT STYLE: by buying and selling financial futures and options. This may include the purchase of The Fund invested for value by investing index futures contracts as a substitute for in equity securities of companies that direct investments in stocks. It may also the Fund's adviser believed were include the purchase and sale of options to undervalued while offering opportunities protect against general declines in small for capital growth. capitalization stocks economically. - -------------------------------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------------------------------- INVESTMENT STRATEGIES: PRINCIPAL RISKS: The Fund invested in common stocks of Federated Aggressive Growth Fund is subject companies which had been unpopular for to the following principal risks: some time, but where recent developments suggested the possibility of improved o STOCK MARKET RISKS. The value of operating results; which the Fund's equity securities in the Fund's adviser believed had temporarily fallen portfolio will fluctuate and, as out of favor for non-recurring or a result, the Fund's share price short-term reasons; or which appeared may decline suddenly or over a undervalued in relation to securities sustained period of time. of other companies in the same industry. In selecting investments, the Fund o LIQUIDITY RISKS. The equity securities generally focused on companies with in which the Fund invests may be less strong competitive positions, high readily marketable and may be subject levels of discretionary cash flow, and to greater fluctuation in price than solid financial characteristics. other securities. Consequently, the Fund may have to accept a lower price PRINCIPAL RISKS: to sell a security, sell other securities to raise cash or give The principal risks of investing in the up an investment opportunity, any IAI Long Term Growth Fund are of which could have a negative substantially the same as those of effect on the Fund's performance. the Federated Aggressive Growth Fund, except that the IAI Long Term Growth o RISKS RELATED TO COMPANY SIZE. Fund is not subject, as a principal Because the smaller companies in risk, to the risks of foreign investing. which the Fund may invest may have unproven track records, a limited Prior to the IAI Board of Directors' product or service base and limited approval of the change in the name of access to capital, they may be more the IAI Value Fund to the IAI Long Term likely to fail than larger companies. Growth Fund and certain changes to the Fund's non-fundamental investment o SECTOR RISKS. As the Fund's adviser limitations, the principal risks of allocates more of the Fund's portfolio investing in the IAI Long Term Growth holdings to a particular sector, the Fund were substantially similar to those Fund's performance will be more of the Federated Aggressive Growth Fund, susceptible to any economic, business except that IAI Long Term Growth Fund or other developments which generally invested principally in value stocks affect that sector. rather than growth stocks. As a result, rather than having the risks related to o RISKS OF FOREIGN INVESTING. Because investing for growth described for the Fund invests in securities issued Federated Aggressive Growth Fund, the by foreign companies, the Fund's share IAI Long Term Growth Fund had the price may be more affected by foreign following additional risks: economic and political conditions, taxation policies and accounting and o RISKS OF VALUE STOCKS. In auditing standards than would otherwise selecting these value stocks, be the case. the Fund's adviser will be exercising opinions and o RISKS RELATED TO INVESTING FOR GROWTH. judgments which may be contrary The growth stocks in which the Fund to those of the majority of invests are typically more volatile investors. There is a risk that than value stocks and may depend more the judgment of the majority may on price changes than dividends for be correct, in which case the returns. Fund may incur losses, or its profits may be limited. Even if the adviser's judgment is correct, there may be a long delay before the security increases in value, in which case capital invested by the Fund may be nonproductive for an extended period of time. - -------------------------------------------------------------------------------------------------------- 20 - -------------------------------------------------------------------------------------------------------- IAI CAPITAL APPRECIATION FUND FEDERATED AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide long-term capital appreciation. To provide appreciation of capital. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: IAI Capital Appreciation Fund invests Federated Aggressive Growth Fund pursues primarily in common stocks of small its investment objective by investing in emerging U.S. companies that the Fund's equity securities of companies offering adviser believes have above-average superior prospects for earnings growth. prospects for growth. These companies The Fund is not restricted to specific are expected to show earnings growth market capitalization requirements. The over time that is well above the growth Fund may also invest in American rate of the overall economy and the rate Depositary Receipts, which represent of inflation. The Fund invests at least interests in underlying securities issued by 65% of its total assets in stocks of a foreign company, but which are traded companies with market capitalizations in the United States. of $1 billion or less at the time of investment. INVESTMENT STYLE: INVESTMENT STYLE: The Fund invests primarily for growth by targeting equity securities with superior The Fund's investment style is growth prospectus. substantially similar to that of the Federated Aggressive Growth Fund. INVESTMENT STRATEGIES: INVESTMENT STRATEGIES: The Fund limits its exposure to each business sector that comprises the Standard & In general, the Fund focuses on companies Poor's 500 Index ("S&P 500") by limiting its with superior performance records; solid allocation to a sector to 300% of the S&P market positions; strong balance sheets; 500's allocation to that sector or 30% of and management teams that are capable of the total portfolio, whichever is greater. sustaining growth. The Fund's approach with respect to its analysis of securities, market capitalization, PRINCIPAL RISKS: and sector allocation are designed to produce a portfolio of stocks whose long-term growth The principal risks of investing in the prospects are significantly above those of IAI Capital Appreciation Fund are the S&P 500. substantially the same as those of the Federated Aggressive Growth Fund, Using its own quantitative process, the except that the IAI Capital Appreciation Fund's adviser rates the future performance Fund is not subject, as a principal potential of companies. The adviser evaluates risk, to the risks of foreign investing. each company's earnings quality in light of their current valuation to narrow the list of attractive companies. The adviser then evaluates product positioning, management quality and sustainability of current growth trends of those companies. Using this type of fundamental analysis, the adviser selects the most promising companies for the Fund's portfolio. The Fund may attempt to manage market risk by buying and selling financial futures and options. This may include the purchase of index futures contracts as a substitute for direct investments in stocks. It may also include the purchase and sale of options to protect against general declines in small capitalization stocks economically. PRINCIPAL RISKS: Federated Aggressive Growth Fund is subject to the following principal risks: - -------------------------------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------------------------------- o 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. o LIQUIDITY RISKS. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o 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. o SECTOR RISKS. As the Fund's 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. o 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. o RISKS RELATED TO INVESTING FOR GROWTH. The growth stocks in which the Fund invests are typically more volatile than value stocks and may depend more on price changes than dividends for returns. - -------------------------------------------------------------------------------------------------------- 22 - ---------------------------------------------------------------------------------------------- IAI GROWTH AND INCOME FUND FEDERATED AMERICAN LEADERS FUND, INC. - ---------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: Primary objective is capital To seek growth of capital and of appreciation and secondary objective income by concentrating the area of is income. investment decision in the securities of high quality companies. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: The IAI Growth and Income Fund Federated American Leaders Fund, invests primarily in common stocks Inc. invests primarily in equity of U.S.companies with market securities of large capitalization capitalizations of $3 billion or companies that are in the top 25% more at the time of investment. of their industry sectors in terms The Fund generally selects from of revenues, are characterized by the universe of companies included sound management and have the ability in the Standard & Poor's 500 Index to finance expected growth. The Fund ("S&P 500"). invests at least 65% of its assets in a portfolio of equity securities INVESTMENT STYLE: issued by the 100 companies selected from "The Leaders List." The Leaders The Fund follows the approach of List is a trade name that represents a purchasing stocks in growing list of 100 blue chip companies selected companies at a reasonable price, by the Fund's adviser and consists of also known in the investment world leading companies in their industries as GARP. determined in terms of sales earnings and/or market capitalizations. INVESTMENT STRATEGIES: The Fund may also invest in ADRs, which The Fund evaluates each company to represent interests in underlying determine its historical and projected securities issued by a foreign company, growth rates, the financial risk of the but which are traded in the United States. company (including its level of debt The Fund invests primarily in the ADRs and liquidity), and the current and of companies with significant operations expected market valuation of the firm. within the United States. The Fund uses qualitative factors such as market share, quality of INVESTMENT STYLE: management, profitability trends, product strategies and volatility of The Fund uses the value style of investing, earnings. As a result of this process, selecting securities of companies which are the Fund's portfolio is generally trading at discounts to their historic comprised of approximately 70 to 90 relationship to the market as well as to securities. The Fund will not deviate their expected growth. significantly from the sectors or categories of businesses included in the INVESTMENT STRATEGIES: Standard & Poor's 500 Index. The Fund diversifies its investments, PRINCIPAL RISKS: limiting its risk exposure with respect to individual securities and industry The principal risks of investing in sectors. In determining the amount to the IAI Growth and Income Fund are invest in a security, and in order to substantially similar to those of manage sector risk, the Fund attempts the Federated American Leaders Fund, to limit its exposure to each major Inc., except that the IAI Growth and sector in the Standard & Poor's 500 Income Fund is not subject to the risks Index, as a general matter, to not of investing in American Depositary less than 50% nor more than 200% of the Receipts ("ADRs"). In addition, the IAI Index's allocation to that sector. Growth and Income Fund uses the "growth" style of investing rather than the "value" The Fund's adviser performs traditional style, and is thus subject to the following fundamental analysis to select securities principal risk: for the Fund that exhibit the most promising long-term value for the Fund's o RISKS OF GROWTH STOCKS. The Fund portfolio. In selecting securities, the invests primarily in stocks of companies Fund's adviser focuses on the current that the Fund's adviser believes have financial condition of the issuing company, above-average prospects for growth. If in addition to examining each issuer's the adviser incorrectly assesses a business and product strength, competitive company's prospects for growth, or if its position, and management expertise. Further, judgment about how other investors will the adviser considers current economic, value the company's growth is wrong, financial market and industry factors, then the price of the company's stock may which may affect the issuing company. - -------------------------------------------------------------------------------------------------------- 23 - -------------------------------------------------------------------------------------------------------- decrease, or it may not increase to To determine the timing of purchases and the level that the adviser had anticipated. sales of portfolio securities, the Fund's adviser looks at recent stock price performance and the direction of current fiscal year earnings estimates of various companies. PRINCIPAL RISKS: Federated American Leaders Fund, Inc. is subject to the following principal risks: o 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. o RISKS RELATING TO INVESTING FOR VALUE. Due to the Fund's value style of investing, the Fund's share price may lag that of other funds using a different investment style. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market. o SECTOR RISK. Because the Fund may allocate relatively more of its assets to one or more industry sectors comprising the Standard and Poor's 500 Index than to other sectors of the Index, the Fund's performance will be more susceptible to any developments which affect the sectors emphasized by the Fund. o RISKS OF INVESTING IN ADRs. Because the Fund may invest in ADRs issued by foreign foreign companies, the Fund's share price price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case. - -------------------------------------------------------------------------------------------------------- 24 - ----------------------------------------------------------------------------------------- IAI MONEY MARKET FUND AUTOMATED CASH MANAGEMENT TRUST - ----------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide shareholders with a To provide stability of principal high level of current income and current income consistent with consistent with the preservation stability of principal. of capital and liquidity. PRINCIPAL INVESTMENTS: The IAI Money Market Fund's principal investments and investment policies Automated Cash Management Trust invests and strategies are substantially primarily in a portfolio of high quality similar to those of Automated Cash fixed income securities, issued by banks, Management Trust, except that the IAI corporations, and the U.S. Government, maturing Money Market Fund does not invest in in 397 days or less. The Fund's investments asset-backed securities. may include demand instruments, commercial paper, bank instruments, asset backed securities and PRINCIPAL RISKS: repurchase agreements. The principal risks of investing in INVESTMENT STRATEGIES: the IAI Money Market Fund are substantially the same as those of The Fund's adviser actively manages Automated Cash Management Trust. the Fund's portfolio, seeking to limit the credit risk taken by the Fund and select investments with enhanced yields. The adviser performs a fundamental credit analysis to develop an approved list of issuers and securities that meet the adviser's standard for minimal credit risk. The Fund's adviser targets an average portfolio maturity based upon its interest rate outlook, by analyzing various factors, such as current and expected U.S. economic growth; current and expected interest rates and inflation; and the Federal Reserve's monetary policy. MATURITY: The dollar-weighted average maturity of the Fund's portfolio will be 90 days or less. The Fund's adviser generally shortens the portfolio's maturity when it expects interest rates to rise and extends the maturity when it expects interest rates to fall. PRINCIPAL RISKS: Automated Cash Management Trust is subject to the following principal risks: o INTEREST RATE RISK. Prices of fixed income securities generally fall when interest rates rise. Interest rate changes have a greater effect on the price of fixed income securities with longer durations. The Fund minimizes this risk by purchasing short-term securities. - -------------------------------------------------------------------------------------------------------- 25 - -------------------------------------------------------------------------------------------------------- o CREDIT RISKS. There is a possibility 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. o SECTOR RISKS. A substantial part of the Fund's portfolio may be comprised of securities that are credit enhanced by banks or companies with similar characteristics. As a result, the Fund may be more susceptible to any economic, business, political or other developments which generally affect these entities. - -------------------------------------------------------------------------------------------------------- 26 - ----------------------------------------------------------------------------------------------- IAI BOND FUND FEDERATED BOND FUND - ----------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide shareholders with a To provide as high a level of current income high level of current income as is consistent with the preservation of capital. consistent with preservation of capital. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: Under normal market conditions, the Federated Bond Fund invests at least The IAI Bond Fund's principal 65% of the value of its total assets investments are substantially in a diversified portfolio of domestic similar to those in the Federated investment grade debt securities, Bond Fund, except for the following: including corporate debt securities and U.S. government obligations. Investment o Although the Fund generally does grade debt securities are rated in one not purchase common stocks directly, of the four highest categories (BBB or it may invest up to 10% of its net higher) by a nationally recognized assets in convertible securities and statistical rating organization (NRSRO), preferred stock. or if unrated, of comparable quality o The Fund does not expect to invest as determined by the Fund's adviser. more than 25% of its total assets in foreign securities, or more than 15% The Fund may invest up to 35% of its of its total assets in non-dollar portfolio in non-investment grade fixed denominated foreign securities. income securities, which are rated BB The Federated Bond Fund, in contrast, or lower by an NRSRO. The Fund may may invest up to 35% of its total invest in non-investment grade securities assets in foreign corporate debt primarily by investing in another securities. The Fund currently does investment company (which is not available not invest in non-dollar-denominated for general investment by the public) that foreign securities. owns those securities and that is advised by o The Fund may invest up to 15% of an affiliate of the Fund's adviser. its total assets in securities rated lower than investment grade at the The Fund's adviser may invest up to 35% time of purchase; the Fund will not of the Fund's total assets in invest in non-investment grade fixed dollar-denominated corporate debt securities income securities rated lower than of companies based outside the United States, B by Moody's Investors Service, Inc. to diversify the Fund's holdings and to or Standard & Poor's, or if unrated, gain exposure to the foreign market. The Fund judged to be of comparable quality. currently does not invest in non-dollar-denominated (In contrast, the Federated Bond Fund foreign securities. may invest up to 35% of its portfolio in non-investment grade fixed income INVESTMENT STRATEGIES: securities, including those rated lower than B by Moody's Investors Service, The Fund's adviser seeks to enhance Inc. or Standard & Poor's, and unrated the Fund's performance by allocating securities.) relatively more of its portfolio to o The Fund may enter into futures the security type that the Fund's adviser contracts, options on futures expects to offer the best balance between contracts and currency forward current income and risk and thus offers contracts. The Fund intends to use the greatest potential for return. The these derivative instruments primarily security's projected spread is weighed for hedging purposes, although it may against the spread the security can currently use hem for non-hedging purposes to a be purchased for, as well as the security's limited extent. To generate additional credit risk (in the case of corporate securities). income, the Fund may invest up to 10% of its net assets in mortgage dollar The Fund's adviser invests the Fund's roll transactions. portfolio, seeking the higher relative returns of corporate debt securities, INVESTMENT STRATEGIES: when available, while attempting to limit the associated credit risks. The The Fund's investment strategies are Fund's adviser attempts to manage the substantially similar to those of the Fund's credit risk by selecting corporate Federated Bond Fund. debt securities that are less likely to default in the payment of principal and - -------------------------------------------------------------------------------------------------------- 27 - -------------------------------------------------------------------------------------------------------- DURATION: interest. In selecting individual corporate fixed income securities, the Fund's adviser The Fund's adviser anticipates that the analyzes a company's business, competitive average effective duration for the position, and general financial condition to Fund's portfolio securities will range assess whether the security's credit risk is from 3 1/2 to 7 1/2 years. This range may commensurate with its potential return. change, however, due to market conditions and other economic factors. DURATION: PRINCIPAL RISKS: The Fund's adviser may lengthen or shorten duration from time to time based on its The principal risks of investing in the interest rate outlook, but the Fund has IAI Bond Fund are substantially no set duration parameters. If the adviser similar to those of the Federated Bond expects interest rates to decline, it will Fund, except that IAI Bond Fund has generally lengthen the Fund's duration, and the following additional risks: if the adviser expects interest rates to increase, it will generally shorten the Fund's duration. o RISKS OF PREFERRED STOCKS AND CONVERTIBLE SECURITIES. The risks PRINCIPAL RISKS: associated with investing in preferred stocks and convertible The Federated Bond Fund is subject securities are similar to the risks to the following principal risks: of investing in equity securities, including the risk that the prices o INTEREST RATE RISKS. Prices of fixed of the securities will decline in income securities rise and fall in response to the activities of the response to changes in the interest issuing company or in response to rate paid by similar securities. general market and/or economic Interest rate changes have a greater conditions. effect on the price of fixed income securities with longer durations. o RISKS OF DERIVATIVE INSTRUMENTS. o CREDIT RISKS. There is a possibility The use of derivative instruments that issuers of securities in which exposes the Fund to additional risks the Fund may invest may default in and transaction costs. Successful the payment of interest or principal use of these instruments depends on on the securities when due, which the Fund's adviser's ability to would cause the Fund to lose money. correctly forecast the direction of Many fixed income securities receive market movements. The Fund's credit ratings from services who performance could be worse than if assign ratings by assessing the the Fund had not used these likelihood of issuer default. Lower instruments if the Fund's adviser's credit ratings correspond to higher judgment proves incorrect. In credit risk. Fixed income securities addition, even if the adviser's generally compensate for greater forecast is correct, there may be an credit risk by paying interest at a imperfect correlation between the higher rate. price of derivative instruments and movements in the prices of the o LIQUIDITY RISKS. The fixed income securities, interest rates or securities in which the Fund invests currencies being hedged. may be less readily marketable and may be subject to greater fluctuation o RISKS OF DOLLAR ROLL TRANSACTIONS. in price than other securities. The use of mortgage dollar rolls Consequently, the Fund may have to could increase the volatility of the accept a lower price to sell a Fund's share price. It could also security, sell other securities to diminish the Fund's investment raise cash or give up an investment performance if the Fund's adviser opportunity, any of which could have does not predict mortgage a negative effect on the Fund's prepayments and interest rates performance. correctly. - -------------------------------------------------------------------------------------------------------- 28 - -------------------------------------------------------------------------------------------------------- o RISKS ASSOCIATED WITH NON-INVESTMENT 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. The Federated Bond Fund's potential risk exposure related to non-investment grade securities is Fund. The Federated Bond Fund may invest up to 35% of its portfolio in such securities, while the IAI Bond Fund may invest only up to 15% of its total assets in such securities. In addition, the Federated Bond Fund may invest in any non-investment grade securities, whereas the IAI Bond Fund may not invest in those securities rated lower than B by Moody's Investors Service, Inc. or Standard & Poor's, or if unrated, judged to be of comparable quality. o 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. - -------------------------------------------------------------------------------------------------------- 29 - ---------------------------------------------------------------------------------------------------------------------- IAI REGIONAL FUND FEDERATED CAPITAL APPRECIATION FUND - ---------------------------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide capital appreciation. To provide capital appreciation. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: IAI Regional Fund invests primarily in Federated Capital Appreciation Fund common stocks of companies headquartered invests primarily in common stock of in Minnesota, Wisconsin, Iowa, Illinois, companies with medium and largemarket Nebraska, Montana, North Dakota or prospects or of companies whose stock South Dakota. The Fund seeks to invest at is undervalued. This includes companies least 65% of the Fund's equity investments with market capitalization in excess in companies headquartered in one of these of $500 million. The Fund also invests states. The Fund invests in both in the convertible securities issued by nationally recognized companies and these companies and American Depositary in less well known companies that are Receipts, which represent interestsin newer or have smaller capitalizations, underlying securities issued by a foreign but that appear to have the potential company, but which are traded in the for capital appreciation. United States. INVESTMENT STYLE: INVESTMENT STYLE: The Fund invests in securities of The Fund uses a blended investment style by established companies as well as investing in the common stock or companies companies with the potential for with medium and large market capitalizations capital appreciation. that offer superior growth prospects or of companies whose stock is undervalued. INVESTMENT STRATEGIES: INVESTMENT STRATEGIES: In selecting securities, the Fund's adviser considers factors such as product development The Fund divesifies its investments, limiting and demand, superior performance records, its risk exposure with respect to individual management teams that the Fund's securities and industry sectors. In determining adviser believes are capable of sustaining the amount to invest in a security, and in growth and attractive market valuations. order to manage sector risk, the Fund attempts to limit its exposure to each major sector in the Standard & Poor's 500 Index, as a general PRINCIPAL RISKS: matter, to not less than 50% nor more than 200% of the Index's allocation to that sector. The principal risks of investing in the IAI Regional Fund are substantially similar to The Fund's adviser selects the most promising those of the Federated Capital Appreciation companies for the Fund's portfolio using its Fund, except that the IAI Regional Fund is own quantitative process to rate the future not subject to the risks of foreign performance potential of companies by investing. In addition, the IAI Regional evaluating each company's earnings quality Fund may have greater exposure to the in light of their current valuation to narrow following risks of geographic limitation by the list of attractive companies. The Fund's virtue of investing primarily in a certain adviser then ealuates product positioning, geographic region: management quality and sustainability of current companies. The Fund's adviser then evaluates product positioning, management o RISKS OF GEOGRAPHIC LIMITATION. The quality and sustainability of current Fund's of investing primarily in a growth trends of those companies. certain geographic region means that it will be subject to adverse economic, political or other PRINCIPAL RISKS: developments in that region. Moreover, because of this Federated Capital Appreciation Fund is geographic limitation, the Fund subject to the following principal risks: the Fund may be less diversified by industry and company than other funds with a similar investment objective and no such geographic limitation. - -------------------------------------------------------------------------------------------------------- 30 - -------------------------------------------------------------------------------------------------------- o 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. o LIQUIDITY RISKS. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o 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. o SECTOR RISKS. As the Fund's 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. o 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. - -------------------------------------------------------------------------------------------------------- 31 - ------------------------------------------------------------------------------------ IAI MIDCAP GROWTH FUND FEDERATED GROWTH STRATEGIES FUND - ------------------------------ ----------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide long-term capital To provide appreciation of capital. appreciation. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: Federated Growth Strategies Fund IAI Midcap Growth Fund invests pursues its investment objective primarily in common stocks of by investing primarily in medium-sized U.S. companies that common stock of companies with have above-average prospects market capitalization above $100 for growth. These companies are million that offer superior expected to show earnings growth growth prospects. The Fund also over time that is well above the invests in American Depositary growth rate of the overall economy Receipts, which represent and the rate of inflation. The interests in underlying securities Fund invests at least 65% of its issued by a foreign company, but total assets in stocks of companies which are traded in the with market capitalizations between United States. $1 billion and $8 billion. INVESTMENT STYLE: INVESTMENT STYLE: The Fund invests primarily for The Fund's investment style is growth by investing in securities substantially similar to that of companies with superior growth Federated Growth Strategies Fund. prospects. INVESTMENT STRATEGIES: INVESTMENT STRATEGIES: Under normal market conditions, The Fund limits its exposure to the weighted average market each major sector in the Standard capitalization of the Fund's & Poor's 500 Index, as a portfolio will range from $3 general matter, to not less than billion to $6 billion. In general, 50% nor more than 200% of the the Fund focuses on companies with Index's allocation to that superior performance records, solid sector. market positions, strong balance sheets, and management teams that The Fund's adviser selects the the adviser believes are capable most promising companies for the of sustaining growth. Fund's portfolio using its own quantitative process to rate PRINCIPAL RISKS: the future performance of companies by evaluating each company's earnings The principal risks of investing quality in light of their current in the IAI Midcap Growth Fund are valuation to narrow the list of substantially similar to those of attractive companies. The Fund's the Federated Growth Strategies adviser then evaluates product Fund, except that the IAI Midcap positioning, management quality Growth Fund is not subject to the quality and sustainability of "Risks of Investing in American current growth trends of those Depositary Receipts ("ADRs")" or companies. the "Risks Related to Company Size," describing the risks of investing PRINCIPAL RISKS: in small-cap companies. The Fund, however, is subject to the following Federated Growth Strategies Fund risk related to investing in mid-cap is subject to the following principal companies: risks: o RISKS OF MEDIUM-SIZED COMPANIES. o STOCK MARKET RISKS. The value of Medium-sized companies are generally equity securities in the Fund's considered to be less volatile than portfolio will fluctuate and, smaller, emerging companies. However, as a result, the Fund's share they may not generate the dividend price may decline suddenly or income of larger companies. over a sustained period of time. o RISKS RELATED TO INVESTING FOR GROWTH. The growth stocks in which the Fund invests are typically more volatile than value stocks and may depend more on price changes than dividends for returns. - -------------------------------------------------------------------------------------------------------- 32 - -------------------------------------------------------------------------------------------------------- o 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. o SECTOR RISKS. As the Fund's 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. o LIQUIDITY RISKS. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS ("ADRs"). Because the Fund may invest in ADRs 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. - -------------------------------------------------------------------------------------------------------- 33 - ------------------------------------------------------------------------------------------------- IAI INTERNATIONAL FUND FEDERATED INTERNATIONAL EQUITY FUND - ------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: Primary objective is capital To obtain a total return on its assets. appreciation. Secondary objective is to seek current PRINCIPAL INVESTMENTS: income, principally from dividends. The Federated International Equity PRINCIPAL INVESTMENTS: Fund pursues its investment objective by investing at least 65% of its The IAI International Fund's assets in equity securities of principal investments are companies based outside the U.S. substantially similar to those The Fund will not invest more than of the Federated International 20% of its assets in companies Equity Fund, except for the located in emerging markets. following: INVESTMENT STYLE: o Although the Fund is not required to maintain any The Fund emphasizes growth stocks at particular geographical mix a reasonable price. of its investments, under normal market conditions INVESTMENT STRATEGIES: the Fund invests primarily in countries that are represented The Fund's adviser takes a on the Morgan Stanley Capital "bottom-up" approach and looks International Europe, Australia, for companies which it perceives Far East ("EAFE") Index. The as being undervalued in the EAFE Index currently includes marketplace. Selection of companies representing the stock industry and country are secondary markets of 15 European countries, considerations. The market Australia, New Zealand, Japan, capitalization of portfolio Hong Kong and Singapore. securities is not a o The Fund may engage in foreign determinative factor. The Fund's currency hedging transactions, adviser may emphasize certain such as forward foreign currency business sectors in the portfolio exchange contracts and currency that exhibit stronger growth financial futures and options. potential or higher profit margins. o The Fund generally invests in mid- and large-capitalization Using its own quantitative process, companies with market capitalization the Fund's adviser ranks the potential of $1 billion or more. future performance of select companies. o In contrast to the Federated International Equity Fund, which may o The Fund's adviser evaluates each invest up to 20% of its assets in company's earnings potential in light companies located in emerging markets, of its current valuation. the IAI International Fund does not o The Fund's adviser reviews such factors currently invest in companies located as the company's price-to-earnings in emerging market countries. ratio, enterprise value, organic growth rates versus growth through acquisition, INVESTMENT STYLE: product niche and its pricing power. o The Fund's adviser evaluates management The Fund concentrates on securities quality and may meet with company that it believes have investment representatives, company, suppliers, values greater than their market prices. customers, or competitors. o The Fund's adviser also reviews the INVESTMENT STRATEGIES: company's financial statements and forecasts of earnings. The Fund's investment strategies are substantially similar to the Federated Based on this information, the Fund's International Equity Fund, except: adviser evaluates the sustainability of the company's current growth trends o Currency hedging may be used for and potential catalysts for increased defensive reasons and to reduce growth. portfolio volatility. - -------------------------------------------------------------------------------------------------------- 34 - -------------------------------------------------------------------------------------------------------- In selecting emerging markets countries PRINCIPAL RISKS: in which to invest, the Fund's adviser reviews the country's economic outlook, The principal risks of investing its interest and inflation rates, and in the IAI International Fund are the political and foreign exchange risk substantially similar to those of of investing in a particular country. the Federated International Equity The Fund's adviser then analyzes Fund, except that IAI International companies located in particular Fund is not subject to the risks of emerging market countries. investing in emerging market countries, and has the following additional risks: PRINCIPAL RISKS: o RISKS OF VALUE STOCKS. The Fund looks The Federated International Equity for undervalued securities with Fund is subject to the following appraised investment values greater principal risks: than their market prices. These securities can remain undervalued o STOCK MARKET RISKS. The value of for years. There is a risk that their equity securities in the Fund's prices will never reach what the Fund's portfolio will fluctuate and, as a sub-adviser believes is the securities' result, the Fund's share price may true value, or that their prices will decline suddenly or over a sustained go down. period of time. o RISKS OF FOREIGN CURRENCY HEDGING o CURRENCY RISKS. Exchange rates for TRANSACTIONS. Attempts by the Fund currencies fluctuate daily. Foreign to minimize the effects of currency securities are normally denominated fluctuations through the use of and traded in foreign currencies. As foreign currency hedging transactions a result, the value of the Fund's may not be successful or the Fund's foreign investments and the value of hedging transactions may limit the its shares may be affected favorably Fund's ability to take advantage of or unfavorably by changes in currency a favorable change in the value of exchange rates relative to the U.S. foreign currencies. dollar. The combination of currency risk and market risks tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States. o 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. 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 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 United States or in other foreign countries. 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 U.S. companies by market analysts and the and the financial press. In addition, foreign countries may lack financial - -------------------------------------------------------------------------------------------------------- 35 - -------------------------------------------------------------------------------------------------------- controls and 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 CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS. Custodial services and other costs relating to investment in international securities markets are generally more expensive than in the United States. Such markets have settlement and clearance procedures that differ from those in the United States. 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 problem could cause the Fund to miss s 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 procedures in some emerging countries may not fully protect the Fund against loss or theft of its assets. o 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. o EMERGING MARKETS RISKS. Securities issued or traded in emerging markets generally entail greater risks than securities issued or traded in developed markets. 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. Because the Fund may invest 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 counries than in more developed countries. - -------------------------------------------------------------------------------------------------------- 36 - -------------------------------------------------------------------------------------------------------- o LIQUIDITY RISKS. Trading opportunities are more limited for equity securities 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. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o SECTOR AND REGIONAL RISKS. As the Fund's adviser allocates more of the Fund's portfolio holdings to a particular sector, or geographic region, the Fund's performance will be more susceptible to any economic, business or other developments which generally affect that sector or geographic region. - -------------------------------------------------------------------------------------------------------- 37 - --------------------------------------------------------------------------------------------- IAI GROWTH FUND FEDERATED LARGE CAP GROWTH FUND - --------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To provide long-term capital To provide capital appreciation. appreciation. PRINCIPAL INVESTMENTS: PRINCIPAL INVESTMENTS: Federated Large Cap Growth Fund pursues it The principal investments of the investment objective by investing IAI Growth Fund are substantially primarily in common stocks of the largest similar to those of the Federated growth companies traded in the United Large Cap Growth Fund, except that States based upon expected price to the Fund does not invest in American earnings ratio, price to book ratio and Depositary Receipts. The Fund estimated earnings growth. The Fund's generally invests in companies with adviser will pick the largest growth market capitalizations ranging from stocks based on market capitalizations. $10 billion to over $100 billion at The Fund also invests in ADRs, which the time of investment. represent interests in underlying securities issued by a foreign company, INVESTMENT STYLE: but which are traded in the United States. The Fund's investment style is INVESTMENT STYLE: substantially similar to that of Federated Large Cap Growth Fund. The Fund invests primarily for growth by investing in companies with above-average INVESTMENT STRATEGIES: potential for expected growth. The Fund focuses on companies that INVESTMENT STRATEGIES: have strong management, leading market positions, strong balance The Fund diversifies its investments, sheets, and a well-defined strategy limiting its risk exposure with respect for future growth. In selecting to individual securities and industry investments, the Fund uses several sectors. When possible, the Fund valuation techniques to determine employs tax management techniques which stocks offer the best combination which are designed to minimize capital of intrinsic value and earnings growth gains while maximizing after-tax returns. potential. The goal is to have an acceptable balance of risk and reward Using its own quantitative process, in the Fund's portfolio. the Fund's adviser rates the future performance potential of companies. PRINCIPAL RISKS: The adviser evaluates each company's earnings quality in light of their The principal risks of investing in current valuation to narrow the list the IAI Growth Fund are substantially of attractive companies. The adviser similar to those of the Federated Large then evaluates product positioning, Cap Growth Fund except that the IAI management quality and sustainability Growth Fund is not subject to the "Risks of current growth trends of those of Investing in American Depositary companies. Using this type of fundamental Receipts ("ADRs")." analysis, the adviser selects the most promising companies for the Fund's portfolio. PRINCIPAL RISKS: Federated Large Cap Growth Fund is subject to the following principal risks: o 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. - -------------------------------------------------------------------------------------------------------- 38 - -------------------------------------------------------------------------------------------------------- o SECTOR RISKS. As the Fund's 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. o RISKS RELATED TO INVESTING FOR GROWTH. The growth stocks in which the Fund invests are typically more volatile than value stocks and may depend more on price changes than dividends for returns. o RISKS OF INVESTING IN ADRs. Because the Fund may invest in ADRs 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. - -------------------------------------------------------------------------------------------------------- 39 - --------------------------------------------------------------------------------------------------- IAI Balanced Fund FEDERATED STOCK AND BOND FUND, INC. - --------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVE: INVESTMENT OBJECTIVE: To maximize total return. To provide relative safety of capital with the possibility of long-term growth of PRINCIPAL INVESTMENTS: capital and income. The IAI Balanced Fund's principal PRINCIPAL INVESTMENTS: investments are substantially similar to the Federated Stock The Federated Stock and Bond Fund, Inc. and Bond Fund, Inc., except: invests in a diversified portfolio that is allocated between equity and fixed income o The Fund may invest in foreign securities. With respect to the equity equity and debt securities. The portion of the portfolio, the Fund invests Fund limits its investment in primarily in shares of domestic large foreign securities denominated in capitalization companies. The Fund invests foreign currencies and not publicly primarily in equity securities of traded in the United States to 25% companies that are generally leaders in of total assets. their industries, are characterized by o The Fund may enter into futures sound management and have the ability to contracts and options on those finance expected growth. The Fund's contracts, may invest in options holdings ordinarily will be in the top 25% on securities and financial indexes, of their industry with regard to revenues. and may enter into foreign currency currency transactions such as currency With respect to the fixed income portion of forward contracts. the portfolio, the adviser invests o The Fund may invest in asset-backed primarily in domestic investment-grade securities as part of its principal debt securities, including corporate debt investment strategy. securities, U.S. government obligations and mortgage backed securities, and may INVESTMENT STYLE: engage in dollar roll transactions. With respect to the equity portion of The Fund may invest a portion of its portfolio the Fund's portfolio, the Fund's stock in non-investment grade fixed income selection process emphasizes earnings securities, which are rated BB or lower by growth and attractive valuation. The a nationally recognized statistical rating Fund has incorporated a organization (NRSRO). "growth-at-a-reasonable price" style bias. INVESTMENT STYLE: INVESTMENT STRATEGIES: With respect to the equity portion of the Fund's portfolio, currently the Fund The Fund's investment strategies are primarily uses a "value" style of substantially similar to those of the investing, selecting stocks of companies Federated Stock and Bond Fund. Although which are trading at a low valuation the IAI Balanced Fund's and the Federated relative to their history, to the market, Stock and Bond Fund's respective investment and to their expected future growth. objectives are stated differently, their investment strategies and policies are INVESTMENT STRATEGIES: substantially similar. In essence, both Funds seek growth of capital and income. The Strategy Committee of the Fund's adviser determines the Fund portfolio's allocation The IAI Balanced Fund's adviser regularly between equity securities and fixed income reviews the allocation of Fund assets among securities based upon an analysis of stocks and long-and short-term debt instruments.general market and economic conditions. Because the Fund seeks to maximize total During normal market conditions, the return over the long term, the adviser equity allocation ranges from 50% to 70% will not try to pinpoint the precise moment of the portfolio and the fixed income when major reallocations are warranted. allocation ranges from 30% to 50% of the Rather, reallocations among asset classes portfolio. will be made gradually over time to favor asset classes that, in the adviser's With regard to the portion of the Fund judgment, provide the most favorable total allocated to equity securities: return outlook. Normally, a single reallocation decision will not involve o The Fund's adviser ranks the future more than 10% of the Fund's total assets. performance potential of companies, based on Although the Fund is not required to keep valuation models which attempt to identify any specified percentage of its assets in companies trading at a low valuation relative stocks or debt securities, generally between to their history, to the market and to their 50% and 70% of the Fund's assets will be expected future growth. invested in stocks. - -------------------------------------------------------------------------------------------------------- 40 - -------------------------------------------------------------------------------------------------------- o To determine the timing of purchases and DURATION: sales of portfolio securities, the Fund's adviser looks at recent stock price The Fund's adviser anticipates that the performance and the direction of current average effective duration for the debt fiscal year earning estimates. portion of the Fund will range from 3 1/2 to 7 1/2 years. This range may change, o In determining the amount to invest in however, due to market conditions and security, the Fund's adviser limits the other economic factors. Fund's exposure to each business sector that comprises more than 5% of the PRINCIPAL RISKS: Standard & Poor's 500 Index ("S&P 500"). Within the equity portion of the The principal risks of investing in portfolio, the Fund's allocation to a the IAI Balanced Fund are substantially sector will not be less than 50% or more similar to those of the Federated Stock than 200% of the S&P 500's allocation to and Bond Fund, Inc. IAI Balanced Fund that sector. has the following additional risks: With respect to the fixed income securities o RISKS OF INVESTING IN GROWTH STOCKS. allocation: If IAI incorrectly assesses a company's prospects for growth, or if its judgment o The Fund's adviser seeks to enhance the about how other investors will value the performance of the Fund's fixed income company's growth is wrong, then the price portfolio by allocating more assets to the of the company's stock may decrease, or security type that the adviser expects to it may not increase to the level IAI had offer the best balance between total anticipated. return and risk. The allocation process is based on the adviser's continuing analysis o RISKS OF FOREIGN SECURITIES. Investing of a variety of economic and market in foreign securities typically involves indicators in order to arrive at the risks not associated with U.S. investing. projected yield "spread" of each security Risks of foreign investing include the type. The security's projected spread is risk that the Fund may experience a then weighed against the security's decline in net asset value resulting current spread credit risk and risk of from changes in exchange rates between prepayment. the U.S. dollar and foreign currencies, the risk of adverse political and o The Fund's adviser attempts to manage economic developments, and the prepayment risk to the Fund by selecting possibility of expropriation, mortgage backed securities with nationalization or confiscatory characteristics that make prepayment taxation or limitations on the fluctuations less likely. removal of Fund assets. o The Fund's adviser attempts to manage o RISKS OF DERIVATIVE INSTRUMENTS. credit risk to the Fund by selecting Derivative instruments in which the corporate debt securities that make Fund invests are futures contracts default in the payment of principal and and options on those contracts, options interest less likely. on securities and financial indexes, and foreign currency transactions o In selecting individual corporate fixed such as currency forward contracts. income securities, the Fund's adviser The use of derivative instruments analyzes a company's business, competitive exposes the Fund to additional risks position, and general financial condition and transaction costs. Successful use to assess whether the security's credit of these instruments depends on the Fund's risk is commensurate with its potential adviser's ability to correctly forecast return. the direction of market movements. The Fund's performance could be worse than DURATION: if the Fund had not used these instruments if the adviser's judgment proves incorrect. The Fund's adviser selects securities with In addition, even if the Fund's adviser's longer or shorter duration based on its forecast is correct, there may be an interests rate outlook, but does not imperfect correlation between the price target any specific duration for the fixed of derivative instruments and movements income portion of the Fund. in the prices of the securities, interest rates or currencies being hedged. - -------------------------------------------------------------------------------------------------------- 41 - -------------------------------------------------------------------------------------------------------- PRINCIPAL RISKS: The Federated Stock and Bond Fund, Inc. is subject to the following principal risks: The specific risks associated with equity securities are as follows: o 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. o LIQUIDITY RISKS. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o SECTOR RISKS. As the Fund's 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. o RISKS RELATED TO INVESTING FOR VALUE. Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market. - -------------------------------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------------------------------- The specific risks associated with fixed income securities are as follows: o INTEREST RATE RISKS. Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Interest rate changes have a greater effect on the price of fixed income securities with longer durations. o CREDIT RISKS. There is a possibility 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. Many fixed income securities receive credit ratings from services who assign ratings by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. o LIQUIDITY RISKS. The fixed income securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities. 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. o PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also, when interest rates fall, the price of mortgage backed securities may not rise to as great an extent as that of other fixed income securities. 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. The price of mortgage backed securities may be more volatile than many other types of fixed income securities with comparable credit risks because of the risk of prepayment. - -------------------------------------------------------------------------------------------------------- 43 - -------------------------------------------------------------------------------------------------------- o 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. - --------------------------------------------------------------------------------------------------------
COMPARISON OF POTENTIAL RISKS AND REWARDS: PERFORMANCE INFORMATION The bar charts and tables below compare the potential risks and rewards of investing in the IAI Funds and the Federated Funds. Each bar chart provides an indication of the risks of investing in each Fund by showing changes in the Fund's performance from year to year for the last ten years or since the Fund's inception. The tables show how each Fund's average annual total returns for one year, five years and ten years (or since inception) compare to the returns of a broad-based market index. The figures assume reinvestment of dividends and distributions. Keep in mind past performance does not indicate future results. RISK/RETURN BAR CHART AND TABLE The bar charts shown below show the variability of total returns on a calendar year-end basis for each IAI Fund and its corresponding Federated Fund. The charts are arranged alphabetically according to the name of the Federated Fund. For the Federated Funds, the total returns shown are those of Class A Shares, except in the case of Automated Cash Management Trust, where the total returns of the Fund's Institutional Service Shares are shown. The Federated Fund's Class A Shares are sold subject to a sales charge (load). The total returns displayed for the Federated 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. Neither Automated Cash Management Trust's Institutional Service Shares nor any of the IAI Funds are sold subject to a sales charge (load). Remember, you will not be charged any sales charges in connection with the reorganization of your IAI Fund into its corresponding Federated Fund or any subsequent purchases of or exchanges for the shares of any other Federated mutual fund. 44 FEDERATED AGGRESSIVE GROWTH FUND 1997 1998 1999 30.06% 8.09% 111.62% The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 14.67%. The sectors of the stock market in which the Fund invested in 1999 were unusually favorable and the Fund benefited from this positive investment environment. The Fund's total returns for the 1999 calendar year are unlikely to be duplicated in the future. IAI CAPITAL APPRECIATION FUND 1997 1998 1999 17.78% 2.21% 24.50% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 27.18%. IAI EMERGING GROWTH FUND 1992 1993 1994 1995 1996 1997 1998 1999 22.45% 14.76% 0.19% 49.55% 6.95% (2.86%) 5.19% 43.47% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 27.98%. 45 IAI LONG TERM GROWTH FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (11.47%) 19.78% 11.90% 22.08% (9.08%) 24.39% 21.87% 19.60% (0.04%) (4.52%)
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 25.42%. 46 FEDERATED AMERICAN LEADERS FUND, INC.
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (1.76%) 31.04% 11.68% 11.75% 0.05% 37.00% 19.39% 31.95% 17.38% 6.72%
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was (2.28)%. IAI GROWTH AND INCOME FUND
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (6.68%) 26.66% 3.99% 9.98% (4.77%) 27.14% 20.21% 23.92% 15.00% 5.99%
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 10.81%. 47 AUTOMATED CASH MANAGEMENT TRUST 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 8.00% 5.88% 3.51% 2.79% 3.91% 5.61% 5.04% 5.18% 5.13% 4.77% Historically, the Fund has maintained a constant $1.00 net asset value per share. The Fund's Institutional Service Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.34%. IAI MONEY MARKET FUND 1994 1995 1996 1997 1998 1999 3.74% 5.40% 4.89% 5.04% 5.05% 4.69% Historically, the Fund has maintained a constant $1.00 net asset value per share. The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.33%. 48 FEDERATED BOND FUND 1996 1997 1998 1999 5.21% 11.08% 5.52% (2.35%) The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was (1.18)%. IAI BOND FUND 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 7.07% 17.32% 6.80% 12.32% (4.92%) 16.25% 4.12% 10.85% 5.58% (3.47%) The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 1.05%. 49 FEDERATED CAPITAL APPRECIATION FUND
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 17.58% (4.43%) 27.32% 11.38% 11.31% (0.30%) 37.17% 18.39% 30.62% 20.07% 43.99%
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 8.51%. IAI REGIONAL FUND 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (0.33%) 35.38% 3.54% 8.96% 0.68% 32.64% 15.72% 18.86% (1.37%) 8.62% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 4.30%. 50 FEDERATED GROWTH STRATEGIES FUND
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 29.24% (4.90%) 35.08% 8.59% 6.62% (11.87%) 40.02% 23.33% 27.06% 16.34 70.71%
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 13.05%. The sectors of the stock market in which the Fund invested in 1999 were unusually favorable and the Fund benefited from this positive investment environment. The Fund's total returns for the 1999 calendar year are unlikely to be duplicated in the future. IAI MIDCAP GROWTH FUND 1993 1994 1995 1996 1997 1998 1999 22.85% 5.65% 26.09% 16.58% 8.85% 24.95% 26.98% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 18.39%. 51 FEDERATED INTERNATIONAL EQUITY FUND 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (11.55%) (7.53%) (5.89%) 31.25% 0.49% 6.52% 5.76% 7.08% 24.68% 78.36% The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 7.17%. The markets in which the Fund invested in 1999 were unusually favorable and the Fund benefited from this positive investment environment. The Fund's total returns for the 1999 calendar year are unlikely to be duplicated in the future. IAI INTERNATIONAL FUND 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (13.10%) 16.60% (6.30%) 39.50% 0.50% 9.10% 8.40% (4.20%) 1.80% 8.00% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was (4.47)%. 52 FEDERATED LARGE CAP GROWTH FUND 1999 62.03% The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was 4.02%. The sectors of the stock market in which the Fund invested in 1999 were unusually favorable and the Fund benefited from this positive investment environment. The Fund's total returns for the 1999 calendar year are unlikely to be duplicated in the future. IAI GROWTH FUND 1994 1995 1996 1997 1998 1999 0.66% 23.17% 15.35% 19.16% 26.53% 20.14% The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 10.37%. 53 FEDERATED STOCK AND BOND FUND, INC.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 12.46% 0.19% 18.52% 7.33% 10.50% (1.92%) 25.06% 13.69% 23.92% 11.16% 2.23%
The Fund's Class A Shares total return for the three-month period from January 1, 2000 to March 31, 2000 was (0.50)%. IAI BALANCED FUND 1993 1994 1995 1996 1997 1998 1999 4.99% (1.45%) 18.56% 14.75% 25.70% 17.66% (0.52%) The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 3.25%. 54 Listed below are the highest and lowest quarterly returns for each Fund for the periods shown in the bar charts above.
FUND NAME HIGHEST QUARTERLY RETURN LOWEST QUARTERLY RETURN - --------- ------------------------ ----------------------- Federated Aggressive Growth Fund 59.95% (Quarter ended 12/31/99) (30.17%) (Quarter ended 9/30/98) IAI Capital Appreciation Fund 26.48% (Quarter ended 12/31/99) (22.46%) (Quarter ended 9/30/98) IAI Emerging Growth Fund 34.84% (Quarter ended 12/31/99) (20.59%) (Quarter ended 3/31/97) IAI Long Term Growth Fund 24.80% (Quarter ended 6/30/98) (35.28%) (Quarter ended 9/30/98) Federated Amer. Leaders Fund, Inc. 16.72% (Quarter ended 3/31/91) (14.45%) (Quarter ended 9/30/90) IAI Growth and Income Fund 20.07% (Quarter ended 12/31/98) (14.71%) (Quarter ended 9/30/98) Automated Cash Management Trust 2.04% (Quarter ended 9/30/90) 1.11% (Quarter ended 6/30/99) IAI Money Market Fund 1.35% (Quarter ended 6/30/95) 0.76% (Quarter ended 3/31/94) Federated Bond Fund 4.40% (Quarter ended 6/30/97) (1.83%) (Quarter ended 3/31/96) IAI Bond Fund 7.67% (Quarter ended 12/31/90) (3.68%) (Quarter ended 3/31/92) Federated Capital Appreciation Fund 27.57% (Quarter ended 12/31/99) (15.52%) (Quarter ended 9/30/90) IAI Regional Fund 18.21% (Quarter ended 3/31/91) (17.89%) (Quarter ended 9/30/98) Federated Growth Strategies Fund 41.95% (Quarter ended 12/31/99) (20.30%) (Quarter ended 9/30/98) IAI Midcap Growth Fund 31.97% (Quarter ended 12/31/98) (12.73%) (Quarter ended 9/30/98) Federated International Equity Fund 55.35% (Quarter ended 12/31/99) (19.77) (Quarter ended 9/30/90) IAI International Fund 11.35% (Quarter ended 3/31/98) (14.16) (Quarter ended 9/30/90) Federated Large Cap Growth Fund 36.80% (Quarter ended 12/31/99) (0.08%) (Quarter ended 9/30/99) IAI Growth Fund 27.00% (Quarter ended 12/31/98) (13.74%) (Quarter ended 9/30/98) Federated Stock and Bond Fund, Inc. 10.50% (Quarter ended 6/30/97) (7.58%) (Quarter ended 9/30/97) IAI Balanced Fund 14.92% (Quarter ended 6/30/97) (11.97%) (Quarter ended 9/30/98)
AVERAGE ANNUAL TOTAL RETURN TABLES - ---------------------------------- The following tables represent the funds' Average Annual Total Returns for the calendar periods ended December 31, 1999. Each of the returns shown for the Federated Funds Class A Shares reflect applicable sales charges (except for Automated Cash Management Trust's Institutional Service Shares, which does not charge any sales charge). The IAI Funds do not charge sales charges. Remember, you will not be charged any sales charges in connection with the reorganization of your IAI Fund into its corresponding Federated Fund or any subsequent purchases of or exchanges for the shares of any other Federated mutual fund. If the returns shown below did not reflect these applicable sales charges, the returns would have been higher. The tables also show the funds' total returns averaged over a period of years relative to one or more broad-based market indexes. Total returns for the indexes shown do not reflect sales charges, expenses or other fees the Securities and Exchange Commission requires to be reflected in the fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index. 55 The tables are arranged alphabetically according to the name of the Federated Fund. Please note that the average annual total return since a fund's inception is only given for those funds that have been in existence for less than ten calendar years. 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.
- ------------------------------------------------------------------------------------------------------------------ IAI IAI IAI FEDERATED EMERGING CAPITAL LONG TERM S&P AGGRESSIVE GROWTH APPRECIATION GROWTH 600/BARRA CALENDAR PERIOD GROWTH FUND FUND FUND FUND S&P 500* GROWTH* LSGI* - ------------------------------------------------------------------------------------------------------------------- 1 Year 99.97% 43.37% 24.50% -4.52% 21.03% 28.25% 61.17% - ------------------------------------------------------------------------------------------------------------------- 5 Year N/A 18.56% N/A 11.59% 28.54% N/A 23.66% - ------------------------------------------------------------------------------------------------------------------- 10 Year N/A N/A N/A 8.59% 18.19% N/A 17.60% - ------------------------------------------------------------------------------------------------------------------- Since Inception of Federated Aggressive Growth Fund** 39.10% -- -- -- 18.19% 33.35% 21.71% - ------------------------------------------------------------------------------------------------------------------- Since Inception of IAI Emerging Growth Fund*** -- 18.79 -- -- 19.86% -- 18.42% - ------------------------------------------------------------------------------------------------------------------ Since Inception of IAI Capital Appreciation Fund**** -- N/A 24.12% -- 24.94% -- 21.06% - --------------------------------------------------------------------------------------------------------------------
* The Standard and Poor's 500 Index (S&P 500), Standard & Poor's 600/Barra Growth Index (S&P 600/Barra Growth) and Lipper Small Growth Index (LSGI) are broad-based market indexes. Data for the S&P 600/Barra Index was not reported until 1997; therefore, total returns for that index are not available for the 5 Year and 10 Year periods or since inception dates of IAI Emerging Growth Fund or IAI Capital Appreciation Fund. ** The Federated Aggressive Growth Fund's start of performance date for Class A Shares was November 25, 1996. *** The IAI Emerging Growth Fund's start of performance date was August 5, 1991. ****The IAI Capital Appreciation Fund's start of performance date was February 1, 1996. - --------------------------------------------------------------------------- FEDERATED IAI AMERICAN LEADERS GROWTH AND INCOME CALENDAR PERIOD FUND, INC. FUND S&P 500* LGIFA* - --------------------------------------------------------------------------- 1 Year 0.85% 5.99% 21.03% 13.71% - --------------------------------------------------------------------------- 5 Year 20.63% 18.21% 28.54% 21.35% - --------------------------------------------------------------------------- 10 Year 15.17% 11.51% 18.19% 14.43% - --------------------------------------------------------------------------- *The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the Lipper Growth and Income Funds Average (LGIFA) is an average of funds with similar investment objectives to the Funds in this table. 56 - --------------------------------------------------------------------------- IAI AUTOMATED CASH MONEY MARKET FUND CALENDAR PERIOD MANAGEMENT TRUST FUND - --------------------------------------------------------------------------- 1 Year 4.77% 4.69% - --------------------------------------------------------------------------- 5 Year 5.15% 5.01% - --------------------------------------------------------------------------- 10 Year 4.97% N/A - --------------------------------------------------------------------------- Since -- inception of IAI Money Market Fund* 4.52% - -------------------------------------------------------------------------- *The IAI Money Market Fund's start of performance date is January 5, 1993. ------------------------------------------------------------------------------- Calendar Period Federated IAI LBCBI* Bond Fund Bond Fund LCDBBB* LBABI* ------------------------------------------------------------------------------- 1 Year 6.77% -3.47% -1.94% -1.79% -0.82% ------------------------------------------------------------------------------- 5 Year N/A 6.46% 8.18% 7.68% 7.73% ------------------------------------------------------------------------------- 10 Year N/A 6.96% 8.21% 7.72% 7.70% ------------------------------------------------------------------------------- Since inception of Federated Bond Fund** 4.80% -- 5.94% 5.77% 6/04% ------------------------------------------------------------------------------- *The Lehman Brothers Corporate Bond Index (LBCBI) and Lehman Brothers Aggregate Bond Index (LBABI) are broad-based market indexes, and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB) is an average of funds with similar investment objectives to those of the Funds shown in this table. The LBCBI is comprised of a large universe of bonds issued by industrial, utility and financial companies which have a minimum rating of Baa by Moody's Investors Service, Inc., BBB by Standard and Poor's Ratings Group or, in the case of bank bonds not rated by either of the previously mentioned services, BBB by Fitch IBCA, Inc. The LBABI is a broad measure of the performance of taxable bonds in the US market, with maturities of at least one year. **The Federated Bond Fund's start of performance date was June 28, 1995. - ---------------------------------------------------------------------- FEDERATED CAPITAL APPRECIATION IAI CALENDAR PERIOD FUND REGIONAL FUND S&P 500* LGIFA* - ---------------------------------------------------------------------- 1 Year 35.52% 8.62% 21.03% 13.71% - ---------------------------------------------------------------------- 5 Year 28.11% 14.34% 28.54% 21.35% - ---------------------------------------------------------------------- 10 Year 17.92% 11.60% 18.19% 14.43% - ---------------------------------------------------------------------- *The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the Lipper Growth and Income Funds Average (LGIFA) is an average of funds with similar investment objectives to those of the Funds shown in this table. - ----------------------------------------------------------------- FEDERATED GROWTH IAI STRATEGIES MIDCAP CALENDAR PERIOD FUND GROWTH FUND S&P 500* LGFIA* - ----------------------------------------------------------------- 1 Year 61.31% 26.98% 21.03% 29.23% - ----------------------------------------------------------------- 5 Year 32.72% 20.48% 28.54% 25.03% - ----------------------------------------------------------------- 10 Year 18.37% N/A 18.19% 16.48% - ----------------------------------------------------------------- Since Inception of IAI Midcap Growth Fund** -- 18.81% 20.78% 19.08% - ----------------------------------------------------------------- *The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the Lipper Growth Fund Index (LGFI) is an average of funds with similar investment objectives to those of the Funds shown in this table. **The IAI Midcap Growth Fund's start of performance date was April 10, 1992. 57 - -------------------------------------------------------- FEDERATED IAI INTERNATIONAL INTERNATIONAL CALENDAR PERIOD EQUITY FUND FUND EAFE* - -------------------------------------------------------- 1 Year 68.52% 8.00% 27.30% - -------------------------------------------------------- 5 Year 20.45% 4.51% 13.15% - -------------------------------------------------------- 10 Year 11.59% 5.19% 7.33% - -------------------------------------------------------- *The Morgan Stanley Capital International Europe, Australia, and Far East Index (EAFE) is a broad-based market index. The EAFE is a standard foreign securities index representing major non-U.S. stock markets as monitored by Morgan Stanley Capital International. - ---------------------------------------------------------------- FEDERATED LARGE CAP IAI CALENDAR PERIOD GROWTH FUND GROWTH FUND S&P 500* - ---------------------------------------------------------------- 1 Year 53.12% 20.14% 21.03% - ---------------------------------------------------------------- 5 Year N/A% 20.81% 28.54% - ---------------------------------------------------------------- Since Inception 54.96% -- 22.32% of Federated Large Cap Growth Fund** - ---------------------------------------------------------------- Since Inception -- 16.20% 22.86% of IAI Growth Fund*** - ---------------------------------------------------------------- * The Standard & Poor's 500 Index (S&P 500) is a broad-based market index. ** The Federated Large Cap Growth Fund's start of performance date was December 29, 1998. ***The IAI Growth Fund's start of performance date was August 6, 1993. - --------------------------------------------------------------------- FEDERATED STOCK AND IAI BOND BALANCED CALENDAR PERIOD FUND, INC. FUND S&P 500* LBGCBI* LBFA* - --------------------------------------------------------------------- 1 Year -3.39% -0.52% 21.03% -2.15% 8.79% - --------------------------------------------------------------------- 5 Year 13.60% 14.89% 28.54% 7.60% 16.26% - --------------------------------------------------------------------- 10 Year 10.08% N/A 18.19% 7.65% 11.86% - --------------------------------------------------------------------- Since Inception of IAI Balanced Fund** -- 11.09% 20.78% 6.99% 12.49% - --------------------------------------------------------------------- * The Standard & Poor's 500 Index (S&P 500) is a broad-based market index and the Lehman Brothers Government/Corporate Bond Index (LBGCBI) is an index composed of all bonds that are investment grade rated Baa or higher by Moody's or BBB or higher by Standard and Poor's, if unrated by Moody's, and the Lipper Balanced Funds Average (LBFA) is an average of funds with similar investment objectives to those of the Funds shown in this table. **The IAI Balanced Fund's start of performance date was April 10, 1992. COMPARISON OF OPERATIONS INVESTMENT ADVISORY AGREEMENTS - ------------------------------ A Board of Directors or a Board of Trustees governs each Federated Fund. This Board selects and oversees the adviser, a subsidiary of Federated Investors, who manages the Fund's assets, including buying and selling portfolio securities. Federated Investment Management Company acts as investment adviser to all the Federated Funds, except for Federated International Equity Fund, for which Federated Global Investment Management Corporation (collectively, with Federated Investment Management Company, the "Advisers") acts as investment adviser. The address of Federated Investment Management Company is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of Federated Global Investment Management Corporation is 175 Water Street, New York, New York 10038-9965. 58 The Advisers advise approximately 175 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of March 31, 2000. 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. Investment Advisers, Inc. ("IAI") serves as investment adviser to the IAI Funds. IAI, which has been in the investment advisory business since 1947, also furnishes investment advice to institutional investors. As of March 31, 2000, IAI managed accounts which totaled approximately $2.37 billion. IAI is located at 601 Second Avenue South, Suite 3600, Minneapolis, Minnesota 55402. IAI is a wholly-owned subsidiary of Lloyds TSB Group plc ("Lloyds TSB"). The IAI Funds have entered into Management Agreements with IAI under which IAI provides the funds with investment advisory services and is responsible for managing each fund's business affairs, subject to the authority of the Board of Directors. IAI also is responsible under the Management Agreements for providing or arranging for the provision of all required administrative, stock transfer, redemption, dividend disbursing, accounting and shareholder services. The Management Agreements require IAI to pay all of each IAI Fund's operating expenses, except for brokerage commissions and other expenditures in connection with the purchase and sale of portfolio securities, interest and, in certain circumstances, taxes and extraordinary expenses. On June 19, 2000, IAI announced publicly that a management team led by IAI's President and Chief Investment Officer, Keith Wirtz, had agreed in principle to acquire most of the business of IAI from Lloyds TSB. The new firm would manage U.S. and international equity investments for institutional clients. This acquisition of IAI is subject to the satisfaction of various conditions. If these conditions are satisfied, the management acquisition of IAI is expected to occur in the fourth quarter of 2000 and, in any event, is not expected to be consummated until the Reorganization described in this Prospectus/Proxy Statement is consummated. In addition, IAI has advised the IAI Funds that this buy-out will not have any effect on the services provided by IAI to the IAI Funds prior to the Reorganization pursuant to the Management Agreements, including the key personnel who are currently responsible for the day-to-day management of those funds. As of the date of this Prospectus/Proxy Statement, the parties are still negotiating the final terms of the management buy-out, and whether such buy-out will be dependent on the Reorganization with respect to any one or more of the IAI Funds has not yet been determined. If the Reorganization does not occur with respect to one or more IAI Funds, that Fund or Funds' Board of Directors will consider the appropriate steps to be taken, which may include liquidating the IAI Fund or Funds at issue or seeking shareholder approval for the assignment of the advisory contract. 59 ADMINISTRATIVE AND SHAREHOLDER SERVICES - --------------------------------------- Federated Services Company, an affiliate of the Advisers, provides certain administrative personnel and services necessary to operate the Federated Funds. Federated Services Company provides these services at an annual rate based upon the average aggregate daily net assets of all funds advised by the Advisers and their affiliates. The rate charged is 0.15 of 1% on the first $250 million of each fund's average aggregate daily net assets, 0.125 of 1% on the second $250 million, 0.10 of 1% on the third $250 million and 0.075 of 1% of each fund's average aggregate daily net assets in excess of $750 million. Federated Services Company's minimum annual administrative fee for each Federated Fund is $125,000, plus $30,000 for each additional class of shares of any such portfolio. In addition, there are certain fees paid directly by shareholders for certain services provided by Federated Services Company, such as wiring money to or from your bank account, maintaining an IRA account, using a debit card, and obtaining historical account information. See "Comparative Fee Tables - Shareholder Fees." Federated Services Company also provides certain accounting and recordkeeping services with respect to the Federated Funds' portfolio investments for a fee based on Fund assets plus out-of-pocket expenses. The Federated Funds have each entered into a Shareholder Services Agreement under which the Fund may make payments of up to 0.25 of 1% of the average daily net asset value of the shares to obtain certain personal services for shareholders and the maintenance of shareholder accounts. The Shareholder Services Agreement provides that Federated Shareholder Services Company ("FSSC"), an affiliate of the Advisers, either will perform shareholder services directly or will select financial institutions or other investment professionals to perform such services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedule of such fees and the basis upon which such fees will be paid is determined from time to time by the Federated Funds and FSSC. Federated Services Company, through its registered transfer agent subsidiary, Federated Shareholder Services Company, maintains all necessary shareholder records. Each Federated Fund pays the transfer agent a fee based on the size, type and number of accounts and transactions by shareholders. Firstar Mutual Fund Service, LLC ("FMFS") provides administrative and accounting services to the IAI Funds. Under a Fund Administration Servicing Agreement between IAI and FMFS, FMFS provides to the IAI Funds general management services, compliance services, financial reporting services, and tax reporting services. The annual fees paid for such services are as follows, based upon the assets of all IAI Funds: 0.07% on the first $500 million; 0.06% on the next $500 million; and 0.04% on the balance of the assets, subject to a minimum annual fee of $25,000 per IAI Fund, plus out-of-pocket expenses. 60 Under a Fund Accounting Services Agreement between IAI and FMFS, FMFS provides portfolio accounting services, expense accrual and payment services, fund valuation and financial reporting services, tax accounting, and compliance control services. The annual fee for such accounting services is as follows: 5 basis points on the first $500 million; 3 basis points on the next $500 million; 2 basis points on the next $500 million; and 1 basis point on the balance of the assets, subject to a minimum annual fee of $22,000 per IAI Fund, plus out-of-pocket expenses. Under a Transfer Agent Servicing Agreement between IAI and FMFS, FMFS provides shareholder services, such as receiving and processing purchase, exchange and redemption orders, preparing and transmitting payments for dividends and distributions, preparing shareholder meeting lists, mailing proxy statements, shareholder reports and prospectuses, and providing shareholder account information upon request. The annual fee per shareholder account is $14.00 with a minimum annual fee of $25,000 for one IAI Fund and $10,000 for each additional IAI Fund, plus any out-of-pocket expenses. Under each agreement listed above, IAI is responsible for paying all fees of FMFS. IAI directly or indirectly pays qualifying broker-dealers, financial institutions and other entities for providing administrative, stock transfer, redemption, dividend disbursing, accounting and shareholder services to IAI Fund shareholders. DISTRIBUTION SERVICES - --------------------- Federated Securities Corp. ("FSC"), an affiliate of the Advisers, is the principal distributor for shares of the Federated Funds. Shares of the Federated Funds are sold at net asset value, plus any applicable sales charges, next determined after an order is received. AFTER THE REORGANIZATION IS COMPLETED, IAI FUND SHAREHOLDERS WILL BE ABLE TO EXCHANGE THEIR SHARES OF FEDERATED FUNDS INTO OR PURCHASE THE SHARES OF ANY OTHER FEDERATED MUTUAL FUND WITHOUT A FRONT-END SALES CHARGE, ASSUMING THE SHAREHOLDER MEETS THAT FUND'S INVESTMENT MINIMUM REQUIREMENTS. (Federated has agreed to waive the initial investment minimum of $25,000 for Automated Cash Management Trust in connection with the Reorganization and any subsequent purchases or exchanges into that Fund by IAI Fund shareholders.) For a complete description of sales charges and exemptions from such charges, reference is made to the Prospectuses and SAIs of the Federated Funds, which are incorporated by reference herein. A copy of the Prospectus of the Federated Fund into which your IAI Fund will be reorganized is included herewith. Federated Growth Strategies Fund, Federated International Equity Fund, Automated Cash Management Trust, and Federated American Leaders Fund, Inc. do not have Rule 12b-1 plans in effect with respect to their Class A or Institutional Service Shares and, accordingly, do not, nor does FSC, compensate brokers and dealers for sales and administrative services performed in connection with sales of shares of the Federated Funds under a plan of distribution adopted pursuant to Rule 12b-1. However, for those Federated Funds that are marketed through financial institutions, FSC and FSSC, from their own assets, may pay a financial institution supplemental fees as financial assistance for providing substantial sales services, distribution-related support services or shareholder services with respect to a Federated Fund. Such assistance will be predicated upon the amount of shares the financial 61 institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by FSC may be reimbursed by the Advisers or their affiliates. Federated Bond Fund, Federated Stock and Bond Fund, Inc., Federated Capital Appreciation Fund, Federated Large Cap Growth Fund and Federated Aggressive Growth Fund have 12b-1 plans in effect. Shares of the IAI Funds are self-distributed, i.e., distributed directly by the fund, and are sold at net asset value next determined after an order is received. None of the IAI Funds has a sales charge or 12b-1 fee. IAI may directly or indirectly pay qualifying broker-dealers, financial institutions and other entities for providing distribution services to the IAI Funds. PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES - -------------------------------------------- The transfer agent and dividend disbursing agent for each of the Federated Funds is FSSC. FMFS acts as the IAI Funds' transfer agent and dividend disbursing agent. Procedures for the purchase, exchange and redemption of each Federated Fund's shares differ slightly from procedures applicable to the purchase, exchange and redemption of the IAI Fund shares. Reference is made to the Prospectuses of the Federated Funds, and the Prospectuses of the IAI Funds, for a complete description of the purchase, exchange and redemption procedures applicable to purchases, exchanges and redemptions of Federated Fund and IAI Fund shares, respectively, each of which is incorporated herein by reference thereto. Set forth below is a brief description of the significant purchase, exchange and redemption procedures applicable to the Federated Fund shares and the IAI Fund shares. Purchases of shares of the Federated Funds may be made through an investment professional, directly from the Fund or through an exchange from another Federated Fund. Accounts through investment professionals may be subject to higher or lower minimum investment requirements. The following chart shows the minimum initial investment amounts for each Federated Fund: 62 - -------------------------------------------------------------------------------- Systematic Retirement Investment Retirement Plan Plan Initial Subsequent Plan Subsequent Subsequent Investment Investment Investment Investment Investment Minimum Minimum Minimum Minimum Minimum - -------------------------------------------------------------------------------- All Federated $1,500 $100 $250 $100 $50 Funds (except Automated Cash Management Trust) - -------------------------------------------------------------------------------- Automated Cash $25,000* None N/A N/A $100 Management Trust - -------------------------------------------------------------------------------- * This investment minimum will be waived for IAI Fund shareholders in connection with this Reorganization and for any subsequent exchanges or purchases of shares of Automated Cash Management Trust by IAI Fund shareholders. For all other accounts, an account may be opened with a smaller amount as long as the minimum amount is reached within 90 days, and an institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Purchases of shares of the IAI Funds may be made through certain securities dealers or directly by wire or check once an account has been established. The minimum initial investment to establish an account with the IAI Family of Funds is $5,000 for a retail account and $2,000 for an IRA account. In each case, your initial investment may be allocated in any way you wish among the IAI Funds, so long as no less than $1,000 is allocated to any one fund. Once you have met the account minimum, subsequent purchases can be made for as little as $100. Each Federated Fund and each IAI Fund reserves the right to reject any purchase request. The purchase price of each of the Federated Fund's Class A shares and Institutional Service Shares is based on net asset value, plus any applicable sales charges. However, IAI Fund shareholders will not be charged these sales charges in connection with the Reorganization. The purchase price of the IAI Fund shares is based on net asset value, without any sales charge. Except in limited circumstances, the net asset value per share for each Federated Fund and each IAI Fund is calculated as of the close of trading (normally 4:00 p.m., Eastern time) (5:00 p.m., Eastern Time, in the case of Automated Cash Management Trust) on the New York Stock Exchange, Inc. (the "NYSE") on each day on which the NYSE is open for business. You also have the following purchase options: by a Systematic Investment Program established with the Fund; through a depository institution that is an automated clearing house (ACH) member; or through a retirement account. 63 Federated Fund purchase orders by wire are considered received immediately and payments must be received before 3:00 p.m. (Eastern time) (5:00 p.m. (Eastern time) in the case of Automated Cash Management Trust) on the next business day following the order. Federated Fund purchase orders received by check are considered received after the check is converted into federal funds, which normally occurs the business day after receipt, and shares will be eligible to receive interest and/or dividends when the Fund receives the payment. IAI Fund purchase or redemption orders are considered received when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. In such circumstances, customer orders will be priced at a Fund's net asset value next computed after they are accepted by an authorized broker or the broker's authorized designee. Shares in certain of the funds for which the Advisers serve as investment adviser may be exchanged for shares of a Federated Fund at net asset value. Shares of the Federated Funds may be exchanged through an investment professional if you purchased shares through an investment professional or directly from the Fund if you purchased shares directly from the Fund. The exchange is subject to any initial or subsequent minimum investment amounts of the fund into which the exchange is being made, and is treated as a sale of your shares for federal tax purposes. Shares of the IAI Funds may be exchanged for shares of another IAI Fund if you satisfy the fund's purchase requirements. Redemptions of Federated Fund Shares may be made through an investment professional, by telephone or by mailing a written request. Shares of the Federated Funds are redeemed at their net asset value next determined after the redemption request is received in proper form on each day on which the Fund computes its net asset value. Proceeds normally are wired or mailed within one business after receiving a request in proper form, although payment may be delayed up to seven days. You also have the following redemption options: an electronic transfer to your account at a financial institution that is an ACH member, or wire payment to your account at a domestic commercial bank that is a Federal Reserve System member. Redemptions of IAI Fund shares may be made by telephone or by mailing a written request, however, telephone redemptions are not permitted for IRAs. To redeem IAI Fund shares from an IRA account, an IRA Distribution Form must be completed and returned to IAI. Telephonic redemptions are limited to $50,000. Shares of the IAI Funds are each redeemed at their net asset value next determined after the redemption request is received in proper form on each day on which the Fund computes its net asset value. Proceeds sent by check will ordinarily be mailed on the business day following your redemption request, although payment may be made as late as seven days after receipt of a redemption request. When redeeming by phone, you may have the proceeds wired to your bank account, subject to certain requirements, or sent to your bank account by an Automatic Clearing House. Proceeds will be wired on the next business day after your redemption request. Proceeds sent by ACH transfer should be credited the second day after the redemption. 64 DIVIDENDS AND OTHER DISTRIBUTIONS - --------------------------------- The following chart compares when each IAI Fund and each Federated Fund declares and pays dividends. All of the IAI Funds and Federated Funds declare and pay capital gain distributions, if any, at least annually. - -------------------------------------------------------------------------------- Dividends Dividends IAI Fund Distribution Federated Fund Distribution - -------------------------------------------------------------------------------- IAI Emerging Growth Fund Declares and Federated Declares and pays Aggressive pays annually IAI Long Term Growth Fund semi-annually Growth Fund IAI Capital Appreciation Fund - -------------------------------------------------------------------------------- IAI Growth and Income Fund Declares and Federated Declares pays American Leaders daily and semi-annually Fund, Inc. pays quarterly - -------------------------------------------------------------------------------- IAI Money Market Fund Declares daily Automated Cash Declares and pays monthly Management Trust daily and pays monthly - -------------------------------------------------------------------------------- IAI Bond Fund Declares and Federated Bond Declares and pays monthly Fund pays monthly - -------------------------------------------------------------------------------- IAI Regional Fund Declares and Federated Declares and pays Capital pays quarterly semi-annually Appreciation Fund - -------------------------------------------------------------------------------- IAI Midcap Growth Fund Declares and Federated Growth Declares and pays Strategies Fund pays annually semi-annually - -------------------------------------------------------------------------------- IAI International Fund Declares and Federated Declares and pays International pays annually semi-annually Equity Fund - -------------------------------------------------------------------------------- IAI Growth Fund Declares and Federated Large Declares and pays Cap Growth Fund pays annually semi-annually - -------------------------------------------------------------------------------- IAI Balanced Fund Declares and Federated Stock Declares and pays and Bond Fund, pays quarterly semi-annually Inc. - -------------------------------------------------------------------------------- 65 With respect to both the Federated Funds and the IAI Funds, unless a shareholder otherwise instructs, dividends and/or capital gain distributions will be reinvested automatically in additional shares at net asset value. TAX CONSEQUENCES - ---------------- As a condition to the Reorganization, each Federated Fund and each IAI Fund will receive an opinion of counsel that the Reorganization will be considered a tax-free "reorganization" under applicable provisions of the Code so that neither the Federated Fund nor the IAI Fund nor the shareholders of the IAI Fund will recognize any gain or loss on the Reorganization. The tax basis of the Federated Fund's shares received by the IAI Fund's shareholders will be the same as the tax basis of their shares in the IAI Fund. INFORMATION ABOUT THE REORGANIZATION AGREEMENT BETWEEN IAI AND FEDERATED INVESTORS FOR SALE OF IAI'S MUTUAL FUND ADVISORY BUSINESS On June 16, 2000, IAI and Federated Investors reached a definitive agreement covering the sale by IAI of its mutual fund advisory business to Federated Investors. Pursuant to the agreement between IAI and Federated Investors, IAI will receive from Federated Investors a lump sum payment on the closing date of the Reorganization based primarily upon the net assets of the IAI Funds, as well as contingent payments subsequent to that date. The contingent payments will be based primarily upon the amount of assets maintained in Federated mutual funds by IAI Fund shareholders, whether resulting from the Reorganization or from a subsequent exchange or purchase by an IAI Fund shareholder. Consummation of the Agreement between Federated and IAI with respect to an IAI Fund is conditioned upon, among other things, shareholders of that IAI Fund approving the Reorganization. In determining to sell its mutual fund advisory business, IAI management considered its ability to remain competitive in an environment where the amount of assets under management was becoming more and more important to running a successful mutual fund business. After such consideration, IAI and the Board of Directors of the IAI Funds concluded that larger mutual fund companies would be in the best position to offer excellent products and services in the years ahead, as the mutual fund industry matures. IAI found that Federated Investors, with $125 billion of assets under management across a broad product line, is in a good position to provide such high-quality investment management and related services to IAI Fund shareholders. The reorganization described in this Prospectus/Proxy Statement is being proposed in conjunction with the sale by IAI of its mutual fund advisory business to Federated Investors. 66 CONSIDERATIONS BY THE BOARD OF DIRECTORS OF THE IAI FUNDS The Board of Directors of the IAI Funds believes that the proposed Reorganization is in the best interests of IAI Fund shareholders. The Board first considered engaging in such transactions with the Federated Funds at a special Board meeting held on April 7, 2000. At this meeting, representatives of IAI advised the Board that Federated Investors (together with its subsidiaries, "Federated") had expressed an interest in pursuing such transactions. These representatives also presented preliminary information to the Board concerning the Federated Funds and Federated. Following consideration of these matters, the Board informally authorized IAI to engage in further discussions with Federated concerning possible transactions. As a result of these further discussions, the Board met with senior representatives of Federated on April 26, 2000. At this meeting, these representatives presented information concerning Federated's investment management personnel and processes, its shareholder servicing capabilities, and its experience in executing transactions similar to the Reorganization. They also responded to questions from Board members concerning these and related matters. In addition, the Board reviewed written information provided by Federated concerning these matters and the Federated Funds' performance, expense structures, asset levels, compliance histories, and tax positions. In considering the proposed Reorganization, the Board was advised by the IAI Funds' outside legal counsel. The Board met again on June 12, 2000 to receive additional information and to consider and act upon the proposed Plan pursuant to which the Reorganization would be effected. At this meeting, after reviewing the terms of the Plan with counsel, the Board (including a majority of the directors who are not "interested persons," as that term is defined in the Investment Company Act of 1940, as amended ("1940 Act") unanimously approved the Plan and recommended its approval by IAI Fund shareholders. In approving the Plan, the Board determined that participation in the Reorganization is in the best interests of each IAI Fund and that the interests of IAI Fund shareholders would not be diluted as a result of the Reorganization. In approving the Plan, the Board considered the following factors: o The Reorganization would secure for IAI Fund shareholders the investment advisory services of Federated's subsidiaries. Federated advises approximately 175 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of March 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States. It maintains 1.3 million shareholder accounts covering assets of $125 billion. o Each of the Federated Funds has a much larger asset base than its corresponding IAI Fund. Thus, the Reorganization may give IAI Fund shareholders the benefit of economies of scale, increased diversification, more efficient execution of portfolio transactions, and improved services to shareholders. The Board noted in this regard that several of the IAI Funds have experienced a decrease in net assets, which tends to produce the opposite effects. 67 o Substantial similarities exist between the investment objectives, policies, and strategies of the IAI Funds and their corresponding Federated Funds. Thus, the Reorganization will enable IAI Fund shareholders to continue their current investment programs without substantial disruption. o IAI Fund shareholders will not pay a sales charge to become shareholders of the Federated Funds in connection with the Reorganization. In addition, IAI Fund shareholders as of the date of the Reorganization will not have to pay a front-end sales charge to exchange into or purchase shares of any other Federated mutual fund. Thus, as a result of the Reorganization, IAI Fund shareholders will gain access to a much broader range of funds without being required to pay front-end sales charges. o It is anticipated that IAI Fund shareholders will not have to pay any federal income tax solely as a result of the Reorganization. o Pursuant to a separate agreement, Federated Investors and IAI are responsible for the payment of the expenses related to consummating the Reorganization. o Because the proposed Reorganization will be effected on the basis of the relative net asset values of the Federated Funds and their corresponding IAI Funds, shareholders of the IAI Funds will not experience any dilution in the value of their investments as a result of the Reorganization. o The historical performance of the respective Federated Funds generally compares favorably to that of the corresponding IAI Funds. In addition, the expense ratios after voluntary fee waivers of the Federated Funds are within industry norms. The Board noted in this regard that the after-waiver expense ratios of some of the Federated Funds are higher than those of their corresponding IAI Funds. The Board also noted that Federated could discontinue its voluntary fee waivers at any time, which would result in increased expenses for several of the Federated Funds. See "Comparative Fee Tables" elsewhere herein. The Board believes that these latter factors are counterbalanced by the economies of scale that may result from the proposed Reorganization, by the pressures in the marketplace on Federated as well as other mutual fund companies to maintain expense ratios at competitive levels, and by the other anticipated benefits of the proposed transactions to IAI Fund shareholders. o The portfolio managers and investment personnel who are responsible for managing the Federated Funds are well-trained and experienced. In addition, Federated represented that it follows well-defined investment disciplines and portfolio monitoring processes. o Federated's shareholder servicing organization also is well-trained and experienced. In addition, the size of the Federated organization 68 has enabled it to make substantial investments in technologies which support the shareholder servicing function. o The Federated organization previously has executed several transactions similar to the proposed Reorganization, so that it has the knowledge and experience which are needed successfully to complete the Reorganization. The Board did not assign relative weights to the foregoing factors or deem any one or group of them to be controlling in and of themselves. Under Minnesota law and the IAI Funds' organizational documents, the directors of each IAI Fund are entitled to be indemnified by the applicable fund for certain liabilities they may incur in connection with their service as directors. Upon completion of the Reorganization, however, the IAI Funds will not have any substantial assets from which they could pay such indemnification. For this reason, IAI and its parent company have agreed to indemnify the IAI Funds' directors following the Reorganization to the same extent that the IAI Funds would be required to do so. IAI and its parent company also have agreed to maintain the IAI Funds' current directors liability insurance policy or its equivalent in force for a period following completion of the Reorganization. The Boards of Trustees/Directors of the Federated Funds (including a majority of the Directors/Trustees who are not "interested persons," as that term is defined in the 1940 Act), approved the Plan on May 17, 2000. The Boards have unanimously concluded that consummation of the Reorganization is in the best interests of the Federated Funds and the shareholders of the Federated Funds and that the interests of Federated Fund shareholders would not be diluted as a result of effecting the Reorganization and have unanimously voted to approve the Plan. DESCRIPTION OF THE PLAN OF REORGANIZATION The Plan provides that your IAI Fund will transfer all its assets to a corresponding Federated Fund in exchange solely for the Federated Fund's shares to be distributed pro rata by the IAI Fund to its shareholders in complete liquidation of the IAI Fund on or about September 15, 2000 (the "Closing Date"). The value of each IAI Fund's assets to be acquired by the Federated Fund shall be the value of such assets computed as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date (the "Closing"). IAI Fund shareholders will become shareholders of the corresponding Federated Fund as of the Closing, and will be entitled to the Federated Fund's next dividend distribution thereafter. On or before the Closing, the IAI Funds will declare and pay a dividend or dividends which, together with all previous dividends, shall have the effect of distributing to its shareholders substantially all of its net investment income and realized net capital gain, if any, for all taxable years ending on or before the Closing Date. 69 Consummation of the Reorganization is subject to the conditions set forth in the Plan, including receipt of an opinion in form and substance reasonably satisfactory to the IAI Funds and the Federated Funds, as described under the caption "Federal Income Tax Consequences" below. The Plan may be terminated and the Reorganization may be abandoned at any time before or after approval by the IAI Fund shareholders prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. Pursuant to a separate agreement, Federated Investors and IAI are responsible for the payment of the expenses related to consummating the Reorganization. Such expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), the fees of banks and transfer agents and the costs of preparing, printing, copying and mailing proxy solicitation materials to the IAI Fund shareholders and the costs of holding the Special Meeting (as hereinafter defined). If the Reorganization is not consummated with respect to one or more of the IAI Funds, IAI is responsible for the proxy-related expenses for those Funds, except that if none of the IAI Funds approve the Reorganization, Federated and IAI will split the proxy-related expenses. The foregoing description of the Plan entered into between the Federated Funds and the IAI Funds is qualified in its entirety by the terms and provisions of the Plan, the form of which is attached hereto as Exhibit A and incorporated herein by reference thereto. DESCRIPTION OF FEDERATED FUND SHARES Full and fractional shares of the Federated Funds will be issued without the imposition of a sales charge or other fee to the IAI Fund shareholders in accordance with the procedures described above. Shares of the Federated Funds to be issued to IAI Fund shareholders under the Plan will be fully paid and non-assessable when issued and transferable without restriction and will have no preemptive or conversion rights. Reference is hereby made to the Prospectus of the Federated Fund into which your IAI Fund will be reorganized, provided herewith for additional information about shares of the Federated Fund. FEDERAL INCOME TAX CONSEQUENCES As a condition to each Reorganization, the participating Federated Fund and IAI Fund will receive an opinion from counsel to the effect that, on the basis of the existing provisions of the Code, current administrative rules and court decisions, for federal income tax purposes: (1) the Reorganization will qualify as a "reorganization" under section 368(a)(1)(C) of the Code, and the Federated Fund and the IAI Fund involved therein each will be "a party to a reorganization" within the meaning of section 368(b) of the Code; (2) the IAI Fund will recognize no gain or loss on the transfer of its assets to the Federated Fund in exchange solely for the Federated Fund's shares or on the subsequent distribution of those shares to the IAI Fund's shareholders in exchange for their IAI Fund shares (except with respect to payments of certain contingent liabilities of the IAI Fund described below); (3) the Federated Fund will recognize no gain or loss on its receipt of those assets in exchange solely for its shares; (4) the Federated Fund's basis in those assets will be the same as the IAI Fund's basis therein immediately before the Reorganization, and the Federated Fund's holding period for those assets will include the IAI Fund's holding period therefor; (5) an IAI Fund shareholder will recognize no gain or 70 loss on the constructive exchange of the shareholder's IAI Fund shares solely for Federated Fund shares pursuant to the Reorganization (except with respect to payments of those IAI Fund contingent liabilities); and (6) an IAI Fund shareholder's aggregate basis in the Federated Fund shares received by the shareholder in the Reorganization will be the same as the aggregate basis in the shareholder's IAI Fund shares to be constructively surrendered in exchange for those IAI Fund shares, and the shareholder's holding period for those Federated Fund shares will include the shareholder's holding period for those IAI Fund shares, provided the shareholder holds them as capital assets at the time of the Reorganization. The foregoing opinion may state that no opinion is expressed as to the effect of a Reorganization on the participating Federated Fund or IAI Fund or any IAI Fund shareholder with respect to any asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. In connection with the Reorganizations involving IAI Emerging Growth Fund, IAI Regional Fund, IAI Growth and Income Fund, IAI Midcap Growth Fund, and IAI Long-Term Growth Fund, IAI has agreed to assume certain of those Funds' contingent liabilities. If IAI makes a payment to satisfy any such liability of an IAI Fund after its Reorganization has occurred and after it has liquidated for tax purposes, those payments will result in the recognition of income for federal tax purposes by the former shareholders of the IAI Fund. The former shareholders may be entitled to claim a corresponding deduction for tax purposes, which may be either capital or ordinary, depending upon the nature of the claim against the IAI Fund that is being satisfied. If IAI makes a payment in satisfaction of a liability, it will report to the former shareholders of the IAI Fund on whose behalf it is making the payment the amount that they must include in income and will also advise them as to the basis for claiming a corresponding deduction for tax purposes. You should recognize that an opinion of counsel is not binding on the Internal Revenue Service ("IRS") or any court. Neither the IAI Funds nor the Federated Funds expect to obtain a ruling from the IRS regarding the consequences of the Reorganization. Accordingly, if the IRS sought to challenge the tax treatment of any Reorganization and was successful, neither of which is anticipated, the Reorganization would be treated as a taxable sale of assets of the participating IAI Fund, followed by the taxable liquidation thereof. In order to align the policies and investment practices of each IAI Fund with those of its corresponding Federated Fund, it may be necessary to sell certain portfolio securities currently held by an IAI Fund either before or after the Reorganization. To the extent that gain is realized as a result of an IAI Fund's sale of its portfolio securities in connection with the Reorganization or as a result of a Federated Fund's sale of securities received from its corresponding IAI Fund, distributions of those gains would be taxable to shareholders. 71 COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS The chart below describes some of the differences between your rights as a shareholder of the IAI Funds and your rights as a shareholder of the Federated Funds. To facilitate the comparison, we have broken the Funds into three categories: the IAI Funds, the Federated Maryland Corporations and the Federated Massachusetts Business Trusts. Each IAI Fund is organized as a series of a Minnesota corporation, and each Federated Fund is a series of either a Maryland corporation or a Massachusetts business trust. The following Federated Funds are organized as series of a Maryland corporation: Federated American Leaders Fund, Inc. Federated Bond Fund Federated International Equity Fund Federated Stock and Bond Fund, Inc. The following series are organized as series of a Massachusetts business trust: Federated Aggressive Growth Fund Automated Cash Management Trust Federated Capital Appreciation Fund Federated Growth Strategies Fund Federated Large Cap Growth Fund Exceptions are noted in the footnotes to the chart. 72
FEDERATED FEDERATED CATEGORY IAI FUNDS MARYLAND CORPORATIONS MASSACHUSETTS BUSINESS - ------------------------------------------------------------------------------------------------------------------- 1. Par Value Each share has a par value Each share has a par value No par value of $.01 of $.0011 - ------------------------------------------------------------------------------------------------------------------- 2. Preemptive Rights None None None - ------------------------------------------------------------------------------------------------------------------- 3. Preference None None None - ------------------------------------------------------------------------------------------------------------------- 4. Appraisal Rights None None None - ------------------------------------------------------------------------------------------------------------------- 5. Conversion Rights None except a contemplated None None right to convert shares into another Series or Class - ------------------------------------------------------------------------------------------------------------------- 6. Exchange Rights (not None None None including the right to exchange among Funds) - ------------------------------------------------------------------------------------------------------------------- 7. Shareholder Rights No express statement No right to call for any No right to call for any partition or division of partition or division of property, profits, rights property, profits, rights or interests of the or interest of the Trust Corporation - ------------------------------------------------------------------------------------------------------------------- 8. Personal Liability of No express statement No express statement None Shareholders - ------------------------------------------------------------------------------------------------------------------- 9. Annual meetings No annual meetings required No annual meetings required No annual meetings required - ------------------------------------------------------------------------------------------------------------------- 10. Right to call meeting If a regular meeting of Shall be called upon Shall be called upon of shareholders shareholders has not been request of shareholders request of shareholders held during the holding at least 10% of the owning at least 10% of the immediately preceding 15 outstanding shares outstanding shares months, 3% or more of the outstanding shares may demand a regular meeting by written notice of demand to the chief executive officer or chief financial officer; In addition, a shareholders meeting shall be called at any time upon request of shareholders holding at least 10% of the outstanding shares; if the meeting is to facilitate or effect a business combination, the meeting must be called by 25% of the outstanding shares entitled to vote. - ------------------------------------------------------------------------------------------------------------------- - --------------- 7 Each share of Federated International Equity Fund has a par value of $.0001. 73 11. Notice of meetings Mailed to each shareholder Mailed to each shareholder Mailed to each entitled to vote at least entitled to vote at least shareholders entitled to 10 days before the 10 days, not more than 90 vote at least seven days meeting, or two weeks in days before the meeting prior to the meeting to the case of a meeting at the shareholders which an agreement of registered address merger or consolidation is to be considered - ------------------------------------------------------------------------------------------------------------------- 12. Record date for Directors may close Directors may close Trustees may close the meetings transfer books not transfer book not exceeding Share transfer books for a exceeding 60 days 90 days and not less than period not exceeding sixty 10 days prior to the date (60) days prior to the of such meeting date of any meetings of the Shareholders - ------------------------------------------------------------------------------------------------------------------- 13. Election of Directors Majority of shares Majority of shares entitled A plurality or Trustees represented at meeting or to vote by proxy - ------------------------------------------------------------------------------------------------------------------- 14. Adjournment of meetings Majority of shares Majority of shares A majority of Shares represented at meeting or represented at meeting or present or by proxy by proxy by proxy entitled to vote may vote to adjourn - ------------------------------------------------------------------------------------------------------------------- 15. Removal of Directors May be removed from office May be removed from office May be removed at a or Trustees by by a vote of the by a vote of the shareholder meeting by a Shareholders shareholders holding a shareholders holding a vote of shareholders majority of the shares majority of the shares owning at least 2/3 of the entitled to vote entitled to vote outstanding shares of the Trust - -------------------------------------------------------------------------------------------------------------------
74 CAPITALIZATION The following tables set forth the unaudited capitalization of each IAI Fund and of the Federated Fund into which the IAI Fund will be reorganized as of March 31, 2000:
IAI IAI IAI Federated Emerging Long Term Capital Federated Aggressive Growth Growth Fund Appreciation Pro Forma* Growth Fund Fund Fund Combined ------------- ------------ ------------ -------------- ------------- Net Assets.......... $333,534,903 $89,400,619 $16,561,484 $24,485,639 $463,982,645 Net Asset Value Per Share........... $33.46* $16.51 $8.19 $17.27 $33.46* Shares Outstanding.. 10,095,979 5,413,611 2,021,084 1,417,582 13,994,596
*THE PRO FORMA FIGURES ASSUME THAT SHAREHOLDERS OF EACH OF IAI EMERGING GROWTH FUND, IAI LONG TERM GROWTH FUND AND IAI CAPITAL APPRECIATION FUND APPROVE THE PROPOSED REORGANIZATION.
Federated IAI American Growth and Federated Leaders Fund, Income Pro Forma Inc. Fund Combined --------------- --------------- ------------------- Net Assets................. $3,701,811,541 $31,416,201 $3,733,227,742 Net Asset Value Per Share.. $24.74* $14.04 $24.74 * Shares Outstanding......... 2,237,945 151,140,768 149,870,913 Automated IAI Money Federated Cash Market Pro Forma Management Fund Combined Trust --------------- --------------- ------------------- Net Assets................. $3,473,344,060 $19,000,391 $3,492,344,451 Net Asset Value Per Share.. $1.00** $1.00 $1.00** Shares Outstanding......... 3,473,344,060 19,000,391 3,492,344,451 Federated Federated IAI Pro Forma Bond Fund Bond Fund Combined --------------- --------------- ------------------- Net Assets................. $ 958,682,947 $15,436,472 $ 974,119,419 Net Asset Value Per Share.. $8.44 $8.93* $8.93* Shares Outstanding......... 107,235,229 1,828,966 108,963,837 75 Federated Capital IAI Federated Appreciation Regional Pro Forma Fund Fund Combined --------------- --------------- ------------------- Net Assets................. $630,896,210 $190,168,251 $821,064,461 Net Asset Value Per Share.. $20.87 $31.02* $31.02* Shares Outstanding......... 20,430,834 9,113,962 26,561,339 Federated Growth IAI Federated Strategies Midcap Growth Pro Forma Fund Fund Combined --------------- --------------- ------------------- Net Assets................. $1,742,835,548 $42,567,503 $1,785,403,051 Net Asset Value Per Share.. $17.96 $49.81* $49.81* Shares Outstanding........ 35,502,143 2,370,526 36,356,741 Federated IAI Federated International International Pro Forma Equity Fund Fund Combined --------------- --------------- ------------------- Net Assets................. $705,018,214 $11,778,333 $716,796,547 Net Asset Value Per Share.. $10.46 $33.19* $33.19* Shares Outstanding........ 21,901,887 21,547,011 1,126,036 Federated IAI Federated Large Cap Growth Pro Forma Growth Fund Fund Combined --------------- --------------- ------------------- Net Assets................. $728,706,708 $ 8,442,365 $737,149,073 Net Asset Value Per Share.. $11.50 $17.09* $17.09* Shares Outstanding......... 43,258,472 42,764,478 733,987 Federated IAI Federated Stock and Bond Balanced Pro Forma Fund, Inc. Fund Combined --------------- --------------- ------------------- Net Assets................. $260,625,874 $11,477,208 $272,103,082 Net Asset Value Per Share.. $ 9.85 $18.34* $18.34* Shares Outstanding......... 15,009,128 14,383,326 1,165,531
* Net Asset Value of Class A Shares. ** Net Asset Value of Institutional Service Shares 76 INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS FEDERATED FUNDS Information about each Federated Fund is contained in the Federated Funds current Prospectus, each of which is incorporated herein by reference. A copy of the current Prospectus of the Federated Fund for which your IAI Fund shares will be exchanged and that fund's most current Annual Report to Shareholders are included herewith. Additional information about each Federated Fund is included in that Fund's Statement of Additional Information, and the Statement of Additional Information dated July 20, 2000 (relating to this Prospectus/Proxy Statement), each of which is incorporated herein by reference. Copies of the Statements of Additional Information, which have been filed with the Securities and Exchange Commission (the SEC), may be obtained upon request and without charge by contacting the Federated Funds at 1-800-245-5051 or by writing the Federated Funds at Federated Investors Funds, 5800Corporate Drive, Pittsburgh, PA 15237-7000. The Federated Funds are subject to the informational requirements of the Securities Act of 1933, as amended (the 1933 Act), the Securities Exchange Act of 1934, as amended (the 1934 Act), and the 1940 Act and in accordance therewith file reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by the Federated Funds can be obtained by calling or writing the Federated Funds and can also be inspected and copied by the public at the public reference facilities maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such material can be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates or from the SECs Internet site at http://www.sec.gov. This Prospectus/Proxy Statement, which constitutes part of a Registration Statement filed by the Federated Funds with the SEC under the 1933 Act, omits certain of the information contained in the Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Federated Funds and the shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the SEC. IAI FUNDS Information about the IAI Funds is contained in each IAI Funds current Prospectus, Annual Report to Shareholders, Statement of Additional Information, and the Statement of Additional Information dated July 20, 2000 (relating to this Prospectus/Proxy Statement), each of which is incorporated herein by reference. Copies of such Prospectuses, Annual Reports, and Statements of Additional Information, which have been filed with the SEC, may be obtained upon request and without charge from the IAI Funds by calling 1-800-945-3863, or by writing to the IAI Funds at c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The IAI Funds are subject to the informational 77 requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith file reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by the IAI Funds can be obtained by calling or writing the IAI Funds and can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section or from the SECs Internet site at http://www.sec.gov. VOTING INFORMATION This Prospectus/Proxy Statement is furnished in connection with the solicitation by the Board of Directors of the IAI Funds of proxies for use at the Special Meeting of Shareholders (the Special Meeting) to be held on September 8, 2000 at 1 p.m., Central Time at 601 Second Avenue South, Suite 3600, Minneapolis, Minnesota 55402, and at any adjournments thereof. The proxy confers discretionary authority on the persons designated therein to vote on other business not currently contemplated which may properly come before the Special Meeting. A proxy, if properly executed, duly returned and not revoked, will be voted in accordance with the specifications thereon; if no instructions are given, such proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at any time prior to use by filing with the Secretary of the IAI Funds an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Special Meeting. The cost of the solicitation, including the printing and mailing of proxy materials, will be borne by Federated Investors and IAI pursuant to a separate agreement. In addition to solicitations through the mails, proxies may be solicited by officers, employees and agents of the IAI. Such solicitations may be by telephone, telegraph or personal contact. IAI will reimburse custodians, nominees and fiduciaries for the reasonable costs incurred by them in connection with forwarding solicitation materials to the beneficial owners of shares held of record by such persons. You may vote by completing and signing the enclosed proxy card(s) and mailing them in the enclosed postage paid envelope. You may also vote your shares by phone at 1-800-690-6903. Internet voting is also available at www.proxyvote.com. Shareholder Communications Corp. (SCC) has been hired to assist in the proxy solicitation. For soliciting services, estimated proxy expenses total $100,000. If votes are recorded by telephone, SCC will use procedures designed to authenticate shareholders identities, to allow shareholders to authorize the voting of their shares in accordance with their instructions, and to confirm that a shareholders instructions have been properly recorded. OUTSTANDING SHARES AND VOTING REQUIREMENTS The Board of Directors of the IAI Funds has fixed the close of business on July 14, 2000, as the record date for the determination of shareholders of the IAI Funds entitled to notice of and to vote at the Special Meeting and any adjournments thereof. Each share of an IAI Fund is entitled to one vote and fractional shares have proportionate voting rights. Only shareholders of record 78 as of the record date are entitled to vote on the proposal. As of the record date, each of the IAI Funds had the number of shares issued and outstanding listed below: Fund Name Total Shares Outstanding --------- ------------------------ IAI Balanced Fund 1,168,121.450 IAI Bond Fund 1,451,416.617 IAI Capital Appreciation Fund 1,350,989.739 IAI Emerging Growth Fund 3,937,471.168 IAI Growth Fund 734,704.762 IAI Growth and Income Fund 2,331,652.155 IAI International Fund 1,101,024.440 IAI Long Term Growth Fund 2,359,837.111 IAI Midcap Growth Fund 2,702,969.029 IAI Money Market Fund 17,897,951.080 IAI Regional Fund 9,447,967.014 On the record date, the Directors and officers of the IAI Funds owned in the aggregate 1.11% of the outstanding shares of the IAI Growth and Income Fund, 3.89% of the outstanding shares of the IAI Money Market Fund, and less than 1% of the outstanding shares of each of the other IAI Funds. To the best knowledge of IAI, as of the record date, no person, except as set forth in the table below, owned beneficially or of record 5% or more of the outstanding shares of any IAI Fund.
Shares Owned Percent of of Record and Outstanding Name of Fund Name and Address Beneficially Shares - ------------------ ----------------------------------- -------------- ----------- IAI Balanced Fund Wausau Homes Inc. 226,323.584 19.47% Attn: Marvin Schuette PO Box 8005 Wausau, WI 54402-8005 Charles Schwab & Co. Inc. SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St., Dept. 0 San Francisco, CA 94104-4122 126,871.655 10.92% Emjayco FBO Wausau Homes Inc. 401K Plan #6662 PO Box 170910 Milwaukee, WI 53217-8091 126,448.436 10.88% 79 Shares Owned Percent of of Record and Outstanding Name of Fund Name and Address Beneficially Shares - ------------------ ----------------------------------- -------------- ----------- IAI Bond Fund Charles Schwab & Co. Inc. 206,744.686 14.29% SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St. San Francisco, CA 94104-4122 IAI Capital Charles Schwab & Co. Inc. 208,617.691 15.43% Appreciation SPL Custody A/C for Excl Benefit of Fund Customer Attn: Mutual Funds Dept. - Cap App Rein 101 Montgomery St. San Francisco, CA 94104-4122 Olcoba Company 188,478.025 13.94% Attn: Marquette Trust Co. 7575 Golden Valley Rd., Ste 375 Golden Valley, MN 55427-4556 National Financial Services Corp. 88,118.207 6.52% For the Excl Benefit of Our Customer Attn; Reconciliation Dept. PO Box 3908 New York, NY 10008-3908 IAI Emerging Charles Schwab & Co. Inc. 701,332.523 17.82% Growth Fund SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St., Dept. 0 San Francisco, CA 94104-4122 IAI Growth Fund Charles Schwab & Co. Inc. 50,790.199 6.91% SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St. San Francisco, CA 94104-4122 Firstar Bank NA Cust. 41,532.744 5.65% Thomas Clifford IRA Rollover 1336 Camelback Ct., NE Rochester, MN 55906-8900 IAI Growth and Hawaiian Trust Co Ltd Agent 164,280.616 7.05% Income Fund FSM National Government FBO Yap State Monetization Inv #140022302 PO Box 1930 Honolulu, HI 96805-1930 80 Shares Owned Percent of of Record and Outstanding Name of Fund Name and Address Beneficially Shares - ------------------ ----------------------------------- -------------- ----------- IAI International Hawaiian Trust Co. Ltd. Agent 214,129.749 19.52% Fund FSM National Government FBO Yap State Monetization Inv #140022302 PO Box 1930 Honolulu, HI 96805-1930 Charles Schwab & Co. Inc. 193,430.200 17.63% SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St. San Francisco, CA 94104-4122 Salomon Smith Barney Inc. 84,798.403 7.73% 388 Greenwich St #-010980125 New York, NY 10013-2375 Olcoba Company 66,892.873 6.10% Attn: Marquette Trust Co. 7575 Golden Valley Rd., Ste 375 Golden Valley, MN 55427-4556 IAI Long Term FTC & Co. 1,075,682.583 45.62% Growth Fund Attn: Datalynx House Account PO Box 173736 Denver, CO 80217-3736 Charles Schwab & Co. Inc. 230,398.830 9.77% SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St., Dept 0 San Francisco, CA 94104-4122 IAI Midcap Charles Schwab & Co. Inc. 469,444.108 17.31% Growth Fund SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St. San Francisco, CA 94104-4122 National Financial Services Corp 173,759.397 6.43% For the Excl Benefit of Our Customer Attn: Reconciliation Dept. PO Box 3908 New York, NY 10008-3908 81 Shares Owned Percent of of Record and Outstanding Name of Fund Name and Address Beneficially Shares - ------------------ ----------------------------------- -------------- ----------- Smith Barney 401K Advisor Group 168,347.756 6.22% Trust Smith Barney Corporate Trust Company Attn: Plan Valuation Services PO Box 1063 East Brunswick, NJ 08816-1063 IAI Regional Fund Charles Schwab & Co. Inc. 751,563.336 7.97% SPL Custody A/C for Excl Benefit of Customer 101 Montgomery St. San Francisco, CA 94104-4122
On the record date, the Directors/Trustees and officers of each Federated Fund as a group owned less than 1% of the outstanding shares of each Federated Fund. To the best knowledge of Federated Investment Management Company (and in the case of Federated International Equity Fund, Federated Global Investment Management Corporation), as of the record date, no person, except as set forth in the table below, owned beneficially or of record 5% or more of the outstanding shares of any Federated Fund.
Shares Owned Percent of Name of Fund Name and Address of Record and Outstanding Beneficially Shares - ----------------------------- ---------------------------------- ----------------- --------------- Federated Aggressive Growth MLPF&S for the sole benefit of 533,816.241 8.38% Fund (Class A) its customers Attn: Fund Admin. SEC #97L82 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated Aggressive Growth MLPF&S for the sole benefit of 501,401.577 8.31% Fund (Class B) its customers Attn: Fund Admin. SEC #97L83 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 82 Shares Owned Percent of Name of Fund Name and Address of Record and Outstanding Beneficially Shares - ----------------------------- ---------------------------------- ----------------- --------------- Federated Aggressive Growth MLPF&S for the sole benefit of 458,305.761 26.78% Fund (Class C) its customers Attn: Fund Admin. SEC #97L84 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated American Leaders MLPF&S for the sole benefit of 1,740,931.638 22.85% Fund, Inc. (Class C) its customers Attn: Fund Admin. SEC #97BG7 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated American Leaders MLPF&S for the sole benefit of 935,937.088 19.35% Fund, Inc. (Class F) its customers Attn: Fund Admin. SEC #97B11 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Automated Cash Management Stephens Inc. 186,735,870.040 8.62% Trust (Institutional Omnibus Account Service Shares) C/o Stephens Inc. Attn: Jean Geiger P.O. Box 3507 Little Rock, AR 72203-3507 Fiduciary Tr. Co. International 390,966,754.070 18.04% Customer Account Attn: Sec. Dept. Ben Dipietro PO Box 3199 - Church St. Station New York, NY 10008-3199 Primevest Financial Services 121,469,902.790 5.60% Attn: Commercial Sweep Account 400 First Street South Suite 300 St. Cloud, MN 56301-3661 Federated Bond Fund MLPF&S for the sole benefit of 6,037,537.103 24.28% (Class A) its customers Attn: Fund Admin. SEC #97G52 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 83 Shares Owned Percent of Name of Fund Name and Address of Record and Outstanding Beneficially Shares - ----------------------------- ---------------------------------- ----------------- --------------- Federated Bond Fund MLPF&S for the sole benefit of 2,998,623.517 8.92% (Class B) its customers Attn: Fund Admin. SEC #97G53 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated Bond Fund MLPF&S for the sole benefit of 2,661,758.079 30.65% (Class C) its customers Attn: Fund Admin. SEC #97G54 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated Bond Fund Parsch & Co. 1,937,895.742 5.27% (Class F) Lapeer County Bank & Trust Co. Attn: Trust Department P.O. Box 250 Lapeer, MI 48446-0250 MLPF&S for the sole benefit of 3,470,403.255 9.43% its customers Attn: Fund Admin. SEC #971L6 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Nationwide QPVA 6,751,327.883 18.35% c/o IPO Portfolio Accounting P.O. Box 182029 Columbus, OH 43218-2029 Federated Capital MLPF&S for the sole benefit of 136,231.823 12.06% Appreciation Fund (Class C) its customers Attn: Fund Admin. SEC #97JG2 4800 Deer Lake Drive East 2nd Fl. Jacksonville, FL 32246-6484 Federated Growth Strategies MLPF&S For the Sole Benefit of 112,732.104 6.82% Fund (Class C) Its Customers Attn: Fund Admin. Sec. #97HC2 4800 Deer Lake Drive East 2nd Flr. Jacksonville, FL 32246-6484 Federated International MLPF&S For the Sole Benefit of 344,234.180 8.59% Equity Fund (Class B) Its Customers Attn: Fund Admin. Sec. #97FH4 4800 Deer Lake Drive East 2nd Flr. Jacksonville, FL 32246-6484 84 Shares Owned Percent of Name of Fund Name and Address of Record and Outstanding Beneficially Shares - ----------------------------- ---------------------------------- ----------------- --------------- Federated International MLPF&S For the Sole Benefit of 547,453.614 19.19% Equity Fund (Class C) Its Customers Attn: Fund Admin. Sec. #97BH2 4800 Deer Lake Drive East 2nd Flr. Jacksonville, FL 32246-6484 Federated Large Cap Growth MLPF&S For The Sole Benefit Of 521,347.986 13.53% Fund (Class C) Its Customers Attn: Fund Admin. Sec. #9EELO 4800 Deer Lake Drive E Fl. 2 Jacksonville, FL 32246-6484 Federated Stock and Bond MLPF&S For The Sole Benefit Of 71,958.589 5.94% Fund, Inc. (Class C) Its Customers Attn: Fund Admin. Sec. #9EELO 4800 Deer Lake Drive E Fl. 2 Jacksonville, FL 32246-6484 Banco Popular De Puerto Rico 87,738.755 7.25% RPO Western Auto Puerto Rico Inc. Attn: Maryvette Velazques Torres Trust Division 725 Ponce De Leon 209 FL 4 Hato Rey PR 00917-1818
Approval of the Plan with respect to an IAI Fund requires the affirmative vote, in person or by proxy, of a majority of the outstanding shares on the record date. With respect to IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund and IAI Money Market Fund, all of which are series of IAI VI, approval of the Plan will be considered approval of the amendment to the Articles of Incorporation of IAI VI required to effect the Reorganization attached to the Plan. In the event that shareholders of one or more of the IAI Funds do not approve the Plan, the Reorganization will proceed with respect to those IAI Funds that have approved the Plan, subject to certain other conditions being met. The votes of shareholders of the Federated Funds are not being solicited since their approval is not required in order to effect the Reorganization. Each IAI Fund will vote separately on the proposal. In order for the shareholder meeting to go forward for an IAI Fund, there must be a quorum. This means that at least 10% of that Fund's shares must be represented at the meeting-either in person or by proxy. All returned proxies count toward a quorum, regardless of how they are voted. An abstention will be counted as shares present at the meeting in determining whether a proposal has been approved, and will have the same effect as a vote "against" the proposal. Broker non-votes will not be counted as present in calculating the vote on any proposal. (Broker non-votes are shares for which (a) the underlying owner has not voted and (b) the broker holding the shares does not have discretionary 85 authority to vote on the particular matter.) If you sign and date your proxy, but do not specify instructions, your shares will be voted in favor of the proposal. If a quorum is not obtained or if sufficient votes to approve any of the proposals are not received, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies. In determining whether to adjourn the meeting, the following factors may be considered: the nature of the proposal; the percentage of votes actually cast; the percentage of negative votes actually cast; the nature of any further solicitation; and the information to be provided to shareholders with respect to the reasons for the solicitation. Any adjournment will require a vote in favor of the adjournment by the holders of a majority of the shares present in person or by proxy at the meeting (or any adjournment of the meeting). Other Matters Management of the IAI Funds knows of no other matters that may properly be, or which are likely to be, brought before the Special Meeting. However, if any other business shall properly come before the Special Meeting, the persons named in the proxy intend to vote thereon in accordance with their best judgment. Board Recommendation After carefully considering the issues involved, the Board of Directors of the IAI Funds has unanimously concluded that the proposed Reorganization is in the best interests of shareholders. The Board of Directors of the IAI Funds recommends that you vote to approve the Plan. Whether or not shareholders expect to attend the Special Meeting, all shareholders are urged to sign, fill in and return the enclosed proxy form promptly. 86 STATEMENT OF ADDITIONAL INFORMATION JULY 20, 2000 Federated Bond Fund (Class A shares) (a series of Federated Investment Series Funds, Inc.) Federated Aggressive Growth Fund Federated Capital Appreciation Fund Federated Growth Strategies Fund Federated Large Cap Growth Fund (Class A Shares) (each a series of Federated Equity Funds) Federated International Equity Fund (Class A Shares) (a series of Federated International Series, Inc.) Federated Stock and Bond Fund, Inc. (Class A Shares) Automated Cash Management Trust (Institutional Service Shares) (a series of Money Market Obligations Trust) Federated American Leaders Fund, Inc. (Class A Shares) 5800 Corporate Drive Pittsburgh, PA 15237-7000 1-800-341-7400 To acquire the Assets of: The IAI Funds 601 Second Avenue South Suite 3600 Minneapolis, Minnesota 55402 1-800-945-3863 This Statement of Additional Information relates specifically to the reorganization of mutual funds managed by Investment Advisers, Inc. ("IAI Funds") into the above-referenced Federated Funds (each a "Federated Fund"). Pursuant to this reorganization, each Federated Fund would acquire all of the assets of an IAI Fund that has substantially similar investment objectives and investment policies and strategies, and Federated Fund shares would be distributed pro rata by each IAI Fund to the holders of its shares, in complete liquidation of the IAI Fund. For the name of the Federated Fund into which your IAI Fund would be reorganized, see the "Summary - About the Proposed Reorganization" in the Prospectus/Proxy Statement dated July 20, 2000. This Statement of Additional Information dated July 20, 2000 is not a prospectus. A Prospectus/Proxy Statement dated July 20, 2000, related to the above-referenced matter may be obtained from the Federated Funds at the address and telephone number shown above. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement. This Statement of Additional Information consists of the following described documents, each of which is incorporated by reference herein: 1. Statement of Additional Information of IAI Bond Fund, a series of IAI Investment Funds I, Inc., dated March 31, 2000, included in Post-Effective Amendment No. 41 to the Registration Statement on Form N-1A of IAI Investment Funds I, Inc. (1933 Act File No. 2-59115 and 1940 Act File No. 811-2747), previously filed on EDGAR, Accession Number 0000897101-00-000337. 2. Statement of Additional Information of IAI Growth Fund, a series of IAI Investment Funds II, Inc., dated July 30, 1999, included in Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A of IAI Investment Funds II, Inc. (1933 Act File No. 33-61834 and 1940 Act File No. 811-7690), previously filed on EDGAR, Accession Number 0000897101-99-000749. 3. Statement of Additional Information of IAI International Fund, a series of IAI Investment Funds III, Inc., dated March 1, 2000, included in Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of IAI Investment Funds III, Inc. (1933 Act File No. 33-10207 and 1940 Act File No. 811-4904), previously filed on EDGAR, Accession Number 0000897101-00-000206. 4. Statement of Additional Information of IAI Regional Fund, a series of IAI Investment Funds IV, Inc., dated July 30, 1999, included in Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of IAI Investment Funds IV, Inc. (1933 Act File No. 2-66885 and 1940 Act File No. 811-3004), previously filed on EDGAR, Accession Number 0000897101-99-000750. 5. Statement of Additional Information of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund, IAI Money Market Fund, each a series of IAI Investment Funds VI, Inc., dated July 30, 1999, included in Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A of IAI Investment Funds VI, Inc. (1933 Act File No. 33-40496 and 1940 Act File No. 811-5990), previously filed on EDGAR, Accession Number 0000897101-99-000754. 6. Statement of Additional Information of IAI Growth and Income Fund, a series of IAI Investment Funds VII, Inc., dated July 30, 1999, included in Post-Effective Amendment No. 54 to the Registration Statement on Form N-1A of IAI Investment Funds VII, Inc. (1933 Act File No. 2-39560 and 1940 Act File No. 811-2147), previously filed on EDGAR, Accession Number 0000897101-99-000752. 7. Statement of Additional Information of IAI Long Term Growth Fund (formerly, IAI Value Fund), a series of IAI Investment Funds VIII, Inc., dated July 30, 1999, included in Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A of IAI Investment Funds VIII, Inc. (1933 Act File No. 2-84589 and 1940 Act File No. 811-3767), previously filed on EDGAR, Accession Number 0000897101-99-000751. 2 8. Statement of Additional Information of Federated Bond Fund, a series of Federated Investment Series Funds, Inc., dated December 31, 1999, included in Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A of Federated Investment Series Funds, Inc. (1933 Act File No. 33-48847 and 1940 Act File No. 811-07021), previously filed on EDGAR, Accession Number 0000889388-99-000014. 9. Statement of Additional Information of Federated Aggressive Growth Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated Large Cap Growth Fund, each a series of Federated Equity Funds, dated December 31, 1999, included in Post-Effective Amendment No. 44 to the Registration Statement on Form N-1A of Federated Equity Funds, as amended on March 28, 2000, (1933 Act File No. 2-91090 and 1940 Act File No. 811-4017), previously filed on EDGAR, Accession Numbers 0000745968-99-000014 and 0000745968-00-000007, respectively. 10. Statement of Additional Information of Federated International Equity Fund, a series of Federated International Series, Inc., dated March 31, 2000 included in Post-Effective Amendment No. 36 to the Registration Statement on Form N-1A of Federated International Series, Inc. (1933 Act File No. 2-91776 and 1940 Act File No. 811-3984), previously filed on EDGAR, Accession Number 0000742286-00-000010. 11. Statement of Additional Information of Federated Stock and Bond Fund, Inc., dated December 31, 1999, included in Post-Effective Amendment No. 100 to the Registration Statement on Form N-1A of Federated Stock and Bond Fund, Inc., as amended March 28, 2000, (1933 Act File No. 2-10415 and 1940 Act File No. 811-1), previously filed on EDGAR, Accession Numbers 0000013386-99-000016 and 0000013386-00-000006, respectively. 12. Statement of Additional Information of Automated Cash Management Trust, a series of Money Market Obligations Trust, dated September 30, 1999, included in Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of Money Market Obligations Trust (1933 Act File No. 33-31602 and 1940 Act File No. 811-5950), previously filed on EDGAR, Accession Number 0000856517-99-000036. 13. Statement of Additional Information of Federated American Leaders Fund, Inc., dated May 31, 2000, included in Post-Effective Amendment No. 67 to the Registration Statement on Form N-1A of Federated American Leaders Fund, Inc. (1933 Act File No. 2-29786 and 1940 Act File No. 811-1704), previously filed on EDGAR, Accession Number 0000005352-00-000004. 14. The audited financial statements of IAI Bond Fund, a series of IAI Investment Funds I, Inc., included in the Annual Report to Shareholders of IAI Bond Fund for the fiscal year ended November 30, 1999, previously filed on EDGAR, Accession Number 0000897101-99-000765. 15. The audited financial statements of IAI Growth Fund, a series of IAI Investment Funds II, Inc., included in the Annual Report to Shareholders of IAI Growth Fund for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000601. 16. The audited financial statements of IAI International Fund, a series of IAI Investment Funds III, Inc., included in the Annual Report to Shareholders of IAI International Fund for the fiscal year ended October 31, 1999, previously filed on EDGAR, Accession Number 0000897101-99-000006. 3 17. The unaudited financial statements of IAI International Fund, a series of IAI Investment Funds III, Inc., included in the Semi-Annual Report to Shareholders of IAI International Fund for the period ended April 30, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000675. 18. The audited financial statements of IAI Regional Fund, a series of IAI Investment Funds IV, Inc., included in the Annual Report to Shareholders of IAI Regional Fund for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000601. 19. The audited financial statements of IAI Balanced Fund, IAI Capital Appreciation Fund, IAI Emerging Growth Fund, IAI Midcap Growth Fund, each a series of IAI Investment Funds VI, Inc., included in the Annual Reports to Shareholders of IAI Investment Funds VI, Inc. for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Numbers 0000897101-00-000600 (IAI Balanced Fund), and 0000897101-00-000601 (IAI Capital Appreciation Fund, IAI Emerging Growth Fund, and IAI Midcap Growth Fund). 20. The audited financial statements of IAI Money Market Fund, a series of IAI Investment Funds VI, Inc., included in the Annual Report to Shareholders of IAI Money Market Fund for the fiscal year ended January 31, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000347. 21. The audited financial Statements of IAI Growth and Income Fund, a series of IAI Investment Funds VII, Inc., included in the Annual Report to Shareholders of IAI Growth and Income Fund for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000601. 22. The audited financial statements of IAI Long Term Growth Fund (formerly, IAI Value Fund), a series of IAI Investment Funds VIII, Inc., included in the Annual Report to Shareholders of IAI Long Term Growth Fund for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Number 0000897101-00-000601. 23. The audited financial statements of Federated Bond Fund, a series of Federated Investment Series Funds, Inc., included in the Annual Report to Shareholders of Federated Bond Fund for the fiscal year ended October 31, 1999, previously filed on EDGAR, Accession Number 0000889388-99-000010. 24. The unaudited financial statements of Federated Bond Fund, a series of Federated Investment Series Funds, Inc., included in the Semi-Annual Report to Shareholders of Federated Bond Fund for the period ended April 30, 2000, previously filed on EDGAR, Accession Number 0000889388-00-000005. 25. The audited financial statements of Federated Aggressive Growth Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated Large Cap Growth Fund, each a series of Federated Equity Funds, included in the separate Annual Reports to Shareholders of Federated Aggressive Growth Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated Large Cap Growth Fund for the fiscal year ended October 31, 1999, previously filed on EDGAR, Accession Number 0000745968-00-000013. 26. The unaudited financial statements of Federated Aggressive Growth Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated Large Cap Growth Fund, each a series of Federated Equity Funds, included in the 4 separate Semi-Annual Reports to Shareholders of Federated Aggressive Growth Fund, Federated Capital Appreciation Fund, Federated Growth Strategies Fund, Federated Large Cap Growth Fund for the period ended April 30, 2000, previously filed on EDGAR, Accession Number 0000745968-00-000013. 27. The audited financial statements of Federated International Equity Fund, a series of Federated International Series, Inc., included in the Annual Report to Shareholders of Federated International Equity Fund for the fiscal year ended November 30, 1999, previously filed on EDGAR, Accession Number 0000742286-00-000002. 28. The audited financial statements of Federated Stock and Bond Fund, Inc., included in the Annual Report to Shareholders of Federated Stock and Bond Fund, Inc. for the fiscal year ended October 31, 1999, previously filed on EDGAR, Accession Number 0000013386-99-000013. 29. The unaudited financial statements of Federated Stock and Bond Fund, Inc., included in the Semi-Annual Report to Shareholders of Federated Stock and Bond Fund, Inc. for the period ended April 30, 2000, previously filed on EDGAR, Accession Number 0000013386-00-000009. 30. The audited financial statements of Automated Cash Management Trust, a series of Money Market Obligations Trust, included in the Annual Report to Shareholders of Automated Cash Management Trust for the fiscal year ended July 31, 1999, previously filed on EDGAR, Accession Number 0000856517-99-000042. 31. The unaudited financial statements of Automated Cash Management Trust, a series of Money Market Obligations Trust, included in the Semi-Annual Report to Shareholders of Automated Cash Management Trust for the period ended January 31, 2000, previously filed on EDGAR, Accession Number 0000856517-00-000013. 32. The audited financial statements of Federated American Leaders Fund, Inc. included in the Annual Report to Shareholders of Federated American Leaders Fund, Inc. for the fiscal year ended March 31, 2000, previously filed on EDGAR, Accession Number 0000005352-00-0000003. 5 IAI EMERGING GROWTH FUND IAI LONG TERM GROWTH FUND IAI CAPITAL APPRECIATION FUND FEDERATED AGGRESSIVE GROWTH FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2000 Basis of Combination - -------------------- The accompanying unaudited Pro Forma Combining Statements of Assets and Liabilities, Statements of Operations and Schedule of Investments ("Pro Forma Financial Statements") reflect the accounts of IAI Emerging Growth Fund, IAI Long Term Growth Fund, IAI Capital Appreciation Fund, collectively ("the IAI Funds"), and the Federated Aggressive Growth Fund ("Federated Fund") for the year ended March 31, 2000. These statements have been derived from the books and records utilized in calculating daily net asset values at March 31, 2000. The Pro Forma Combining Financial Statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the reorganization occurred at March 31, 2000. They should be read in conjunction with the historical financial statements of the Funds which have been incorporated by reference in the Statement of Additional Information. The Funds follow generally accepted accounting principles applicable to management investment companies which are disclosed in the historical financial statements of each fund. The Pro Forma Combining Financial Statements give effect to the proposed exchange of assets of the IAI Funds for shares of Federated Fund as if the reorganization was consummated on March 31, 2000. Under generally accepted accounting principles, Federated Fund will be the surviving entity for accounting purposes with its historical cost of investment securities and results of operations being carried forward. The statements assume that the shareholders of each IAI Fund have approved its reorganization into the Federated Fund. If shareholders of one or more of the IAI Funds do not approve the reorganization, pro forma financial information may be different than that provided. To the extent any of the IAI Funds have capital losses, they will be aggregated and carried forward to the Federated Fund. Subject to limitations, the Federated Fund will be able to use these losses to offset future capital gains it realizes and, thereby, minimize taxable gains to its shareholders. Adjustments to Pro Forma Combining Statement of Assets and Liabilities - ---------------------------------------------------------------------- The following assumptions were made to the pro forma combining statement of assets and liabilities. 6 The statement assumes that the shareholders of each IAI Fund have approved its reorganization into the Federated Fund. If shareholders of one or more of the IAI Funds do not approve the reorganization, pro forma financial information may be different than that provided. The pro forma net assets per share assumes the issuance of 3,898,617 shares of the Federated Aggressive Growth Fund in exchange for 5,413,611shares IAI Emerging Growth Fund, 2,021,084 shares of IAI Long Term Growth Fund and 1,417,582 shares of IAI Capital Appreciation Fund which would have been issued at March 31, 2000, in connection with the proposed reorganization. Adjustments to Pro Forma Combining Statement of Operations - ---------------------------------------------------------- The following assumptions were made as part of the pro forma combining statement of operations. The statement assumes that the shareholders of each IAI Fund have approved its reorganization into the Federated Fund. If shareholders of one or more of the IAI Funds do not approve the reorganization, pro forma financial information may be different than that provided. The pro forma combined Federated Aggressive Growth Fund will use all of the Federated Aggressive Growth Fund's current service providers at their current contracted rates. Under terms of the IAI Funds Management Agreement, Investment Advisers, Inc. ("IAI") is required to pay for all expenses of each IAI Fund, except certain costs (primarily those incurred in the purchase and sale of assets, taxes, interest and extraordinary expenses), in return for the fund's paying an all inclusive management fee equal to an annual rate of 1.25% declining to 1.10% of average daily net assets of the IAI Emerging Growth Fund, 1.25% declining to 1.10% of average daily net assets of the IAI Long Term Growth Fund, and 1.40% declining to 1.10% of the average daily net assets of the IAI Capital Appreciation Fund. The Management Agreement also provides that IAI will reimburse each fund for the fees and expenses it pays to Directors who are not "interested persons" of the Fund or reduce its fee by an equivalent amount. For the year ended March 31, 2000, the IAI Emerging Growth Fund, IAI Long Term Growth Fund and IAI Capital Appreciation Fund paid investment advisory fees of 1.25%, 1.25% and 1.40%, respectively. Federated Investment Management Company ("FIMC") acts as the investment adviser for the Federated Aggressive Growth Fund. For its services, FIMC receives an annual fee equal to 1.00% of the Fund's average daily net assets. An adjustment to the combining investment advisory fee reflects investment advisory fees charged at 1.00% of the pro forma combined fund's average daily assets. Administrative personnel and services will be provided to the combined entity by Federated Services Company for a fee based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by 7 Federated Investors, Inc., subject to a minimum fee of $125,000 plus $30,000 for each additional class of shares per annum. Custodian, transfer and dividend disbursing agent, and portfolio accountant fees are calculated based on existing fund contracts that stipulate base fees and other factors such as the fund's asset size, number of accounts, and number and types of transactions. The director's fees of the pro forma adjusted entity have been adjusted to reflect estimated fees incurred by the Federated Aggressive Growth Fund's board of directors. The pro forma shareholder services fee has been adjusted to reflect the combination of the IAI Funds' net assets into Federated Aggressive Growth Fund's Class A Shares. Pro forma legal, share registration, insurance, and miscellaneous fees have been adjusted to reflect the estimated charges of the combined entity. 8
IAI Emerging Growth Fund IAI Long Term Growth Fund IAI Capital Appreciation Fund Federated Aggressive Growth Fund Pro Forma Combining Statements of Assets and Liabilities March 31, 2000 (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------- IAI IAI IAI Federated Emerging Long Term Capital Aggressive Growth Growth Appreciation Growth Pro Forma Proforma Fund Fund Fund Fund Adjustment3 Combined -------------- ------------- ----------------------------------------------------------- ASSETS: Investments in securities, at value $90,628,150 $16,470,613 $25,142,520 $335,306,093 - 467,547,376 Cash 113,822 13,903 - 2,879 - 130,604 Income receivable 4,285 2,170 2,947 3,741 - 13,143 Receivable for shares sold 166,948 - - 8,633,234 - 8,800,182 Receivable for Investments sold 2,862,017 822,691 601,188 1,225,492 - 5,511,388 Prepaid assets - 11,766 - 6,943 - 18,709 ----------- ----------- ----------- ------------ ---------- ------------ Total assets 93,775,222 17,321,143 25,746,655 345,178,382 - 482,021,402 ----------- ----------- ----------- ------------ ---------- ------------ LIABILITIES: Payable for investments purchased 4,098,083 739,121 1,177,420 10,797,177 - 16,811,801 Payable for shares redeemed 184,872 4,504 19,239 472,692 - 681,307 Bank overdraft - - 39,181 - 39,181 Income distribution payable - - - - - Accrued expenses 91,648 16,034 25,176 373,610 - 506,468 ----------- ----------- ----------- ------------ ---------- ------------ Total liabilities 4,374,603 759,659 1,261,016 11,643,479 - 18,038,757 ----------- ----------- ----------- ------------ ---------- ------------ NET ASSETS $89,400,619 $16,561,484 $24,485,639 $333,534,903 $ - $463,982,645 ----------- ----------- ----------- ------------ ---------- ------------ NET ASSETS CONSISTS OF: Paid in capital $50,822,946 $12,416,930 $15,614,707 $272,982,387 $ - 351,836,970 Net unrealized appreciation (depreciation) of investments 16,598,176 1,815,486 4,358,060 49,128,374 - 71,900,096 Accumulated net realized gain (loss) on Investments 22,007,546 2,329,068 4,512,872 14,429,192 - 43,278,678 Accumulated undistributed net investment income/(Distributions in excess of net investment income) (28,049) - - (3,005,050) - (3,033,099) ----------- ----------- ----------- ------------ ---------- ------------ Total Net Assets $89,400,619 $16,561,484 $24,485,639 $333,534,903 $ - $463,982,645 ----------- ----------- ----------- ------------ ---------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE Net Asset Value and Redemption Proceeds Per Share $ 16.51 $ 8.19 $ 17.27 $ 33.46(1) $ 33.46 ----------- ----------- ----------- ------------ ---------- ------------ Offering Price Per Share $ 16.51 $ 8.19 $ 17.27 $ 35.41(2) $ 35.41 ----------- ----------- ----------- ------------ ---------- ------------ SHARES OUTSTANDING (ALL CLASSES) 5,413,611 2,021,084 1,417,582 10,095,979 (4,953,660) 13,994,596 ----------- ----------- ----------- ------------ ---------- ------------ 9 COST OF INVESTMENTS $74,029,974 $14,655,127 $20,784,460 $286,177,719 $395,647,280 ----------- ----------- ----------- ------------ ------------ 1 Class A shares 2 Computation of offering price per share 100/94.5 of net asset value. This factors in the sales load charged to certain other investors of the Federated Aggressive Growth Fund. However, IAI Fund shareholders will not pay any sales charges in connection with the reorganization or on any subsequent purchases of or exchanges for shares of other Federated mutual funds; such transactions will be effected at net asset value. 3 See Notes to Pro Forma Financial Statements for discussion of pro forma adjustments.
10 IAI Emerging Growth Fund IAI Long Term Growth Fund IAI Capital Appreciation Fund Federated Aggressive Growth Fund Pro Forma Combining Statements of Operations Year Ended March 31, 2000 (unaudited) ---------------------------------------------------
IAI IAI Federated Emerging IAI Capital Aggressive Growth Value Appreciation Growth Pro Forma Pro Forma Fund Fund Fund Fund Adjustment Combined INVESTMENT INCOME: Dividends $ 9,574 $ 61,125 $ 19,113 $ 14,676 $ - $ 104,488 Interest 243,054 40,163 60,960 145,572 - 489,749 ------------ ------------ ------------ ------------ ------------ ------------ Total investment income 252,628 101,288 80,073 160,248 594,237 EXPENSES: Investment advisory fee 755,602 125,699 356,300 1,028,365 (278,061) 1,987,905 Administrative personnel and services fee - - - 185,000 - 185,000 Custodian fees - - - 22,841 9,595 32,436 Transfer and dividend disbursing agent fees - - - 345,943 50,000 395,943 Directors' fees 23,347 3,890 10,074 4,395 (36,811) 4,895 Auditing fees - - - 9,570 - 9,570 Legal fees - - - 1,724 - 1,724 Portfolio accounting fees - - - 76,778 20,000 96,778 Shareholder services fees - - - 257,091 239,900 496,991 Share registration costs - - - 62,922 25,000 87,922 Printing and postage - - - 71,618 15,000 86,618 Interest expense 375 359 109 - (843) - Distribution fees - - - 555,149 - 555,149 Insurance premiums - - - - - - Miscellaneous - - - 9,490 7,500 16,990 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL EXPENSES 779,324 129,948 366,483 2,630,886 51,280 3,957,921 Less fees waived/reimbursed by adviser (23,347) (3,890) (10,074) (276,148) 37,311 (276,148) ------------ ------------ ------------ ------------ ------------ ------------ NET EXPENSES 755,977 126,058 356,409 2,354,738 88,591 3,681,773 ------------ ------------ ------------ ------------ ------------ ------------ NET INVESTMENT INCOME/(NET OPERATING LOSS) $ (503,349) $ (24,770) $ (276,336) $(2,194,490) $ (88,591) $(3,087,536) ------------ ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 36,771,387 6,364,324 9,223,171 15,054,835 - 67,413,717 Net change in unrealized appreciation (depreciation) on investments (1,888,674) (5,686,039) 1,969,105 41,336,420 - 35,730,812 Net realized and unrealized gain (loss) on investments 34,882,713 678,285 11,192,276 56,391,255 - 103,144,529 ------------ ------------ ------------ ------------ ------------ ------------ Change in net assets resulting from operations $ 34,379,364 $ 653,515 $ 10,915,940 $ 54,196,765 $ (88,591) $100,056,993 ------------ ------------ ------------ ------------ ------------ ------------ (See Notes to Pro Forma Financial Statements for a discussion of Pro Forma Adjustments)
11 - -------------------------------------------- IAI Emerging Growth Fund IAI Long Term Growth Fund IAI Capital Appreciation Fund Federated Aggressive Growth Fund Pro Forma Combining Schedule of Investments As of March 31, 2000 Principal Amount of Shares Value
IAI IAI IAI Long Term IAI Federated IAI Long Term IAI Emerging Growth Capital Aggressive Pro Forma Emerging Growth Capital Growth Fund Appreciation Growth Combined Growth Fund Appreciation Common Stocks--98.3% Capital Goods--4.8% 93,300 93,300 ACT Manufacturing, Inc. 15,300 15,300 Dupont Photomasks, Inc. 17,700 17,700 Flextronics International Ltd. 132,500 132,500 Newpark Resources, Inc. 118,560 118,560 Orbital Sciences Corp. 93,000 93,000 Waste Connections, Inc. 62,600 62,600 Zomax Optical Media, Inc. 19,600 3,500 5,200 28,300 (1)Advanced Lighting Technologies 367,500 65,625 97,500 52,000 9,400 13,800 75,200 (1)Applied Science and Technology 1,573,000 284,350 417,450 18,789 3,388 4,725 26,902 (1)IFCO Systems, foreign 429,798 77,501 108,084 13,100 2,200 3,200 18,500 (1)Trex Company 501,075 84,150 122,400 43,000 7,100 10,400 60,500 (1)Zebra Technologies Class A 2,150,000 355,000 520,000 Total 5,021,373 866,626 1,265,434 Communication Services--3.4% 19,250 19,250 Covad Communications Group, Inc. 9,300 9,300 Cypress Communications, Inc. FirstWorld Communications, Inc., 17,300 17,300 Class B 56,500 56,500 IDT Corp. 44,600 44,600 MGC Communications, Inc. 3,500 3,500 Net2000 Communications, Inc. 7,600 7,600 Nextel Partners, Inc., Class A 3,400 3,400 TeleCorp PCS, Inc. 1,200 1,200 Tritel, Inc. 14,100 2,500 3,700 20,300 (1)Catalina Marketing 1,427,625 253,125 374,625 8,500 1,500 2,100 12,100 (1)Official Payments 357,000 63,000 88,200 104,900 (1)Profit Recovery Group 71,800 12,700 20,400 International, foreign 1,328,300 234,950 377,400 26,000 4,700 6,600 37,300 (1)TTI Team Telecom International 858,000 155,100 217,800 49,100 8,800 13,000 70,900 (1)Valassis Communications 1,635,644 293,150 433,062 Total 5,606,569 999,325 1,491,087 Consumer Cyclicals--7.1% 1,100 1,100 Avenue A, Inc. 37,400 37,400 Career Education Corp. 53,300 53,300 Children's Place Retail Stores, Inc. 33,100 33,100 Diamond Technology Partners, Class A 1,700 1,700 Digital Impact, Inc. 63,350 63,350 Insight Enterprises, Inc. 44,200 44,200 MIPS Technologies, Inc. 96,200 96,200 Modem Media . Poppe Tyson, Inc. 177,000 177,000 Navigant Consulting, Inc. 79,012 79,012 Pacific Sunwear of California 122,000 122,000 Webvan Group, Inc. 71,000 71,000 bebe stores, Inc. 10,900 1,600 2,400 14,900 (1)Express Scripts Class A 457,800 67,200 100,800 (1)Kenneth Cole 26,900 4,800 7,100 38,800 Productions Class A 1,055,825 188,400 278,675 60,233 10,799 15,900 86,932 (1)99 Cents Only Stores 2,364,145 423,861 624,075 53,300 9,600 14,100 77,000 (1)Pacific Sunwear of California 2,052,050 369,600 542,850 58,800 10,350 15,250 84,400 (1)Wild Oats Markets 1,205,400 212,175 312,625 224,600 41,600 59,300 325,500 (1)Aftermarket Technology 2,807,500 520,000 741,250 Total 9,942,720 1,781,236 2,600,275 12 Consumer Staples--4.9% Beasley Broadcast Group, 136,100 136,100 Inc., Class A 61,300 61,300 Citadel Communications Corp. 38,700 38,700 P. F. Chang's China Bistro, Inc. 40,500 40,500 Radio One, Inc. 123,800 123,800 Spanish Broadcasting System, Inc. 75,600 75,600 TiVo, Inc. XM Satellite Radio Holdings, 56,500 56,500 Inc., Class A 109,450 19,700 28,950 158,100 (1)JAKKS Pacific 2,360,016 424,781 624,234 31,150 5,600 8,200 44,950 (1)Apollo Group Class A 878,041 157,850 231,137 (1)Hotel Reservations 47,800 8,600 12,600 69,000 Network Class A 848,450 152,650 223,650 36,600 4,900 7,200 48,700 (1)Papa John's International 1,207,800 161,700 237,600 Total 5,294,307 896,981 1,316,621 Energy--5.7% 17,100 17,100 Cal Dive International, Inc. 28,000 28,000 Cooper Cameron Corp. 47,500 47,500 ENSCO International, Inc. 51,895 51,895 Nabors Industries, Inc. 136,700 136,700 Patterson Energy, Inc. 41,500 41,500 Precision Drilling Corp. 175,670 175,670 R&B Falcon Corp. 52,600 52,600 UTI Energy Corp. 153,000 153,000 Varco International, Inc. 76,900 76,900 Weatherford International, Inc. 50,800 9,100 13,400 73,300 (1)Patterson Energy 1,612,900 288,925 425,450 Total 1,612,900 288,925 425,450 Financials--2.8% 64,900 64,900 Americredit Corp. 116,500 116,500 E-LOAN, Inc. 112,100 112,100 Intercept Group, Inc. 44,900 44,900 Metris Cos., Inc. 243,700 243,700 Net.B@nk, Inc. 52,600 9,500 13,899 75,999 Radian Group 2,505,075 452,438 661,940 Total 2,505,075 452,438 661,940 Health Care--9.0% 184,600 184,600 Advance Paradigm, Inc. 7,800 7,800 Affymetrix, Inc. 26,800 26,800 Alexion Pharmaceuticals, Inc. 44,000 44,000 Gilead Sciences, Inc. 13,000 13,000 Human Genome Sciences, Inc. 10,600 10,600 Incyte Pharmaceuticals, Inc. 43,300 43,300 Maxim Pharmacceuticals, Inc. 95,400 95,400 Microvision, Inc. 6,300 6,300 Millennium Pharmaceuticals, Inc. 154,600 154,600 Osteotech, Inc. 33,400 33,400 Protein Design Laboratories, Inc. 32,000 32,000 QLT Phototherapeutics, Inc. 164,800 164,800 Theragenics Corp. 30,900 5,600 8,150 44,650 (1)Patterson Dental 1,181,925 214,200 311,738 78,100 14,000 20,600 112,700 (1)Renal Care Group 1,693,794 303,625 446,763 23,900 4,300 6,300 34,500 (1)Albany Molecular Research 1,395,162 251,012 367,763 4,100 700 1,000 5,800 (1)Antigenics 83,537 14,262 20,375 22,200 4,000 5,900 32,100 (1)Coherent 1,154,400 208,000 306,800 33,300 6,000 8,800 48,100 (1)Eclipse Surgical Technologies 247,669 44,625 65,450 16,200 2,900 4,300 23,400 (1)Emisphere Technologies 840,375 150,438 223,063 56,300 10,100 14,900 81,300 (1)InfoCure 978,212 175,488 258,888 4,874 4,874 (1)GalaGen 12,642 3,800 700 900 5,400 (1)Maxygen 247,712 45,631 58,669 66,100 11,900 17,450 95,450 Mentor 1,784,700 321,300 471,150 20,000 3,600 5,300 28,900 (1)Novoste 800,000 144,000 212,000 Total 10,420,128 1,872,581 2,742,659 13 Technology 59.7% 58,100 58,100 24/7 Media, Inc. 125,000 125,000 ACTV, Inc. 65,400 65,400 Accrue Software, Inc. 14,800 14,800 Aether Systems, Inc. 72,200 72,200 Airnet Communications Corp. 27,800 27,800 Allaire Corp. 93,000 93,000 Ancor Communications, Inc. 60,200 60,200 AnswerThink Consulting Group, Inc. 35,400 35,400 AudioCodes Ltd. 39,500 39,500 Aurora Bioscences, Inc. 1,200 1,200 Avanex Corp. 79,500 79,500 Aware, Inc. 79,500 79,500 Bluestone Software, Inc. 87,800 87,800 Braun Consulting, Inc. 1,800 1,800 Caliper Technologies Corp. 800 800 Centra Software, Inc. 86,000 86,000 Chordiant Software, Inc. 26,100 26,100 Clarent Corp. 52,300 52,300 Cobalt Networks, Inc. Cognizant Technology 64,000 64,000 Solutions Corp. 8,500 8,500 Comverse Technology, Inc. 59,900 59,900 Concentric Network Corp. 114,600 114,600 Concur Technologies, Inc. 38,874 38,874 Conexant Systems, Inc. 25,700 25,700 Credence Systems Corp. 26,700 26,700 Crossroads Systems, Inc. 111,500 111,500 Cybersource Corp. 30,000 30,000 Cymer, Inc. 28,800 28,800 Delano Technology Corp. 79,500 79,500 Digital River, Inc. 13,300 13,300 E-Tek Dynamics, Inc. 83,800 83,800 EarthWeb, Inc. 123,383 123,383 Egain Communications Corp. 34,200 34,200 Extreme Networks, Inc. 39,600 39,600 F5 Networks, Inc. 8,800 8,800 FairMarket, Inc. 52,100 52,100 Firepond, Inc. 45,000 45,000 GRIC Communications, Inc. 75,500 75,500 Gadzoox Networks, Inc. 46,100 46,100 Healtheon Corp. 79,900 79,900 Henry Jack & Associates, Inc. 48,800 48,800 Hi/fn, Inc. 41,400 41,400 ISS Group, Inc. 20,400 20,400 Informatica Corp. InterWAVE Communications 29,800 29,800 International Ltd. 51,500 51,500 Intertrust Technologies Corp. 1,200 1,200 Interwoven, Inc. 28,200 28,200 Keynote Systems, Inc. 48,500 48,500 Kopin Corp. 1,300 1,300 Lante Corp. 25,000 25,000 Liberate Technologies, Inc. 79,300 79,300 MMC Networks, Inc. 70,400 70,400 Marimba, Inc. 93,000 93,000 Mastech Corp. 1,500 1,500 MatrixOne, Inc. 70,100 70,100 Medquist, Inc. 18,600 18,600 Mercury Interactive Corp. 23,000 23,000 Micrel, Inc. 25,300 25,300 Micromuse, Inc. 92,900 92,900 Neon Systems, Inc. 44,200 44,200 NetIQ Corp. 63,600 63,600 Netro Corp. 4,700 4,700 Niku Corp. 14,400 14,400 Official Payments Corp. 114,800 114,800 ONYX Software Corp. 59,100 59,100 OTG Software, Inc. 79,300 79,300 Onvia.com, Inc. 35,800 35,800 PRI Automation, Inc. 47,400 47,400 Packeteer, Inc. 104,100 104,100 Paradyne Networks, Inc. 143,000 143,000 Pilot Network Services, Inc. 6,400 6,400 Quantum Effect Devices, Inc. 60,800 60,800 Quokka Sports, Inc. 27,800 27,800 RF Micro Devices, Inc. 8,200 8,200 Razorfish, Inc. 14 5,000 5,000 Register.Com, Inc. 35,700 35,700 SCM Microsystems, Inc. 53,500 53,500 Satyam Infoway Ltd., ADR 74,700 74,700 SmartForce PLC, ADR 7,400 7,400 Software.com, Inc. 77,500 77,500 Tollgrade Communications, Inc. 33,300 33,300 Veeco Instruments, Inc. 13,500 13,500 VerticalNet, Inc. 44,000 44,000 Virata Corp. 18,700 18,700 Vitesse Semiconductor Corp. 58,200 58,200 WebTrends Corp. 83,300 83,300 Witness Systems, Inc. 100,500 100,500 XCare.net, Inc. 137,800 137,800 eGain Communications Corp. 1,400 1,400 WebMethods, Inc. 21,300 3,800 5,600 30,700 (1)Alamosa PCS Holdings 804,075 143,450 211,400 44,400 8,000 11,700 64,100 (1)American Mobile Satellite 1,065,600 192,000 280,800 145,800 27,600 41,900 215,300 (1)CCC Information Services Group 3,134,700 593,400 900,850 5,100 900 1,400 7,400 (1)Diamond Technology Partners 335,325 59,175 92,050 68,100 12,200 18,000 98,300 (1)DSET 1,255,594 224,937 331,875 20,500 3,700 5,400 29,600 (1)Exchange Applications 1,084,898 195,811 285,778 17,900 3,200 4,700 25,800 (1)Great Plains Software 955,413 170,800 250,863 32,300 5,300 7,700 45,300 (1)iGATE Capital 1,457,538 239,163 347,463 149,300 26,900 39,500 215,700 (1)IMRglobal 2,146,188 386,687 567,813 96,400 17,300 25,500 139,200 (1)Wavo 430,788 77,309 113,953 17,100 3,100 4,500 24,700 (1)ADE 376,200 68,200 99,000 27,700 5,000 7,300 40,000 (1)Advanced Radio Telecom 917,562 165,625 241,812 35,800 6,400 9,500 51,700 (1)American Xtal Technology 1,159,025 207,200 307,562 900 200 200 1,300 (1)ArrowPoint Communications 106,636 23,697 23,697 20,900 3,800 5,500 30,200 (1)AstroPower 675,331 122,787 177,719 13,600 2,500 3,600 19,700 (1)California Amplifier 421,600 77,500 111,600 13,600 2,500 3,600 19,700 (1)Cognex 784,550 144,219 207,675 59,200 10,000 14,300 83,500 (1)Datalink 1,184,000 200,000 286,000 20,000 3,600 5,300 28,900 (1)Exar 1,431,250 257,625 379,281 25,200 4,500 6,700 36,400 (1)Lattice Semiconductor 1,705,725 304,594 453,506 45,200 8,100 12,000 65,300 (1)Mercury Computer Systems 2,209,150 395,888 586,500 26,000 4,700 6,900 37,600 National Computer Systems 1,319,500 238,525 350,175 60,600 10,900 16,000 87,500 (1)REMEC 3,060,300 550,450 808,000 25,600 4,600 6,800 37,000 (1)Sawtek 1,345,600 241,788 357,425 48,300 8,733 12,833 69,866 (1)Three-Five Systems 2,898,000 523,980 769,980 9,000 1,600 2,400 13,000 (1)Visual Networks 510,750 90,800 136,200 78,300 14,095 20,600 112,995 (1)Zamba 819,703 147,557 215,656 17,500 3,100 4,600 25,200 (1)Zoran 985,469 174,569 259,037 23,950 6,300 30,250 (1)ANADIGICS 1,580,700 283,800 415,800 31,100 5,600 8,200 44,900 (1)ANTEC 1,393,669 250,950 367,462 13,300 2,300 3,400 19,000 (1)Aware 533,662 92,287 136,425 17,800 3,200 5,000 26,000 (1)BreezeCom, foreign 665,275 119,600 186,875 11,900 2,100 3,200 17,200 (1)CommScope 542,937 95,812 146,000 20,900 3,800 5,500 30,200 (1)Com21 982,300 178,600 258,500 32,400 5,800 8,600 46,800 (1)Digital Microwave 1,097,550 196,475 291,325 18,300 3,300 4,900 26,500 (1)Orckit Communications, foreign 1,226,100 221,100 328,300 57,200 10,300 15,800 83,300 (1)Tollgrade Communications 3,031,600 545,900 837,400 26,000 4,700 6,900 37,600 (1)Westell Technologies Class A 828,750 149,812 219,937 Total 46,463,013 8,352,072 12,341,694 Transportation--.9% 84,500 84,500 SkyWest, Inc. 24,700 4,500 6,500 35,700 (1)Atlas Air 676,163 123,188 177,938 -------------------------------- Total 676,163 123,188 177,938 Total Common Stocks Repurchase Agreement--0.5% 2,105,000 2,105,000 ABN AMRO, Inc., 6.18%, dated 3/31/2000, due 4/3/2000 15 RESTRICTED SECURITIES - 0.0% (2) - ---------------------------------------- Common Stocks - 0.0% 42,272 42,272 Westgate Acquisitions 0 Non-Convertible Preferred Stock- 0.0% 86,198 86,198 Westgate Acquisitions Series A 0 Limited Partnerships - 0.0% (percentage ownership) 1.78% 1.78% (1) Alta Berkeley III, foreign 161,520 0.69% 0.69% (1) South Street Corporate Recovery Fund I 1.65% 1.10% 2.75% (1) South Street Leveraged Corporate Recovery Fund I 1.42% 1.42% (1) Vanguard Associates III 11,795 Total 161,520 11,795 0 Convertible Debentures-0.0% 258,332 258,332 Air Communications Series B 0 Exercise Exercise Warrants - 0.0% Price Date 1,805 1,805 Gala Gen $11.08 07/09/00 0 22,501 22,501 GalaGen $11.08 01/29/01 0 Total 0 0 0 Total Restricted Securities SHORT - TERM SECURITIES - 1.2% - -------------------------------------- Market Commercial Paper -0.8% Rate Maturity Value (a) Associates (Financial) 2,500,000 2,500,000 6.20% 04/03/00 2,549,122 Gillette (Consumer Non-Durables) 1,200,000 1,200,000 6.20% 04/03/00 1,199,587 Investment Company - 0.4% Total 2,549,122 0 1,199,587 375,260 683,686 919,835 1,978,781 Firstar Institutional Money 375,260 683,686 919,835 Market Fund 5.69% Demand Note - 0.0 141,760 141,760 Wisconsin Electric (Utilities) 141,760 Total Short-Term Securities TOTAL INVESTMENTS IN SECURITIES 90,628,150 16,470,613 25,142,520 (1) Non-Income Producing Security (2) Restricted securities generally must be registered with the Securities and Exchange Commission under the Securities Act of 1933 prior to being sold to the public.
- -------------------------------------------- IAI Emerging Growth Fund IAI Long Term Growth Fund IAI Capital Appreciation Fund Federated Aggressive Growth Fund Pro Forma Combining Schedule of Investments As of March 31, 2000 16
Value Federated Aggressive Pro Forma Growth Combined Common Stocks--98.3% Capital Goods--4.8% ACT Manufacturing, Inc. 5,218,969 5,218,969 Dupont Photomasks, Inc. 886,444 886,444 Flextronics International Ltd. 1,246,744 1,246,744 Newpark Resources, Inc. 1,060,000 1,060,000 Orbital Sciences Corp. 1,778,400 1,778,400 Waste Connections, Inc. 1,127,625 1,127,625 Zomax Optical Media, Inc. 3,771,650 3,771,650 (1)Advanced Lighting Technologies 530,625 (1)Applied Science and Technology 2,274,800 (1)IFCO Systems, foreign 615,383 (1)Trex Company 707,625 (1)Zebra Technologies Class A 3,025,000 Total 15,089,832 22,243,265 Communication Services--3.4% Covad Communications Group, Inc. 1,395,625 1,395,625 Cypress Communications, Inc. 227,850 227,850 FirstWorld Communications, Inc., Class B 352,488 352,488 IDT Corp. 2,344,750 2,344,750 MGC Communications, Inc. 3,188,900 3,188,900 Net2000 Communications, Inc. 83,125 83,125 Nextel Partners, Inc., Class A 220,400 220,400 TeleCorp PCS, Inc. 175,950 175,950 Tritel, Inc. 45,900 45,900 (1)Catalina Marketing 2,055,375 (1)Official Payments 508,200 (1)Profit Recovery Group International, foreign 1,940,650 (1)TTI Team Telecom International 1,230,900 (1)Valassis Communications 2,361,856 Total 8,034,988 16,131,969 Consumer Cyclicals--7.1% Avenue A, Inc. 33,550 33,550 Career Education Corp. 1,309,000 1,309,000 Children's Place Retail Stores, Inc. 759,525 759,525 Diamond Technology Partners, Class A 2,176,325 2,176,325 Digital Impact, Inc. 60,456 60,456 Insight Enterprises, Inc. 2,308,316 2,308,316 MIPS Technologies, Inc. 2,458,625 2,458,625 Modem Media . Poppe Tyson, Inc. 3,114,475 3,114,475 Navigant Consulting, Inc. 1,947,000 1,947,000 Pacific Sunwear of California 3,041,962 3,041,962 Webvan Group, Inc. 937,875 937,875 bebe stores, Inc. 896,375 896,375 (1)Express Scripts Class A 625,800 (1)Kenneth Cole Productions Class A 1,522,900 (1)99 Cents Only Stores 3,412,081 (1)Pacific Sunwear of California 2,964,500 (1)Wild Oats Markets 1,730,200 (1)Aftermarket Technology 4,068,750 Total 19,043,484 33,367,715 Consumer Staples--4.9% Beasley Broadcast Group, 1,258,925 1,258,925 Inc., Class A Citadel Communications Corp. 2,586,094 2,586,094 P. F. Chang's China Bistro, Inc. 1,281,938 1,281,938 Radio One, Inc. 2,698,313 2,698,313 Spanish Broadcasting System, Inc. 2,903,497 2,903,497 TiVo, Inc. 2,617,650 2,617,650 XM Satellite Radio Holdings, 1,970,438 1,970,438 Inc., Class A (1)JAKKS Pacific 3,409,031 (1)Apollo Group Class A 1,267,028 (1)Hotel Reservations Network Class A 1,224,750 (1)Papa John's International 1,607,100 Total 15,316,855 22,824,764 17 Energy--5.7% Cal Dive International, Inc. 867,825 867,825 Cooper Cameron Corp. 1,872,500 1,872,500 ENSCO International, Inc. 1,715,938 1,715,938 Nabors Industries, Inc. 2,014,175 2,014,175 Patterson Energy, Inc. 4,340,225 4,340,225 Precision Drilling Corp. 1,385,063 1,385,063 R&B Falcon Corp. 3,458,503 3,458,503 UTI Energy Corp. 1,985,650 1,985,650 Varco International, Inc. 1,931,625 1,931,625 Weatherford International, Inc. 4,532,294 4,532,294 (1)Patterson Energy 2,327,275 Total 24,103,798 26,431,073 Financials 2.8% Americredit Corp. 1,058,681 1,058,681 E-LOAN, Inc. 815,500 815,500 Intercept Group, Inc. 2,886,575 2,886,575 Metris Cos., Inc. 1,745,488 1,745,488 Net.B@nk, Inc. 3,168,100 3,168,100 Radian Group 3,619,453 Total 9,674,344 13,293,797 Health Care--9.0% Advance Paradigm, Inc. 2,192,125 2,192,125 Affymetrix, Inc. 1,157,813 1,157,813 Alexion Pharmaceuticals, Inc. 1,869,300 1,869,300 Gilead Sciences, Inc. 2,788,500 2,788,500 Human Genome Sciences, Inc. 1,079,813 1,079,813 Incyte Pharmaceuticals, Inc. 926,838 926,838 Maxim Pharmacceuticals, Inc. 2,032,394 2,032,394 Microvision, Inc. 5,306,625 5,306,625 Millennium Pharmaceuticals, Inc. 818,213 818,213 Osteotech, Inc. 2,067,775 2,067,775 Protein Design Laboratories, Inc. 2,655,300 2,655,300 QLT Phototherapeutics, Inc. 1,768,000 1,768,000 Theragenics Corp. 2,204,200 2,204,200 (1)Patterson Dental 1,707,863 (1)Renal Care Group 2,444,182 (1)Albany Molecular Research 2,013,937 (1)Antigenics 118,174 (1)Coherent 1,669,200 (1)Eclipse Surgical Technologies 357,744 (1)Emisphere Technologies 1,213,876 (1)InfoCure 1,412,588 (1)GalaGen 12,642 (1)Maxygen 352,012 Mentor 2,577,150 (1)Novoste 1,156,000 Total 26,866,896 41,902,264 Technology 59.7% 24/7 Media, Inc. 2,294,950 2,294,950 ACTV, Inc. 4,382,813 4,382,813 Accrue Software, Inc. 2,995,116 2,995,116 Aether Systems, Inc. 2,686,200 2,686,200 Airnet Communications Corp. 2,522,488 2,522,488 Allaire Corp. 2,102,375 2,102,375 Ancor Communications, Inc. 3,824,625 3,824,625 AnswerThink Consulting Group, Inc. 1,471,138 1,471,138 AudioCodes Ltd. 3,553,275 3,553,275 Aurora Bioscences, Inc. 1,614,563 1,614,563 Avanex Corp. 182,100 182,100 Aware, Inc. 3,189,938 3,189,938 Bluestone Software, Inc. 2,683,125 2,683,125 Braun Consulting, Inc. 2,809,600 2,809,600 Caliper Technologies Corp. 145,575 145,575 Centra Software, Inc. 16,800 16,800 Chordiant Software, Inc. 1,397,500 1,397,500 Clarent Corp. 2,353,894 2,353,894 Cobalt Networks, Inc. 2,458,100 2,458,100 Cognizant Technology Solutions Corp. 4,000,000 4,000,000 Comverse Technology, Inc. 1,606,500 1,606,500 Concentric Network Corp. 3,294,500 3,294,500 Concur Technologies, Inc. 1,726,163 1,726,163 Conexant Systems, Inc. 2,760,054 2,760,054 Credence Systems Corp. 3,215,713 3,215,713 Crossroads Systems, Inc. 2,756,775 2,756,775 Cybersource Corp. 4,153,375 4,153,375 Cymer, Inc. 1,500,000 1,500,000 18 Delano Technology Corp. 646,200 646,200 Digital River, Inc. 1,709,250 1,709,250 E-Tek Dynamics, Inc. 3,128,825 3,128,825 EarthWeb, Inc. 2,063,575 2,063,575 Egain Communications Corp. 4,811,948 4,811,948 Extreme Networks, Inc. 2,701,800 2,701,800 F5 Networks, Inc. 2,682,900 2,682,900 FairMarket, Inc. 200,200 200,200 Firepond, Inc. 2,132,844 2,132,844 GRIC Communications, Inc. 1,518,750 1,518,750 Gadzoox Networks, Inc. 3,619,281 3,619,281 Healtheon Corp. 1,060,300 1,060,300 Henry Jack & Associates, Inc. 2,946,313 2,946,313 Hi/fn, Inc. 3,175,050 3,175,050 ISS Group, Inc. 4,823,100 4,823,100 Informatica Corp. 1,566,975 1,566,975 InterWAVE Communications International Ltd. 897,725 897,725 Intertrust Technologies Corp. 2,188,750 2,188,750 Interwoven, Inc. 131,700 131,700 Keynote Systems, Inc. 2,883,450 2,883,450 Kopin Corp. 3,334,375 3,334,375 Lante Corp. 39,488 39,488 Liberate Technologies, Inc. 1,568,750 1,568,750 MMC Networks, Inc. 2,616,900 2,616,900 Marimba, Inc. 3,106,400 3,106,400 Mastech Corp. 4,196,625 4,196,625 MatrixOne, Inc. 59,906 59,906 Medquist, Inc. 1,905,844 1,905,844 Mercury Interactive Corp. 1,474,050 1,474,050 Micrel, Inc. 2,208,000 2,208,000 Micromuse, Inc. 3,511,956 3,511,956 Neon Systems, Inc. 3,065,700 3,065,700 NetIQ Corp. 2,953,113 2,953,113 Netro Corp. 4,134,994 4,134,994 Niku Corp. 222,369 222,369 Official Payments Corp. 604,800 604,800 ONYX Software Corp. 3,659,250 3,659,250 OTG Software, Inc. 2,382,469 2,382,469 Onvia.com, Inc. 1,675,213 1,675,213 PRI Automation, Inc. 2,188,275 2,188,275 Packeteer, Inc. 1,659,000 1,659,000 Paradyne Networks, Inc. 3,227,100 3,227,100 Pilot Network Services, Inc. 4,727,938 4,727,938 Quantum Effect Devices, Inc. 509,600 509,600 Quokka Sports, Inc. 646,000 646,000 RF Micro Devices, Inc. 3,735,625 3,735,625 Razorfish, Inc. 225,500 225,500 Register.Com, Inc. 347,500 347,500 SCM Microsystems, Inc. 3,462,900 3,462,900 Satyam Infoway Ltd., ADR 2,868,938 2,868,938 SmartForce PLC, ADR 3,426,863 3,426,863 Software.com, Inc. 953,675 953,675 Tollgrade Communications, Inc. 4,107,500 4,107,500 Veeco Instruments, Inc. 2,464,200 2,464,200 VerticalNet, Inc. 1,836,000 1,836,000 Virata Corp. 4,394,500 4,394,500 Vitesse Semiconductor Corp. 1,799,875 1,799,875 WebTrends Corp. 4,190,400 4,190,400 Witness Systems, Inc. 2,530,238 2,530,238 XCare.net, Inc. 1,444,688 1,444,688 eGain Communications Corp. 5,374,200 5,374,200 WebMethods, Inc. 337,925 337,925 (1)Alamosa PCS Holdings 1,158,925 (1)American Mobile Satellite 1,538,400 (1)CCC Information Services Group 4,628,950 (1)Diamond Technology Partners 486,550 (1)DSET 1,812,406 (1)Exchange Applications 1,566,487 (1)Great Plains Software 1,377,076 (1)iGATE Capital 2,044,164 (1)IMRglobal 3,100,688 (1)Wavo 622,050 (1)ADE 543,400 (1)Advanced Radio Telecom 1,324,999 (1)American Xtal Technology 1,673,787 (1)ArrowPoint Communications 154,030 (1)AstroPower 975,837 (1)California Amplifier 610,700 (1)Cognex 1,136,444 (1)Datalink 1,670,000 (1)Exar 2,068,156 (1)Lattice Semiconductor 2,463,825 (1)Mercury Computer Systems 3,191,538 19 National Computer Systems 1,908,200 (1)REMEC 4,418,750 (1)Sawtek 1,944,813 (1)Three-Five Systems 4,191,960 (1)Visual Networks 737,750 (1)Zamba 1,182,916 (1)Zoran 1,419,075 (1)ANADIGICS 2,280,300 (1)ANTEC 2,012,081 (1)Aware 762,374 (1)BreezeCom, foreign 971,750 (1)CommScope 784,749 (1)Com21 1,419,400 (1)Digital Microwave 1,585,350 (1)Orckit Communications, foreign 1,775,500 (1)Tollgrade Communications 4,414,900 (1)Westell Technologies Class A 1,198,499 Total 211,764,833 278,921,612 Transportation--.9% SkyWest, Inc. 3,306,063 3,306,063 (1)Atlas Air 0 977,289 ----------- Total 3,306,063 4,283,352 Total Common Stocks 459,399,811 ABN AMRO, Inc., 6.18%, dated 3/31/2000, 2,105,000 2.105,000 due 4/3/2000 Westgate Acquisitions 0 Westgate Acquisitions Series A 0 (1) Alta Berkeley III, foreign 161,520 (1) South Street Corporate Recovery Fund I 0 (1) South Street Leveraged Corporate Recovery Fund I 0 (1) Vanguard Associates III 11,795 Total 0 173,315 Air Communications Series B 0 Exercise Exercise Price Date Gala Gen $11.08 07/09/00 GalaGen $11.08 01/29/01 Total 0 0 Total Restricted Securities 173,315 Market Rate Maturity Value (a) Associates (Financial) 6.20% 04/03/00 2,549,122 2,549,122 Gillette (Consumer Non-Durables) 6.20% 04/03/00 Total 0 3,748,709 Investment Company - 0.4% Firstar Institutional Money 1,978,781 Market Fund 5.69% Demand Note - 0.0 Wisconsin Electric (Utilities) 141,760 Total Short-Term Securities 5,869,250 TOTAL INVESTMENTS IN SECURITIES 335,306,093 467,547,376 (1) Non-Income Producing Security (2) Restricted securities generally must be registered with the Securities and Exchange Commission under the Securities Act of 1933 prior to being sold to the public.
20 Pro Forma Combining Schedule of Expense Ratios (Unaudited) As discussed in the Notes to the Pro Forma Financial Statements, it is possible that one or more of IAI Capital Appreciation Fund, IAI Emerging Growth Fund or IAI Long Term Growth Fund will not approve the Reorganization, in which case the resulting Federated Aggressive Growth Fund will include only those IAI Funds that approve the Reorganization. Presented below is combining pro forma expense ratio information for historical periods under all possible combination scenarios.
Fiscal Year Ended March 31, 2000 1999 1998 Scenario 1 - Federated Aggressive Growth Fund, IAI Emerging Growth Fund Expenses (a) 2.10% 1.82% 1.44% Expenses - after waiver (a)(b) 1.93% 1.57% 1.35% Scenario 2 - Federated Aggressive Growth Fund, IAI Long Term Growth Fund Expenses (a) 2.46% 2.60% 2.45% Expenses - after waiver (a)(b) 2.22% 1.97% 1.62% Scenario 3 - Federated Aggressive Growth Fund, IAI Capital Appreciation Fund Expenses (a) 2.32% 2.09% 1.90% Expenses - after waiver (a)(b) 2.10% 1.70% 1.46% Scenario 4 - Federated Aggressive Growth Fund, IAI Emerging Growth Fund, IAI Long Term Growth Fund Expenses (a) 2.06% 1.75% 1.43% Expenses - after waiver (a)(b) 1.90% 1.53% 1.35% Scenario 5 - Federated Aggressive Growth Fund, IAI Emerging Growth Fund, IAI Capital Appreciation Fund Expenses (a) 2.00% 1.68% 1.44% Expenses - after waiver (a)(b) 1.85% 1.49% 1.36% Scenario 6 - Federated Aggressive Growth Fund, IAI Long Term Growth Fund, IAI Capital Appreciation Fund Expenses (a) 2.24% 1.93% 1.71% Expenses - after waiver (a)(b) 2.04% 1.61% 1.40% Scenario 7 - Federated Aggressive Growth Fund, IAI Emerging Growth Fund, IAI Long Term Growth Fund, IAI Capital Appreciation Fund Expenses (a) 1.99% 1.66% 1.45% Expenses - after waiver (a)(b) 1.85% 1.49% 1.37%
a Represents the ratio of expenses to average net assets. The combining pro forma expense ratios were computed assuming the applicable Funds had been combined during the indicated periods and reflect the revised investment management fee structure of Federated Aggressive Growth Fund. b Ratios represent waivers of certain expenses of Federated Aggressive Growth Fund. 21 IAI Regional Fund Federated Capital Appreciation Fund Notes to Pro Forma Financial Statements (unaudited) March 31, 2000 Basis of Combination - -------------------- The accompanying unaudited Pro Forma Combining Statements of Assets and Liabilities, Statements of Operations and Schedule of Investments ("Pro Forma Financial Statements") reflect the accounts of IAI Regional Fund and Federated Capital Appreciation Fund, collectively ("the Funds"), for the year ended March 31, 2000. These statements have been derived from the books and records utilized in calculating daily net asset values at March 31, 2000. The Pro Forma Combining Financial Statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the reorganization occurred at March 31, 2000. They should be read in conjunction with the historical financial statements of the Funds which have been incorporated by reference in the Statement of Additional Information. The Funds follow generally accepted accounting principles applicable to management investment companies which are disclosed in the historical financial statements of each fund. The Pro Forma Financial Statements give effect to the proposed exchange of assets of IAI Regional Fund for shares of Federated Capital Appreciation Fund as if the reorganization had been consummated on March 31, 2000. Under generally accepted accounting principles, Federated Capital Appreciation Fund will be the surviving entity for accounting purposes with its historical cost of investment securities and results of operations being carried forward. To the extent the acquired fund has capital losses, they will be carried forward to the acquiring fund. The acquiring fund will be able to use these losses to offset future capital gains it realizes, subject to limitations, and, thereby, minimize taxable gains to its shareholders. Adjustments to Pro Forma Combining Statement of Assets and Liabilities - ---------------------------------------------------------------------- The following assumptions were made to the pro forma combining statement of assets and liabilities. The Pro Forma net asset value per share assumes the issuance of 6,130,505 shares of the Federated Capital Appreciation Fund in exchange for 9,113,962 shares of the IAI Regional Fund which would have been issued at March 31, 2000, in connection with the proposed reorganization. Adjustments to Pro Forma Combining Statement of Operations - ---------------------------------------------------------- The following assumptions were made as part of the pro forma combining statement of operations. The pro forma combined Federated Capital Appreciation Fund will use all of the Federated Capital Appreciation Fund's current service providers at their current contracted rates. 22 Under terms of the IAI Regional Fund's Management Agreement, Investment Advisers, Inc. ("IAI") is required to pay for all expenses of the IAI Regional Fund, except certain costs (primarily those incurred in the purchase and sale of assets, taxes, interest and extraordinary expenses), in return for the fund paying an all inclusive management fee equal to an annual rate of 1.25% declining to 1.10% of average daily net assets. The Management Agreement also provides that IAI will reimburse the IAI Regional Fund for the fees and expenses it pays to Directors who are not "interested persons" of the Fund or reduce its fee by an equivalent amount. For the year ended March 31, 2000, IAI Regional Fund paid investment advisory fees equal to 1.25% of its average daily net assets. Federated Investment Management Company ("FIMC") acts as the investment adviser for the Federated Capital Appreciation Fund. For its services, FIMC receives an annual fee equal to 0.75% of the Fund's average daily net assets. An adjustment to the combining investment advisory fee reflects investment advisory fees charged at 0.75% of the pro forma combined fund's average daily assets. Administrative personnel and services will be provided to the combined entity by Federated Services Company for a fee based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by Federated Investors, Inc., subject to a minimum fee of $125,000 plus $30,000 for each additional class of shares per annum. Custodian, transfer and dividend disbursing agent, and portfolio accountant fees are calculated based on existing fund contracts that stipulate base fees and other factors such as the fund's asset size, number of accounts, and number and types of transactions. The director's fees of the pro forma adjusted entity have been adjusted to reflect estimated fees incurred by the Federated Capital Appreciation Fund's board of directors. The pro forma shareholder services fee has been adjusted to reflect the combination of the IAI Regional Fund's net assets into Federated Capital Appreciation Fund's Class A Shares. Pro forma legal, share registration, insurance, and miscellaneous fees have been adjusted to reflect the estimated charges of the combined entity. 23 IAI Regional Fund Federated Capital Appreciation Fund Pro Forma Combining Statements of Assets and Liabilities March 31, 2000 (Unaudited) - ---------------------------------------------------------------------------------------------------------
Federated IAI Capital Regional Appreciation Pro Forma Pro Forma Fund Fund Adjustment (3) Combined ------------ ------------ ------------- ------------ ASSETS: Investments in securities, at value $184,644,067 $636,691,686 $ - $821,335,753 Cash - 677 - 677 Income receivable 57,190 471,356 - 528,546 Receivable for shares sold 6,091,260 4,776,154 - 10,867,414 Receivable for Investments sold - 3,068,301 - 3,068,301 Prepaid assets 65,773 - - 65,773 ------------ ------------ ------------- ------------ Total assets 190,858,290 645,008,174 - 835,866,464 ------------ ------------ ------------- ------------ LIABILITIES: Payable for investments purchased 66,334 13,298,134 - 13,364,468 Payable for shares redeemed 11,663 263,441 - 275,104 Bank overdraft 409,637 409,637 Income distribution payable - 197,004 197,004 Accrued expenses 202,405 353,385 - 555,790 ------------ ------------ ------------- ------------ Total liabilities 690,039 14,111,964 - 14,802,003 ------------ ------------ ------------- ------------ NET ASSETS $190,168,251 $630,896,210 $ $821,064,461 ------------ ------------ ------------- ------------ NET ASSETS CONSISTS OF: Paid in capital $135,389,682 $394,826,770 $ 530,216,452 Net unrealized appreciation (depreciation) of investments 29,921,574 202,614,761 - 232,536,335 Accumulated net realized gain (loss) on investments 24,791,569 34,717,556 - 59,509,125 Accumulated undistributed net investment income/ (Distributions in excess of net investment income) 65,426 (1,262,877) - (1,197,451) ------------ ------------ ------------- ------------ Total Net Assets $190,168,251 $630,896,210 $ $821,064,461 ============ ============ ============= ============ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE Net Asset Value and Redemption Proceeds Per Share $ 20.87 $ 31.02(1) $ 31.02 ------------ ------------ ------------- ------------ Offering Price Per Share $ 20.87 $ 32.83(2) $ 32.83 ------------ ------------ ------------- ------------ SHARES OUTSTANDING (ALL CLASSES) 9,113,962 20,430,834 (2,983,457) 26,561,339 ------------ ------------ ------------- ------------ COST OF INVESTMENTS $154,722,493 $434,076,925 $588,799,418 ------------ ------------ ------------ 1 Class A shares 2 Computation of offering price per share 100/94.5 of net asset value. This factors in the sales load charged to certain other investors of the Federated Capital Appreciation Fund. However, IAI Fund shareholders will not pay any sales charges in connection with the reorganization or on any subsequent purchases of or exchanges for shares of other Federated mutual funds; such transactions will be effected at net asset value. 3 See Notes to Pro Forma Financial Statements for discussion of pro forma adjustments.
24 IAI Regional Fund Federated Capital Appreciation Fund Pro Forma Combining Statements of Operations Year Ended March 31, 2000 (unaudited) ------------------------------------------------------------------
Federated IAI Capital Regional Appreciation Pro Forma Pro Forma Fund Fund Adjustment Combined ------------- ------------- ------------- ------------- INVESTMENT INCOME: Dividends $ 1,342,737 $ 4,421,230 $ - $ 5,763,967 Interest 1,394,159 1,208,404 - 2,602,563 ------------- ------------- ------------- ------------- Total investment income 2,736,896 5,629,634 8,366,530 EXPENSES: Investment advisory fee 2,736,606 2,975,424 (1,067,940) 4,644,090 Administrative personnel and services fee - 293,265 167,300 460,565 Custodian fees - 28,093 16,000 44,093 Transfer and dividend disbursing agent fees - 384,644 175,000 559,644 Directors' fees 89,804 4,908 (89,304) 5,408 Auditing fees - 19,983 - 19,983 Legal fees - 5,118 - 5,118 Portfolio accounting fees - 127,417 71,500 198,917 Shareholder services fees - 991,809 556,220 1,548,029 Share registration costs - 102,711 57,000 159,711 Printing and postage - 105,643 59,000 164,643 Interest expense 7,039 - (7,039) Distribution services fee - 945,320 - 945,320 Miscellaneous - 19,403 15,000 34,403 ------------- ------------- ------------- ------------- TOTAL EXPENSES 2,833,449 6,003,738 (47,263) 8,789,924 Less fees waived/reimbursed by adviser (89,804) - 89,804 - ------------- ------------- ------------- ------------- NET EXPENSES 2,743,645 6,003,738 42,541 8,789,924 ------------- ------------- ------------- ------------- NET INVESTMENT INCOME/(NET OPERATING LOSS) $ (6,749) $ (374,104) $ (42,541) $ (423,394) ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 46,275,035 45,176,469 - 91,451,504 Net change in unrealized appreciation (depreciation) on investments (23,558,321) 115,858,150 - 92,299,829 ------------- ------------- ------------- ------------- Net realized and unrealized gain (loss) on investments 22,716,714 161,034,619 - 183,751,333 ------------- ------------- ------------- ------------- Change in net assets resulting from operations $ 22,709,965 $ 160,660,515 $ (42,541) $ 183,327,939 ============= ============= ============= ============= (See Notes to Pro Forma Financial Statements for a discussion of Pro Forma Adjustments)
25 IAI Regional Fund Federated Capital Appreciation Fund Pro Forma Combining Schedule of Investments As of March 31, 2000
Principal Amount Shares Value Federated Federated IAI Capital Pro Forma IAI Capital Pro Forma Regional Appreciation Combined Regional Appreciation Combined Common Stocks--87.8% Basic Materials--5.0% 181,000 181,000 AptarGroup 4,830,437 4,830,437 95,000 95,000 Bemis Company 3,503,125 3,503,125 126,500 126,500 Bowater, Inc. 6,751,938 6,751,938 182,500 182,500 Martin Marietta Materials 8,668,750 8,668,750 350,000 350,000 Millennium Chemicals, Inc. 7,000,000 7,000,000 55,000 55,000 Phelps Dodge Corp. 2,612,500 2,612,500 93,000 93,000 Plum Creek Timber Co., Inc. 2,290,125 2,290,125 156,500 156,500 (1) Smurfit-Stone Container Corp. 2,650,719 2,650,719 45,000 45,000 Southdown, Inc. 2,655,000 2,655,000 --------------------------------- --------------------------------------------- Total 8,333,562 32,629,032 40,962,594 --------------------------------- ============== Capital Goods--7.2% 90,500 90,500 Danaher Corp. 4,615,500 4,615,500 50,000 50,000 Emerson Electric 2,643,750 2,643,750 64,000 64,000 General Electric Co. 9,932,000 9,932,000 128,500 128,500 Honeywell International, Inc. 6,770,344 6,770,344 49,000 49,000 Koninklijke (Royal) Philips Electronics NV, ADR 8,394,313 8,394,313 65,000 65,000 Minnesota Mining and Manufacturing 5,756,562 5,756,562 153,500 153,500 Pentair 5,689,094 5,689,094 163,000 163,000 Tyco International Ltd. 8,129,625 8,129,625 75,000 75,000 TRW 4,387,500 4,387,500 61,300 61,300 (1) Zebra Technologies Class A 3,065,000 3,065,000 --------------------------------- --------------------------------------------- Total 21,541,906 37,841,782 59,383,688 --------------------------------- ============== 26 Communication Services--5.8% 85,000 85,000 AT&T 4,781,250 4,781,250 118,200 118,200 (1) AT&T Canada, Inc. 7,210,200 7,210,200 244,928 244,928 BroadWing, Inc. 9,108,256 9,108,256 71,000 71,000 GTE Corp. 5,041,000 5,041,000 86,560 86,560 (1) MCI Worldcom, Inc. 3,922,250 3,922,250 40,000 40,000 (1) MGC Communications, Inc. 2,860,000 2,860,000 120,000 120,000 RR Donnelly 2,512,500 2,512,500 52,000 42,000 94,000 Telephone and Data System, Inc. 5,772,000 4,662,000 10,434,000 41,700 41,700 (1) Viatel, Inc. 2,092,819 2,092,819 --------------------------------- --------------------------------------------- Total 13,065,750 34,896,525 47,962,275 --------------------------------- ============== Consumer Cyclicals--6.8% 168,500 168,500 (1) BJ's Wholesale Club, Inc. 6,508,313 6,508,313 60,000 60,000 Block (H&R), Inc. 2,685,000 2,685,000 114,000 114,000 (1) Crown Castle International Corp. 4,317,750 4,317,750 12,200 12,200 (1) DoubleClick, Inc. 1,142,225 1,142,225 118,000 118,000 Ford Motor Co. 5,420,625 5,420,625 72,000 72,000 General Motors Corp. 5,962,500 5,962,500 67,500 67,500 Home Depot, Inc. 4,353,750 4,353,750 35,600 35,600 (1) Internet Capital Group, Inc. 3,215,125 3,215,125 118,500 118,500 Knight-Ridder, Inc. 6,036,094 6,036,094 91,000 91,000 Limited, Inc. 3,833,375 3,833,375 95,000 95,000 True North Communications, Inc. 3,734,688 3,734,688 58,500 58,500 Target 4,372,875 4,372,875 150,000 150,000 Walgren 3,862,500 3,862,500 --------------------------------- --------------------------------------------- Total 8,235,375 47,209,445 55,444,820 --------------------------------- ============== Consumer Staples--8.1% 98,178 98,178 (1) AT&T Corp. - Liberty Media Group, Inc., Class A 5,817,047 5,817,047 77,000 77,000 CBS Corp. 4,360,125 4,360,125 125,400 125,400 (1) Charter Communications, Inc. 1,796,747 1,796,747 155,000 155,000 (1) De Vry 4,727,500 4,727,500 259,800 259,800 Fort James Corp. 5,715,600 5,715,600 155,000 155,000 (1) Heidrick & Struggles International, Inc. 6,219,375 6,219,375 155,000 155,000 McDonald's 5,822,187 5,822,187 135,900 135,900 News Corp. Ltd., ADR 6,489,225 6,489,225 27 91,000 91,000 PepsiCo, Inc. 3,145,188 3,145,188 133,500 133,500 (1) Safeway, Inc. 6,040,875 6,040,875 65,400 65,400 Time Warner 6,540,000 6,540,000 57,800 57,800 (1) UnitedGlobalCom, Inc., Class A 4,338,613 4,338,613 148,000 148,000 (1) Westwood One, Inc. 5,365,000 5,365,000 --------------------------------- --------------------------------------------- Total 17,089,687 49,287,795 66,377,482 --------------------------------- ============== Energy--5.0% 58,738 58,738 BP Amoco PLC, ADR 3,116,785 3,116,785 69,000 69,000 (1) Cooper Cameron Corp. 4,614,375 4,614,375 68,000 68,000 Diamond Offshore Drilling 2,715,750 2,715,750 61,000 76,000 137,000 Exxon Mobil Corp. 4,746,562 5,913,750 10,660,312 142,500 142,500 Halliburton Co. 5,842,500 5,842,500 363,000 363,000 (1) R&B Falcon Corp. 7,146,563 7,146,563 223,500 223,500 Tosco Corp. 6,802,781 6,802,781 --------------------------------- --------------------------------------------- Total 7,462,312 33,436,754 40,899,066 --------------------------------- ============== Financials--9.3% 226,000 226,000 Ace, Ltd. 5,169,750 5,169,750 155,500 155,500 Alliance Capital Management Holding LP 6,443,531 6,443,531 166,000 166,000 Allstate Corp. 3,952,875 3,952,875 112,700 112,700 Capital One Financial Corp. 5,402,556 5,402,556 91,000 91,000 Chase Manhattan Corp. 7,934,063 7,934,063 89,398 89,398 Citigroup, Inc. 5,302,419 5,302,419 40,000 40,000 Federal Home Loan Mortgage Corp. 1,767,500 1,767,500 65,000 65,000 Fifth Third Bancorp 4,095,000 4,095,000 105,000 105,000 Household International 3,917,813 3,917,813 99,000 99,000 Lehman Brothers Holdings, Inc. 9,603,000 9,603,000 100,000 100,000 MGIC Investment 4,362,500 4,362,500 94,580 94,580 Morgan Stanley, Dean Witter & Co. 7,714,181 7,714,181 80,500 80,500 Nationwide Financial Services, Inc., Class A 2,354,625 2,354,625 360,000 360,000 Sovereign Bancorp, Inc. 2,722,500 2,722,500 146,500 146,500 Wells Fargo Co. 5,997,344 5,997,344 --------------------------------- --------------------------------------------- Total 8,280,313 68,459,344 76,739,657 --------------------------------- ============== 28 Health Care--9.3% 100,000 106,500 206,500 Abbott Laboratories 3,518,750 3,747,469 7,266,219 51,900 51,900 Allergan 2,595,000 2,595,000 136,900 136,900 American Home Products Corp. 7,341,263 7,341,263 80,000 80,000 (1) Amgen, Inc. 4,910,000 4,910,000 77,000 74,000 151,000 Baxter International, Inc. 4,826,938 4,638,875 9,465,813 86,000 86,000 Bristol-Myers Squibb Co. 4,966,500 4,966,500 790,400 790,400 (1) Diametrics Medical 8,892,000 8,892,000 7,312 7,312 (1) GalaGen 18,967 18,967 28,000 28,000 Genentech, Inc. 4,256,000 4,256,000 125,000 125,000 Medtronic 6,429,687 6,429,687 61,000 61,000 Merck & Co., Inc. 3,789,625 3,789,625 167,500 167,500 (1) Sybron International 4,857,500 4,857,500 160,600 160,600 Teva Pharmaceutical Industries Ltd., ADR 5,992,388 5,992,388 53,364 53,364 Warner-Lambert Co. 5,202,990 5,202,990 --------------------------------- --------------------------------------------- Total 31,138,842 44,845,110 75,983,952 --------------------------------- ============== Technology--26.8% 58,900 58,900 (1) ACTV, Inc. 2,065,181 2,065,181 85,000 85,000 (1) Adaptec, Inc. 3,283,125 3,283,125 156,000 156,000 (1) ADC Telecommunications 8,404,500 8,404,500 33,000 33,000 (1) Agilent Technologies, Inc. 3,432,000 3,432,000 68,000 68,000 (1) Amdocs Ltd. 5,010,750 5,010,750 40,000 111,500 151,500 (1) America Online, Inc. 2,690,000 7,498,375 10,188,375 39,500 39,500 (1) Apple Computer, Inc. 5,364,594 5,364,594 92,000 92,000 (1) Cisco Systems, Inc. 7,112,750 7,112,750 81,500 81,500 (1) Citrix Systems, Inc. 5,399,375 5,399,375 203,000 203,000 (1) Compuware Corp. 4,275,688 4,275,688 63,000 63,000 (1) Conexant Systems, Inc. 4,473,000 4,473,000 35,000 35,000 Corning 6,790,000 6,790,000 91,000 20,000 111,000 (1) DST Systems, Inc. 5,909,313 1,298,750 7,208,063 25,000 25,000 (1)Diamond Technology Partners 1,643,750 1,643,750 62,900 62,900 (1) EMC Corp. Mass 7,862,500 7,862,500 117,300 117,300 (1) Electronics for Imaging, Inc. 7,038,000 7,038,000 56,000 56,000 (1) Exodus Communications, Inc. 7,868,000 7,868,000 45,000 45,000 (1) Extreme Networks, Inc. 3,555,000 3,555,000 51,500 51,500 (1) F5 Networks, Inc. 3,489,125 3,489,125 120,000 120,000 Harris 4,147,500 4,147,500 29 163,100 163,100 (1) IGATE Capital Corp. 7,359,888 7,359,888 14,700 14,700 (1) Infineon Technologies AG 803,035 803,035 44,000 44,000 (1) Inktomi Corp. 8,580,000 8,580,000 110,000 110,000 (1)IntraNet Solutions 5,060,000 5,060,000 23,900 23,900 (1) Keynote Systems, Inc. 2,443,775 2,443,775 58,000 58,000 (1) Lexmark Intl. Group, Class A 6,133,500 6,133,500 22,000 22,000 (1) Metromedia Fiber Network Class A 2,128,500 2,128,500 30,500 30,500 (1) Microsoft Corp. 3,240,625 3,240,625 43,500 43,500 (1) Motorola 6,193,312 6,193,312 37,000 37,000 Nokia Oyj, Class A, ADR 8,038,250 8,038,250 48,000 48,000 Nortel Networks Corp. 6,048,000 6,048,000 111,000 111,000 (1) Oracle Corp. 8,664,938 8,664,938 20,000 20,000 (1) QUALCOMM 2,986,250 2,986,250 82,100 82,100 (1) RF Micro Devices, Inc. 11,032,188 11,032,188 21,000 21,000 (1) S1 1,799,437 1,799,437 52,000 52,000 (1) SDL, Inc. 11,069,500 11,069,500 60,500 60,500 (1) Sun Microsystems, Inc. 5,669,039 5,669,039 35,000 35,000 (1) Tellabs 2,204,453 2,204,453 122,000 122,000 (1) Vitesse Semiconductor Corp. 11,742,500 11,742,500 --------------------------------- --------------------------------------------- Total 49,957,015 169,851,451 219,808,466 --------------------------------- ============== Transportation--1.2% 95,000 95,000 C.H. Robinson Worldwide 3,538,750 3,538,750 114,000 114,000 (1) FedEx Corp. 4,446,000 4,446,000 60,000 60,000 (1) Iron Mountain, Inc. 2,043,750 2,043,750 --------------------------------- --------------------------------------------- Total 3,538,750 6,489,750 10,028,500 --------------------------------- ============== Utilities--3.3% 221,000 221,000 Entergy Corp. 4,461,438 4,461,438 141,700 141,700 Equitable Resources, Inc. 6,349,931 6,349,931 102,000 102,000 Montana Power Co. 6,528,000 6,528,000 146,398 146,398 SCANA Corp. 3,595,901 3,595,901 146,600 146,600 Williams Cos., Inc. (The) 6,441,238 6,441,238 --------------------------------- --------------------------------------------- Total 0 27,376,508 27,376,508 --------------------------------- ============== Total Common Stocks 168,643,512 552,323,496 720,967,008 --------------------------------- ============== 30 Corporate Bonds--2.9% Capital Goods--0.4% 2,000,000 2,000,000 Sanmina Corp., Conv. Bond, 4.25%, 5/1/2004 3,202,160 3,202,160 --------------------------------- ============== Communication Services--1.5% 6,000,000 6,000,000 Level 3 Communications, Inc., Conv. Bond, 6.00%, 3/15/2010 6,040,320 6,040,320 5,400,000 5,400,000 NEXTEL Communications, Inc., Conv. Bond, 5.25%, 1/15/2010 6,453,702 6,453,702 --------------------------------- --------------------------------------------- Total 0 12,494,022 12,494,022 --------------------------------- ============== Consumer Cyclicals--0.4% 1,060,000 1,060,000 Omnicom Group, Inc., Conv. Bond, 2.25%, 1/6/2013 2,039,323 2,039,323 840,000 840,000 Omnicom Group, Inc., Sub. Deb., 2.25%, 1/6/2013 1,616,068 1,616,068 --------------------------------- --------------------------------------------- Total 0 3,655,391 3,655,391 --------------------------------- ============== Technology--0.6% 1,640,000 1,640,000 ASM Lithography Holding NV, Conv. Bond, 4.25%, 11/30/2004 1,973,182 1,973,182 3,600,000 3,600,000 Conexant Systems, Inc., Conv. Bond, 4.00%, 2/1/2007 3,265,272 3,265,272 --------------------------------- --------------------------------------------- Total 0 5,238,454 5,238,454 --------------------------------- ============== Total Corporate Bonds 24,590,027 24,590,027 --------------------------------- ============== Preferred Stocks--3.1% Basic Materials--0.3% 45,000 45,000 Monsanto Co., Conv. Pfd., $2.60 2,058,750 2,058,750 --------------------------------- ============== Communication Services--0.9% 60,000 60,000 Cox Communications, Inc., PRIZES, $1.71 7,260,000 7,260,000 --------------------------------- ============== Consumer Staples--0.9% 40,000 40,000 Cox Communications, Inc., PRIDES, $.88 2,540,000 2,540,000 37,800 37,800 Ralston Purina Co., SAILS, $1.08 1,103,288 1,103,288 71,500 71,500 XM Satellite Radio Holdings, Inc., Conv. Pfd., $4.13 3,950,375 3,950,375 --------------------------------- --------------------------------------------- Total 7,593,663 7,593,663 --------------------------------- ============== Technology--0.5% 78,200 78,200 Verio, Inc., Conv. Pfd., $.84 4,398,750 4,398,750 --------------------------------- ============== 31 Utilities--0.5% 92,000 92,000 K N Energy, Inc., Conv. Pfd., $3.55 4,347,000 4,347,000 --------------------------------- ============== Total Preferred Stocks 25,658,163 25,658,163 --------------------------------- ============== Repurchase Agreements--4.2% 34,120,000 34,120,000 ABN AMRO, Inc., 6.18%, dated 3/31/2000, due 4/3/2000 34,120,000 34,120,000 --------------------------------- ============== - -------------------------------------------------- RESTRICTED SECURITIES - 0.0% (3) - -------------------------------------------------- Common Stocks - 0.0% 1,600 1,600 (1) Anglo Chinese Investment Company, foreign 303,120 303,120 42,272 42,272 (1) Westgate Acquisition 0 0 --------------------------------- --------------------------------------------- Total 303,120 303,120 --------------------------------- ============== Non-Convertible Preferred Stock - 0.0% 86,198 86,198 (1) Westgate Acquisitions Series A 0 0 --------------------------------- ============== Limited Partnerships - 0.0% (percentage ownership) 3.56% 3.56% (1) Alta Berkeley III, foreign 323,050 323,050 3.08% 3.08% (1) South Street Corporate Recovery Fund I 0 0 3.85% 3.85% (1) South Street Leveraged Corporate Recovery Fund I 0 0 6.20% 6.20% (1) Vanguard Associates III 63,169 63,169 --------------------------------- --------------------------------------------- Total 386,219 386,219 --------------------------------- ============== 32 Convertible Debentures - 0.0% 258,332 258,332 (1) Air Communications Series B, 10.00%, 02/28/97 0 0 Exercise Exercise Price Date Warrants - 0.0% --------------------------------- Gala Gen $11.08 07/09/00 0 GalaGen $11.08 01/29/01 0 --------------------------------- --------------------------------------------- Total 0 --------------------------------- ============== Total Restricted Securities 689,339 689,339 --------------------------------- ============== - -------------------------------------------------- SHORT-TERM SECURITIES - 1.8% - -------------------------------------------------- Market Rate Maturity Value (a) Commercial Paper - 1.7% --------------------------------- ---------------- BP Amoco Capital (Financial) 4,300,000 4,300,000 6.23% 04/03/00 4,298,512 4,298,512 Bell Atlantic Network Funding (Financial) 3,000,000 3,000,000 6.00% 04/10/00 2,995,500 2,995,500 (2) Warner Lambert (Health Technology) 3,000,000 3,000,000 5.98% 04/04/00 2,998,505 2,998,505 Wisconsin Electric Fuel (Utilities) 1,048,000 1,048,000 6.00% 04/14/00 1,045,729 1,045,729 Xerox (Producer Manufacturing) 3,000,000 3,000,000 6.20% 04/06/00 2,997,492 2,997,492 --------------------------------- --------------------------------------------- Total 14,335,738 14,335,738 --------------------------------- ============== Investment Company - 0.1% 975,478 975,478 Firstar Institutional Money Market Fund 5.69% 975,478 975,478 ============== 33 TOTAL SHORT-TERM SECURITIES 15,311,216 --------------------------------- ============== - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES $184,644,067 $636,691,686 $821,335,753 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Non-income producing security. (2) Represents security sold within terms of a private placement memorandum exempt from registration under Section 144A 4(a) of the Securities Act of 1933. These issues may only be sold to other qualified institutional buyers and are considered liquid under guidelines established by the Board of Directors. (3) Restricted securities generally must be registered with the Securities and Exchange Commission under the Securities Act of 1933 prior to being sold to the public.
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