As filed with the Securities and Exchange Commission on June 19, 2000
Registration No. 2-10415, 811-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-effective Amendment No.____ Post-Effective Amendment No.____
(Check appropriate box or boxes)
Federated Stock and Bond Fund, Inc.
(Exact name of registrant as specified in charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-341-7400
John W. McGonigle, Esquire
Federated Investors Towers
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Robert J. Zutz, Esquire
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(Names and Addresses of Agents for Service of Process)
Approximate date of proposed public offering: as soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933. The
public offering of shares of Registrant's series is on-going. The title of
securities being registered is shares of capital stock.
It is proposed that this filing will become effective on July 19, 2000, pursuant
to Rule 488.
No filing fee is due because of Registrant's reliance on Section 24(f) of the
Investment Company Act of 1940, as amended.
Federated Stock and Bond Fund, Inc.
Contents of Registration Statement on Form N-14
This Registration Statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
o Form N-14 Cross Reference Sheet
o Notice of Special Meeting
o Part A - Prospectus/Proxy Statement
o Part B - Statement of Additional Information
o Part C - Other Information
Signature Page
Exhibits
FEDERATED STOCK AND BOND FUND, INC.
FORM N-14 CROSS REFERENCE SHEET
PART A ITEM NO. PROSPECTUS/PROXY
AND CAPTION STATEMENT CAPTION
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis and Risk Factors Summary; Risk Factors
4. Information about the Transaction Information About the
Reorganization
5. Information about the Registrant Information About the
Reorganization; Risk Factors;
Information About the Federated
Funds and the IAI Funds; See also
the Prospectus for Federated
Stock and Bond Fund, Inc., dated
December 31, 1999, previously
filed on EDGAR, Accession Number
0000013386-99-000016 and 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.
6. Information about the Company Being Information About the
Acquired Reorganization; Risk Factors; See
also the Prospectus for IAI
Balanced Fund dated July 30,
1999, previously filed on EDGAR,
Accession Number
0000897101-99-000754, and the
Annual Report to Shareholders
of IAI Balanced Fund for the
fiscal year ended March 31, 2000,
previously filed on EDGAR,
Accession Number
0000897101-00-000600.
7. Voting Information Voting Information
8. Interest of Certain Persons and Not Applicable
Experts
FEDERATED STOCK AND BOND FUND, INC.
FORM N-14 CROSS REFERENCE SHEET
9. Additional Information Required for Not Applicable
Re-offering by Persons Deemed to be
Underwriters
PART B ITEM NO. STATEMENT OF ADDITIONAL
AND CAPTION INFORMATION CAPTION
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information about the Statement of Additional
Registrant Information of Federated Stock
and Bond Fund, Inc., dated
December 31, 1999, previously
filed on EDGAR, Accession Number
0000013386-99-000016 and 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.
13. Additional Information about the Annual Report to Shareholders of
Company Being Acquired of IAI Balanced Fund for the
fiscal year ended March 31,
2000, previously filed on EDGAR,
Accession Number
0000897101-00-000600.
14. Financial Statements 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; Annual
Report to Shareholders of IAI
Balanced Fund for the fiscal year
ended March 31, 2000, previously
filed on EDGAR, Accession Number
0000897101-00-000600; PRO FORMA
Financial Statements for the
twelve months ended March 31,
2000.
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 FUND1
(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 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
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* 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.
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 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;
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
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+ 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
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][PROXY CARD] 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.
Thank you for your prompt attention and participation.
Sincerely,
/s/
---------------------------
J. Peter Thomson
Chairman of the Board
Sincerely,
/s/
---------------------------
Keith Wirtz
President
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 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
4
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.++
WILL I INCUR TAXES AS A RESULT OF THIS REORGANIZATION?
This reorganization is expected to be a TAX-FREE event. Shareholders will not
incur capital gains or losses on the conversion from IAI Fund shares into
Federated Fund shares as a result of this reorganization. Furthermore, the cost
basis on each investment will remain the same.
Shareholders will incur capital gains or losses if they sell their IAI Fund
before the reorganization becomes effective or sell/exchange their Federated
Fund after the reorganization becomes effective. Shareholders will also be
responsible for tax obligations associated with monthly or periodic
distributions that occur prior to the reorganization. Please note that
retirement accounts are exempt from such tax issues.
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.
- ------------------
++ 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.
5
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 3600, Minneapolis, Minnesota 55402, for the
following purposes:
1. TO APPROVE A PROPOSED AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("PLAN")+++ BETWEEN EACH IAI FUND AND A COMPARABLE MUTUAL FUND MANAGED BY A
SUBSIDIARY OF FEDERATED INVESTORS, INC. (EACH A "FEDERATED FUND"), WHEREBY THE
- -------------------
+++ 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
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
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
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.
- --------------------------------------------------------------------------------
IAI Fund into a Federated Fund is referred to as "the Reorganization." A form of
the Plan is attached as Exhibit 1.
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 and Strategies 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.**
- --------------------------------------------------------------------------------
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
- -------------------
** 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 1.
2
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 ___, 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.
3
TABLE OF CONTENTS
Page
----
SUMMARY......................................................................1
About the Proposed Reorganization.........................................1
Comparative Fee Tables....................................................3
Comparison of Investment Objectives, Policies and Strategies
of the IAI Funds and Federated Funds.....................................16
Comparison of Investment Objectives...................................16
Comparison of Investment Policies and Strategies......................17
Comparison of Potential Risks and Rewards: Performance Information......29
Risk/Return Bar Chart and Table..........................................29
Average Annual Total Return Tables.......................................40
Comparison of Operations.................................................45
Investment Advisory Agreements........................................45
Administrative and Shareholder Services...............................46
Distribution Services.................................................47
Purchase, Exchange and Redemption Procedures..........................49
Dividends and Other Distributions.....................................53
Tax Consequences.........................................................54
RISK FACTORS................................................................54
INFORMATION ABOUT THE REORGANIZATION........................................68
Agreement Between IAI and Federated Investors
for Sale of Mutual Fund Advisory Business................................__
Considerations by the Board of Directors of the IAI Funds................68
Description of the Plan of Reorganization................................72
Description of Federated Fund Shares.....................................73
Federal Income Tax Consequences..........................................73
Comparative Information on Shareholder Rights and Obligations............75
Capitalization...........................................................__
INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS.....................80
Federated Funds..........................................................80
IAI Funds................................................................81
VOTING INFORMATION..........................................................82
Outstanding Shares and Voting Requirements...............................83
Other Matters............................................................85
Board Recommendation.....................................................86
FORM OF AGREEMENT AND PLAN OF REORGANIZATION - EXHIBIT A....................87
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. 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
1
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.
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 (Class A Shares)
Funds VI, Inc.)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Bond Fund Would be reorganized into Federated Bond Fund
(a series of IAI Investment (Class A shares)
Funds I, Inc.) (a series of Federated Investment
Series Funds, Inc.)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Capital Appreciation Fund Would be reorganized into Federated Aggressive Growth Fund
IAI Emerging Growth Fund (Class A Shares)
(each a series of IAI (a series of Federated Equity Funds)
Investment Funds VI, Inc.)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Growth Fund Would be reorganized into Federated Large Cap Growth Fund
(a series of IAI Investment (Class A Shares)
Funds II, 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 (Class A Shares)
Funds VII, Inc.)
- -------------------------------------------------------------------------------------------------------
IAI International Fund Would be reorganized into Federated International Equity Fund
(a series of IAI Investment (Class A Shares)
Funds III, Inc.) (a series of Federated International
Series Inc.)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Long Term Growth Fund Would be reorganized into Federated Aggressive Growth Fund
(a series of IAI Investment (Class A Shares)
Funds VIII, Inc.) (a series of Federated Equity Funds)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
2
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Would be reorganized into Federated Growth
(a series of IAI Investment Strategies Fund
Funds VI, 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 (Institutional Service Shares)
Funds VI, Inc.) (a series of Money Market Obligations
Trust)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
IAI Regional Fund Would be reorganized into Federated Capital Appreciation Fund
(a series of IAI Investment (Class A Shares)
Funds IV, 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 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 None
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%
Distribution (12b-1) Fee................................................0.25%4 None None None 0.25%
Shareholder Services Fee................................................0.25% None None None 0.25%
Other Expenses..........................................................1.25% None None None 0.50%
Total Annual Fund Operating Expenses....................................2.75%1 1.25% 1.25% 1.40% 2.00%
- ----------------------------------------------------------------------------------------------------------------------------
- -------------------
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.
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.
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.
Federated
Automated
Cash
Management IAI Federated
Trust (Institu- Money Pro Forma
tional Service Market Estimated
Shares) Fund Combined
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%
Distribution (12b-1) Fee................................................None None None
Shareholder Services Fee................................................0.25%3 None 0.25%
Other Expenses..........................................................0.16% None 0.16%
Total Annual Fund Operating Expenses....................................0.91%1 0.60% 0.91%
- ----------------------------------------------------------------------------------------------------------------------
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 None
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%
Distribution (12b-1) Fee................................................0.25%4 None 0.25%
Shareholder Services Fee................................................0.25%5 None 0.25%
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 fund in the 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 0.36% 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 None
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%
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 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.
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 None
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.
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 None
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.
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 None
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%
Distribution (12b-1) Fee................................................0.25%4 None 0.25%
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 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.
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 None
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%
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 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.
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.............................. $128 $400 $692 $1,523
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........................... $203 $627 $1,078 $2,327
- ---------------------------------------
* 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........................... $164 $508 $876 $1,911
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 $25
FEES**
**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
15
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND STRATEGIES
OF THE IAI FUNDS AND FEDERATED FUNDS
This section contains tables comparing the investment objectives, policies
and strategies of the IAI Fund and the Federated Fund into which it would be
reorganized. 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 and limitations of each
Federated Fund and each IAI Fund, all of which are incorporated herein by
reference thereto.
COMPARISON OF INVESTMENT OBJECTIVES
- -----------------------------------
The following tables compare the investment objectives of the IAI Funds
and their corresponding Federated Funds. The tables are arranged alphabetically
according to the name of the Federated Fund.
- ----------------------------------------------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
To provide long-term capital appreciation. To provide appreciation of capital.
IAI LONG TERM GROWTH FUND
To provide long-term capital appreciation.
IAI CAPITAL APPRECIATION FUND
To provide long-term capital appreciation.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND FEDERATED AMERICAN LEADERS FUND, INC.
Primary objective is capital appreciation To seek growth of capital and of income by
and secondary objective is income. concentrating the area of investment decision in the
securities of high quality companies.
- ----------------------------------------------------------------------------------------------------------------------
16
- ----------------------------------------------------------------------------------------------------------------------
IAI MONEY MARKET FUND AUTOMATED CASH MANAGEMENT TRUST
To provide shareholders with a high level To provide stability of principal and current income
of current income consistent with the consistent with stability of principal.
preservation of capital and liquidity.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI BOND FUND FEDERATED BOND FUND
To provide shareholders with a high To provide as high a level of current income as is
level of current income consistent with consistent with the preservation of capital.
preservation of capital.
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
IAI REGIONAL FUND FEDERATED CAPITAL APPRECIATION FUND
To provide capital appreciation. To provide capital appreciation.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI MIDCAP GROWTH FUND FEDERATED GROWTH STRATEGIES FUND
To provide long-term capital appreciation. To provide appreciation of capital.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI INTERNATIONAL FUND FEDERATED INTERNATIONAL EQUITY FUND
Primary objective is capital To obtain a total return on its assets.
appreciation. Secondary objective is to
seek current income, principally from
dividends.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI GROWTH FUND FEDERATED LARGE CAP GROWTH FUND
To provide long-term capital appreciation. To provide capital appreciation.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IAI BALANCED FUND FEDERATED STOCK AND BOND FUND, INC.
To maximize total return. To provide safety of capital with the possibility of
long-term growth of capital and income.
- ----------------------------------------------------------------------------------------------------------------------
COMPARISON OF INVESTMENT POLICIES AND STRATEGIES
- ------------------------------------------------
The following tables compare the principal investment policies and
strategies of the IAI Funds and their corresponding Federated Funds. The tables
are arranged alphabetically according to the name of the Federated Fund.
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IAI EMERGING GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
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Principal Investments: Principal Investments:
IAI Emerging Growth Fund invests primarily in Federated Aggressive Growth Fund pursues its
common stocks of small emerging and investment objective by investing in equity
medium-sized U.S. companies that it believes securities of companies offering superior
have above-average prospects for growth. The prospects for earnings growth. The Fund is
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17
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Fund invests at least 65% of its total assets not restricted to specific market
in stocks of emerging growth companies with capitalization requirements. The Fund may
market capitalizations of $2 billion or less at also invest in American Depositary Receipts,
the time of investment. These companies are which represent interests in underlying
expected to show earnings growth over time that securities issued by a foreign company, but
is well above the growth rate of the overall which are traded in the United States.
economy and the rate of inflation. As of April
30, 2000, the Fund's median market Investment Style:
capitalization was approximately $878 million.
The Fund invests primarily for growth by
Investment Style: targeting equity securities with superior
growth prospects.
The Fund's investment style is substantially
similar to that of the Federated Aggressive Investment Strategies:
Growth Fund.
The Fund limits its exposure to each business
Investment Strategies: sector that comprises the Standard & Poor's
500 Index ("S&P 500") by limiting its
The Fund focuses on companies with: superior allocation to a sector to 300% of S&P 500's
performance records; solid market positions; allocation to that sector or 30% of the total
strong balance sheets; and management teams portfolio, whichever is greater. The Fund's
that, in the opinion of the Fund's adviser, approach with respect to its analysis of
are capable of sustaining growth. securities, market capitalization, and sector
allocation is designed to produce a portfolio
of stocks whose long-term growth prospects
are significantly above those of the S&P 500.
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.
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IAI LONG TERM GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
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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 have above-average prospects securities of companies offering superior
for growth. The Fund invests at least 65% of prospects for earnings growth. The Fund is
its total assets in stocks of companies with not restricted to specific market
market capitalizations of $1 billion or less capitalization requirements. The Fund may
at the time of investment. These companies also invest in American Depositary Receipts,
are expected to show earnings growth over which represent interests in underlying
time that is well above the growth rate of securities issued by a foreign company, but
the overall economy and the rate of which are traded in the United States.
inflation.
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18
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Investment Style: Investment Style:
The Fund's investment style is substantially The Fund invests primarily for growth by
similar to that of the Federated Aggressive targeting equity securities with superior
Growth Fund. growth prospects.
Investment Strategies: Investment Strategies:
In general, the Fund generally focuses on The Fund limits its exposure to each business
companies with superior performance records; sector that comprises the Standard & Poor's
solid market positions; strong balance 500 Index ("S&P 500") by limiting its
sheets; and management teams that are capable allocation to a sector to 300% of S&P 500's
of sustaining growth. allocation to that sector or 30% of the total
portfolio, whichever is greater. The Fund's
Prior to the IAI Board of Directors' approval approach with respect to its analysis of
of the change in the name of the IAI Value securities, market capitalization, and sector
Fund to the IAI Long Term Growth Fund and allocation is designed to produce a portfolio
certain changes to the Fund's non-fundamental of stocks whose long-term growth prospects
investment limitations, the Fund had the are significantly above those of the S&P 500.
following principal investments, investment
style and investment strategies: Using its own quantitative process, the
Fund's adviser rates the future performance
Principal Investments: potential of companies. The adviser evaluates
each company's earnings quality in light of
IAI Value Fund invested primarily in common their current valuation to narrow the list of
stocks of U.S. companies that the Fund's attractive companies. The adviser then
adviser believed were undervalued and offered evaluates product positioning, management
opportunities for capital growth. The Fund quality and sustainability of current growth
generally invested in small companies with trends of those companies. Using this type of
market capitalizations of less than $1 fundamental analysis, the adviser selects the
billion at the time of purchase. most promising companies for the Fund's
portfolio.
Investment Style:
The Fund may attempt to manage market risk by
The Fund invested for value by investing in buying and selling financial futures and
equity securities of companies that were options. This may include the purchase of
undervalued while offering opportunities for index futures contracts as a substitute for
capital growth. direct investments in stocks. It may also
include the purchase and sale of options to
Investment Strategies: protect against general declines in small
capitalization stocks economically.
The Fund invested in common stocks of
companies which had been unpopular for some
time, but where recent developments suggested
the possibility of improved operating
results; which the Fund's adviser believed
had temporarily fallen out of favor for
non-recurring or short-term reasons; or which
appeared undervalued in relation to
securities of other companies in the same
industry. In selecting investments, the Fund
generally focused on companies with strong
competitive positions, high levels of
discretionary cash flow, and solid financial
characteristics.
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19
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IAI CAPITAL APPRECIATION FUND FEDERATED AGGRESSIVE GROWTH FUND
- -------------------------------------------------------------------------------------------------
Principal Investments: Principal Investments:
IAI Capital Appreciation Fund invests Federated Aggressive Growth Fund pursues its
primarily in common stocks of small emerging investment objective by investing in equity
U.S. companies that have above-average securities of companies offering superior
prospects for growth. The Fund invests at prospects for earnings growth. The Fund is
least 65% of its total assets in stocks of not restricted to specific market
companies with market capitalizations of $1 capitalization requirements. The Fund may
billion or less at the time of investment. also invest in American Depositary Receipts,
These companies are expected to show earnings which represent interests in underlying
growth over time that is well above the securities issued by a foreign company, but
growth rate of the overall economy and the which are traded in the United States.
rate of inflation. As of April 30, 2000, the
Fund's median market capitalization was Investment Style:
approximately $983 million.
The Fund invests primarily for growth by
Investment Style: targeting equity securities with superior
growth prospectus.
The Fund's investment style is substantially
similar to that of the Federated Aggressive Investment Strategies:
Growth Fund.
The Fund limits its exposure to each business
Investment Strategies: sector that comprises the Standard & Poor's
500 Index ("S&P 500") by limiting its
In general, the Fund generally focuses on allocation to a sector to 300% of the S&P
companies with superior performance records; 500's allocation to that sector or 30% of the
solid market positions; strong balance total portfolio, whichever is greater. The
sheets; and management teams that are capable Fund's approach with respect to its analysis
of sustaining growth. of securities, market capitalization, and
sector allocation are designed to produce a
portfolio of stocks whose long-term growth
prospects are significantly above those of
the S&P 500.
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.
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20
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IAI GROWTH AND INCOME FUND FEDERATED AMERICAN LEADERS FUND, INC.
(CLASS A)
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Principal Investments: Principal Investments:
The IAI Growth and Income Fund invests Federated American Leaders Fund, Inc. invests
primarily in common stocks of U.S. companies primarily in equity securities of large
with market capitalizations of $3 billion or capitalization companies that are in the top
more at the time of investment. The Fund 25% of their industry sectors in terms of
generally selects from the universe of revenues, are characterized by sound
companies included in the Standard & Poor's management and have the ability to finance
500 Index ("S&P 500"). As of April 30, 2000, expected growth. The Fund invests at least
the Fund's median market capitalization was 65% of its assets in a portfolio of equity
$84.4 billion. securities issued by the 100 companies
selected from "The Leaders List." The Leaders
Investment Style: List is a trade name that represents a list
of 100 blue chip companies selected by the
The Fund follows the approach of purchasing Fund's adviser and consists of leading
stocks in growing companies at a reasonable companies in their industries determined in
price, also known in the investment world as terms of sales earnings and/or market
GARP. capitalizations.
Investment Strategies: The Fund may also invest in American
Depositary Receipts ("ADRs"), which represent
The Fund evaluates each company to determine interests in underlying securities issued by
its historical and projected growth rates, a foreign company, but which are traded in
the financial risk of the company (including the United States. The Fund invests primarily
its level of debt and liquidity), and the in the ADRs of companies with significant
current and expected market valuation of the operations within the United States.
firm. The Fund uses qualitative factors such
as market share, quality of management, Investment Style:
profitability trends, product strategies and
volatility of earnings. As a result of this The Fund uses the value style of investing,
process, the Fund's portfolio is generally selecting securities of companies which are
comprised of approximately 70 to 90 trading at discounts to their historic
securities. The Fund will not deviate relationship to the market as well as to
significantly from the sectors or categories their expected growth.
of businesses included in the Standard &
Poor's 500 Index. Investment Strategies:
The Fund diversifies its investments,
limiting its risk exposure with respect to
individual securities and industry sectors.
In determining the amount to invest in a
security, and in order to manage sector risk,
the Fund attempts to limit its exposure to
each major sector in the Stand & Poor's 500
Index, as a general matter, to not less than
50% nor more than 200% of the Index's
allocation to that sector.
The Fund's adviser performs traditional
fundamental analysis to select securities for
the Fund that exhibit the most promising
long-term value for the Fund's portfolio. In
selecting securities, the Fund's adviser
focuses on the current financial condition of
the issuing company, in addition to examining
each issuer's business and product strength,
competitive position, and management
expertise. Further, the adviser considers
current economic, financial market and
industry factors, which may affect the
issuing company. To determine the timing of
purchases and 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.
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21
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IAI MONEY MARKET FUND AUTOMATED CASH MANAGEMENT TRUST
(INSTITUTIONAL SERVICE SHARES)
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The IAI Money Market Fund's principal Principal Investments:
investments and investment policies and
strategies are substantially similar to those Automated Cash Management Trust invests
of Automated Cash Management Trust, except primarily in a portfolio of high quality
that the IAI Money Market Fund does not fixed income securities, issued by banks,
invest in asset-backed securities. corporations, and the
U.S. Government, maturing in 397 days or
less. The Fund's investments may include
demand instruments, commercial paper, bank
instruments, asset backed securities and
repurchase agreements.
Investment Strategies:
The Fund's adviser actively manages 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.
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IAI BOND FUND FEDERATED BOND FUND
(CLASS A)
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Principal Investments: Principal Investments:
The IAI Bond Fund's principal investments are Under normal market conditions, the Federated
substantially similar to those in the Bond Fund invests at least 65% of the value
Federated Bond Fund, except for the of its total assets in a diversified
following: portfolio of domestic investment grade debt
securities, including corporate debt
o Although the Fund generally does securities and U.S. government obligations.
not purchase common stocks Investment grade debt securities are rated in
directly, it may invest up to 10% one of the four highest categories (BBB or
of its net assets in convertible higher) by a nationally recognized
securities and preferred stock. statistical rating organization (NRSRO), or
o The Fund does not expect to if unrated, of comparable quality as
invest more than 25% of its total determined by the Fund's adviser.
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22
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assets in foreign securities, or
more than 15% of its total assets The Fund may invest up to 35% of its
in non-dollar denominated foreign portfolio in non-investment grade fixed
securities. income securities, which are rated BB or
o The Fund may invest up to 15% of lower by an NRSRO. The Fund may invest in
its total assets in securities non-investment grade securities primarily by
rated lower than investment grade investing in another investment company
at the time of purchase; the Fund (which is not available for general
will not invest in non-investment investment by the public) that owns those
grade fixed income securities securities and that is advised by an
rated lower than B by Moody's affiliate of the Fund's adviser.
Investors Service, Inc. or
Standard & Poor's, or if unrated, The Fund's adviser may invest a portion of
judged to be of comparable the Fund's assets in corporate debt
quality. securities of companies based outside the
o The Fund may enter into futures United States, to diversify the Fund's
contracts, options on futures holdings and to gain exposure to the foreign
contracts and currency forward market.
contracts. The Fund intends to
use these derivative instruments Investment Strategies:
primarily for hedging purposes,
although it may use them for The Fund's adviser seeks to enhance the
non-hedging purposes to a limited Fund's performance by allocating relatively
extent. To generate additional more of its portfolio to the security type
income, the Fund may invest up to that the Fund's adviser expects to offer the
10% of its net assets in mortgage best balance between current income and risk
dollar roll transactions. and thus offers the greatest potential for
return. The security's projected spread is
Investment Strategies: weighed against the spread the security can
currently be purchased for, as well as the
The Fund's investment strategies are security's credit risk (in the case of
substantially similar to those of the corporate securities).
Federated Bond Fund.
The Fund's adviser invests the Fund's
Duration: portfolio, seeking the higher relative
returns of corporate debt securities, when
The Fund's adviser anticipates that the available, while attempting to limit the
average effective duration for the Fund's associated credit risks. The Fund's adviser
portfolio securities will range from 3 1/2 to attempts to manage the Fund's credit risk by
7 1/2 years. This range may change, however, selecting corporate debt securities that are
due to market conditions and other economic less likely to default in the payment of
factors. principal and interest. In selecting
individual corporate fixed income securities,
the Fund's adviser analyzes a company's
business, competitive position, and general
financial condition to assess whether the
security's credit risk is commensurate with
its potential return.
Duration:
The Fund's adviser may lengthen or shorten
duration from time to time based on its
interest rate outlook, but the Fund has no
set duration parameters. If the adviser
expects interest rates to decline, it will
generally lengthen the Fund's duration, and
if the adviser expects interest rates to
increase, it will generally shorten the
Fund's duration.
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23
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IAI REGIONAL FUND FEDERATED CAPITAL APPRECIATION FUND
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Principal Investments: Principal Investments:
IAI Regional Fund invests primarily in common Federated Capital Appreciation Fund invests
stocks of companies headquartered in primarily in common stock of companies with
Minnesota, Wisconsin, Iowa, Illinois, medium and large market capitalizations that
Nebraska, Montana, North Dakota or South offer superior growth prospects of companies
Dakota. The Fun seeks to invest at least 65% whose stock is undervalued. This includes
of the Fund's equity investments in companies companies with market capitalization in
headquartered in one of these states. The excess of $500 million. The Fund also invests
Fund invests in both nationally recognized in the convertible securities issued by these
companies and in less well known companies companies and American Depositary Receipts,
that are newer or have smaller which represent interests in underlying
capitalizations, but that appear to have the securities issued by a foreign company, but
potential for capital appreciation. As of which are traded in the United States.
April 30, 2000, the Fund's median market
capitalization was approximately $14.9 Investment Style:
billion.
The Fund invests primarily for growth by
Investment Style: investing in equity securities that have
superior prospects for growth.
The Fund invests for growth by investing in
securities of established companies as well Investment Strategies:
as companies with th potential for capital
appreciation. The Fund diversifies its investments,
limiting its risk exposure with respect to
Investment Strategies: individual securities and industry sectors.
In determining the amount to invest in a
In selecting securities, the Fund's adviser security, and in order to manage sector risk,
considers factors such as product development the Fund attempts to limit its exposure to
and demand, superior performance records, each major sector in the Standard & Poor's
management teams that the Fund's adviser 500 Index, as a general matter, to not less
believes are capable of sustaining growth and than 50% nor more than 200% of the Index's
attractive market valuations. allocation to that sector.
The Fund's adviser selects the most promising
companies for the Fund's portfolio using its
own quantitative process to rate the future
performance potential of companies by
evaluating each company's earnings quality in
light of their current valuation to narrow
the list of attractive companies, and
evaluates product positioning, management
quality and sustainability of current growth
trends of those companies.
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IAI MIDCAP GROWTH FUND FEDERATED GROWTH STRATEGIES FUND
- -------------------------------------------------------------------------------------------------
Principal Investments: Principal Investments:
IAI Midcap Growth Fund invests primarily in Federated Growth Strategies Fund pursues its
common stocks of medium-sized U.S. companies investment objective by investing primarily
that have above-average prospects for growth. in common stock of companies with market
These companies are expected to show earnings capitalization above $100 million that offer
growth over time that is well above the superior growth prospects. The Fund also
growth rate of the overall economy and the invests in American Depositary Receipts,
rate of inflation. The Fund invests at least which represent interests in underlying
65% of its total assets in stocks of securities issued by a foreign company, but
companies with market capitalizations between which are traded in the United States.
$1 billion and $8 billion.
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24
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Investment Style: Investment Style:
The Fund's investment style is substantially The Fund invests primarily for growth by
similar to that of Federated Growth investing in securities of companies with
Strategies Fund. superior growth prospects.
Investment Strategies: Investment Strategies:
Under normal market conditions, the weighted The Fund limits its exposure to each major
average market capitalization of the Fund's sector in the Standard & Poor's 500 Index
portfolio will range from $3 billion to $6 ("S&P 500"), as a general matter, to not less
billion. In general, the Fund focuses on than 50% nor more than 200% of the S&P 500's
companies with superior performance records, allocation to that sector.
solid market positions, strong balance
sheets, and management teams that the adviser The Fund's adviser selects the most promising
believes are capable of sustaining growth. companies for the Fund's portfolio using its
own quantitative process to rate the future
performance of companies by evaluating each
company's earnings quality in light of their
current valuation to narrow the list of
attractive companies. The Fund's adviser then
evaluates product positioning, management
quality and sustainability of current growth
trends of those companies.
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IAI INTERNATIONAL FUND FEDERATED INTERNATIONAL EQUITY FUND
(CLASS A)
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Principal Investments: Principal Investments:
The IAI International Fund's principal The Federated International Equity Fund
investments are substantially similar to pursues its investment objective by investing
those of the Federated International Equity at least 65% of its assets in equity
Fund, except for the following: securities of companies based outside the
U.S. The Fund will not invest more than 20%
o Although the Fund is not required of its assets in companies located in
to maintain any particular emerging markets.
geographical mix of its
investments, under normal market Investment Style:
conditions the Fund invests
primarily in countries that are The Fund emphasizes growth stocks at a
represented on the Morgan Stanley reasonable price.
Capital International Europe,
Australia, Far East ("EAFE") Investment Strategies:
Index. The EAFE Index currently
includes companies representing The Fund's adviser takes a "bottom-up"
the stock markets of 15 European approach and looks for companies which it
countries, Australia, New perceives as being undervalued in the
Zealand, Japan, Hong Kong and marketplace. Selection of industry and
Singapore. country are secondary considerations. The
o The Fund may engage in foreign market capitalization of portfolio securities
currency hedging transactions, is not a determinative factor. The Fund's
such as forward foreign currency adviser may emphasize certain business
exchange contracts and currency sectors in the portfolio that exhibit
financial futures and options. stronger growth potential or higher profit
o The Fund generally invests in margins.
mid- and large-capitalization
companies with market Using its own quantitative process, the
capitalization of $1 billion or Fund's adviser ranks the potential future
more. performance of select companies.
o The Fund does not currently
invest in companies located in
emerging market countries.
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25
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As of April 30, 2000, the Fund's median o The Fund's adviser evaluates each
market capitalization was approximately $42.2 company's earnings potential in
billion. light of its current valuation.
Investment Style: o The Fund's adviser reviews such
factors as the company's
The Fund concentrates on securities that it price-to-earnings ratio,
believes have investment values greater than enterprise value, organic growth
their market prices. rates versus growth through
acquisition, product niche and
Investment Strategies: its pricing power.
The Fund's investment strategies are o The Fund's adviser evaluates
substantially similar to the Federated management quality and may meet
International Equity Fund, except: with company representatives,
company suppliers, customers, or
o Currency hedging may be used for competitors.
defensive reasons and to reduce
portfolio volatility. o The Fund's adviser also reviews
the company's financial
statements and forecasts of
earnings.
Based on this information, the Fund's adviser
evaluates the sustainability of the company's
current growth trends and potential catalysts
for increased growth.
In selecting emerging markets countries in
which to invest, the Fund's adviser reviews
the country's economic outlook, its interest
and inflation rates, and the political and
foreign exchange risk of investing in a
particular country. The Fund's adviser then
analyzes companies located in particular
emerging market countries.
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IAI GROWTH FUND FEDERATED LARGE CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------
Principal Investments: Principal Investments:
The principal investments of the IAI Growth Federated Large Cap Growth Fund pursues its
Fund are substantially similar to those of investment objective by investing primarily
the Federated Large Cap Growth Fund. The Fund in common stocks of the largest growth
generally invests in companies with market companies traded in the United States based
capitalizations ranging from $10 billion to upon expected price to earnings ratio, price
over $100 billion at the time of investment. to book ratio and estimated earnings growth.
As of April 30, 2000, the Fund's median The Fund's adviser will pick the largest
market capitalization was approximately growth stocks based on market
$141.9 billion. capitalizations. The Fund also invests in
American Depositary Receipts, which represent
Investment Style: interests in underlying securities issued by
a foreign company, but which are traded in
The Fund's investment style is substantially the United States.
similar to that of Federated Large Cap Growth
Fund. Investment Style:
Investment Strategies: The Fund invests primarily for growth by
investing in companies with above-average
The Fund focuses on companies that have potential for expected growth.
strong management, leading market positions,
strong balance sheets, and a well-defined Investment Strategies:
strategy for future growth. In selecting
investments, the Fund uses several valuation The Fund diversifies its investments,
techniques to determine which stocks offer limiting its risk exposure with respect to
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26
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the best combination of intrinsic value and individual securities and industry sectors.
earnings growth potential. The goal is to When possible, the Fund employs tax
have an acceptable balance of risk and reward management techniques which are designed to
in the Fund's portfolio. minimize capital gains while maximizing
after-tax returns.
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.
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IAI BALANCED FUND FEDERATED STOCK AND BOND FUND, INC.
(CLASS A)
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Principal Investments: Principal Investments:
The IAI Balanced Fund's principal investments The Federated Stock and Bond Fund, Inc.
are substantially similar to the Federated invests in a diversified portfolio that is
Stock and Bond Fund, Inc., except: allocated between equity and fixed income
securities. With respect to the equity
o The Fund may invest in foreign portion of the portfolio, the Fund invests
equity and debt securities. The primarily in shares of domestic large
Fund limits its investment in capitalization companies. The Fund invests
foreign securities denominated in primarily in equity securities of companies
foreign currencies and not that are generally leaders in their
publicly traded in the United industries, are characterized by sound
States to 25% of total assets. management and have the ability to finance
expected growth. The Fund's holdings
o The Fund may enter into futures ordinarily will be in the top 25% of their
contracts and options on those industry with regard to revenues.
contracts, may invest in options
on securities and financial With respect to the fixed income portion of
indexes, and may enter into the portfolio, the adviser invests primarily
foreign currency transactions in domestic investment-grade debt securities,
such as currency forward including corporate debt securities, U.S.
contracts. government obligations and mortgage backed
securities.
o To generate additional income,
the Fund may invest up to 10% of The Fund may invest a portion of its
its net assets in mortgage dollar portfolio in non-investment grade fixed
roll transactions. income securities, which are rated BB or
lower by a nationally recognized statistical
As of April 30, 2000, the Fund's median rating organization (NRSRO).
market capitalization was approximately $86.9
billion. Investment Style:
Investment Style: With respect to the equity portion of the
Fund's portfolio, the Fund uses the "value"
With respect to the equity portion of the style of investing, selecting stocks of
Fund's portfolio, the Fund's investment style companies which are trading at a low
is a core large-cap equity approach with a valuation relative to their history, to the
growth bias. market, and to their expected future growth.
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27
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Investment Strategies: Investment Strategies:
The Fund's investment strategies are The Fund's investment strategies are
substantially similar to those of the substantially similar to those of the
Federated Stock and Bond Fund. Specifically, Federated Stock and Bond Fund. Specifically,
the Fund's adviser regularly reviews the the Fund's adviser regularly reviews the
allocation of Fund assets among stocks and allocation of Fund assets among stocks and
long-and short-term debt instruments. Because long-and short-term debt instruments. Because
the Fund seeks to maximize total return over the Fund seeks to maximize total return over
the long term, the adviser will not try to the long term, the adviser will not try to
pinpoint the precise moment when major pinpoint the precise moment when major
reallocations are warranted. Rather, reallocations are warranted. Rather,
reallocations among asset classes will be reallocations among asset classes will be
made gradually over time to favor asset made gradually over time to favor asset
classes that, in the adviser's judgment, classes that, in the adviser's judgment,
provide the most favorable total return provide the most favorable total return
outlook. Normally, a single reallocation outlook. Normally, a single reallocation
decision will not involve more than 10% of decision will not involve more than 10% of
the Fund's total assets. the Fund's total assets.
Duration: Duration:
The Fund's adviser anticipates that the The Fund's adviser anticipates that the
average effective duration for the debt average effective duration for the debt
portion of the Fund will range from 3 1/2 to portion of the Fund will range from 3 1/2 to
7 1/2 years. This range may change, however, 7 1/2 years. This range may change, however,
due to market conditions and other economic due to market conditions and other economic
factors. factors.
Investment Strategies:
The Strategy Committee of the Fund's adviser
determines the Fund portfolio's allocation
between equity securities and fixed income
securities based upon an analysis of general
market and economic conditions. During normal
market conditions, the equity allocation
ranges from 50% to 70% of the portfolio and
the fixed income allocation ranges from 30%
to 50% of the portfolio.
With regard to the portion of the Fund
allocated to equity securities:
o The Fund's adviser ranks the
future performance potential of
companies, based on valuation
models which attempt to identify
companies trading at a low
valuation relative to their
history, to the market and to
their expected future growth.
o To determine the timing of
purchases and sales of portfolio
securities, the Fund's adviser
looks at recent stock price
performance and the direction of
current fiscal year earning
estimates.
o In determining the amount to
invest in a security, the Fund's
adviser limits the Fund's
exposure to each business sector
that comprises more than 5% of
the Standard & Poor's 500 Index
("S&P 500"). Within the equity
portion of the portfolio, the
Fund's allocation to a sector
will not be less than 50% or more
than 200% of the S&P 500's
allocation to that sector.
With respect to the fixed income securities
allocation:
o The Fund's adviser seeks to
enhance the performance of the
Fund's fixed income portfolio by
allocating more assets to the
security type that the adviser
expects to offer the best balance
between total return and risk.
The allocation process is based
on the adviser's continuing
analysis of a variety of economic
and market indicators in order to
arrive at the projected yield
"spread" of each security type.
The security's projected spread
is then weighed against the
security's current spread credit
risk and risk of prepayment.
o The Fund's adviser attempts to
manage prepayment risk to the
Fund by selecting mortgage backed
securities with characteristics
that make prepayment fluctuations
less likely.
o The Fund's adviser attempts to
manage credit risk to the Fund by
selecting corporate debt
- -------------------------------------------------------------------------------------------------
28
- -------------------------------------------------------------------------------------------------
securities that make default in
the payment of principal and
interest less likely.
o In selecting individual corporate
fixed income securities, the
Fund's adviser analyzes a
company's business, competitive
position, and general financial
condition to assess whether the
security's credit risk is
commensurate with its potential
return.
Duration:
The Fund's adviser selects securities with
longer or shorter duration based on its
interests rate outlook, but does not target
any specific duration for the fixed income
portion of the Fund.
- -------------------------------------------------------------------------------------------------
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
29
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.
[The bar chart contains the following plot points:]
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 bar chart contains the following plot points:]
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%.
30
[The bar chart contains the following plot points:]
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% 43.37%
The Fund's total return for the three-month period from January 1, 2000 to March
31, 2000 was 27.98%.
[The bar chart contains the following plot points:]
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%.
31
FEDERATED AMERICAN LEADERS FUND, INC.
[The bar chart contains the following plot points:]
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
[The bar chart contains the following plot points:]
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%.
32
AUTOMATED CASH MANAGEMENT TRUST
[The bar chart contains the following plot points:]
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
[The bar chart contains the following plot points:]
1994 1995 1996 1997 1998 1999
3.74% 5.40% 4.89% 5.04% 5.50% 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%.
33
FEDERATED BOND FUND
[The bar chart contains the following plot points:]
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
[The bar chart contains the following plot points:]
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)%.
34
FEDERATED CAPITAL APPRECIATION FUND
[The bar chart contains the following plot points:]
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
[The bar chart contains the following plot points:]
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%.
35
FEDERATED GROWTH STRATEGIES FUND
[The bar chart contains the following plot points:]
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%.
IAI MIDCAP GROWTH FUND
[The bar chart contains the following plot points:]
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%.
36
FEDERATED INTERNATIONAL EQUITY FUND
[The bar chart contains the following plot points:]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(11.55) (7.53) (5.89) 31.29 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 [____]%.
IAI INTERNATIONAL FUND
[The bar chart contains the following plot points:]
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)%.
37
FEDERATED LARGE CAP GROWTH FUND
[The bar chart contains the following plot points:]
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%.
IAI GROWTH FUND
[The bar chart contains the following plot points:]
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%.
38
FEDERATED STOCK AND BOND FUND, INC.
[The bar chart contains the following plot points:]
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% 11.18% 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
[The bar chart contains the following plot points:]
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%.
39
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.
40
The tables also show the funds' total returns averaged over a period of
years relative to one or more broad-based market indices. 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.
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% [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------
10 Year N/A N/A N/A 8.59% 18.19% [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------
Since Inception of
Federated Aggressive
Growth Fund** 39.10% N/A N/A N/A 18.19% 33.35% 21.71%
- ------------------------------------------------------------------------------------------------------------------------
Since Inception of
IAI Emerging Growth
Fund*** N/A 18.19% N/A N/A 19.86% [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------
Since Inception of
IAI Capital [ ] [ ]
Appreciation Fund**** N/A N/A 24.12% N/A 25.94% [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------
*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.
**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.
- --------------------------------------------------------------------------------
Calendar Period Federated IAI
American Leaders Growth and Income
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.
- --------------------------------------------------------------------
IAI
Automated Cash Money Market
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* N/A 4.52%
- --------------------------------------------------------------------
*The IAI Money Market Fund's start of performance date is January 5, 1993.
- -------------------------------------------------------------------------------
Federated IAI
Calendar Period Bond Fund Bond Fund LBCBI* LCDBBB* LBABI*
- --------------------------------------------------------------------------------
1 Year 6.77% -3.47% -1.94% -1.79% -0.82%
- --------------------------------------------------------------------------------
5 Year N/A 6.46% [ ] [ ] 7.73%
- --------------------------------------------------------------------------------
10 Year N/A 6.96% [ ] [ ] 7.70%
- --------------------------------------------------------------------------------
Since inception
of
Federated Bond
Fund** 4.80% N/A 5.94% 5.77% [ ]
- --------------------------------------------------------------------------------
*The Lehman Brothers Corporate Bond Index (LBCBI) is a broad-based market index,
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 Lehman Brother Aggregate Bond Index (LBABI) is a
broad-based market index comprise of [please insert description of index].
**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.
42
- --------------------------------------------------------------------------------
Federated IAI
Growth Midcap
Calendar Period Strategic Fund Growth Fund S&P 500* LGFI*
- --------------------------------------------------------------------------------
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 N/A 18.81% 20.78% [ ]
Midcap Growth Fund**
- --------------------------------------------------------------------------------
*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.
- --------------------------------------------------------------------------------
Federated
International IAI
Calendar Period Equity Fund International 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 Growth IAI
Calendar Period Fund Growth Fund S&P 500*
- --------------------------------------------------------------------------------
1 Year 53.12% 20.14% 21.03%
- --------------------------------------------------------------------------------
5 Year N/A% 20.81% 28.54%
- --------------------------------------------------------------------------------
Since Inception
of Federated
Large Cap Growth
Fund** 54.96% N/A 22.32%
- --------------------------------------------------------------------------------
Since Inception
of IAI Growth
Fund*** N/A 16.20% 22.86%
- --------------------------------------------------------------------------------
*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 IAI
Stock and Balanced
Calendar Period Bond 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** N/A 11.09% 20.78% 6.99% [ ]
- ----------------------------------------------------------------------------------------------------
*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
43
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.
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. IAI is located at 601
Second Avenue South, Suite 3600, Minneapolis, Minnesota 55402.
44
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.
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."
45
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 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.
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. Under a Fund Accounting Services Agreement between IAI and
FMFS, FMFS provides portfolio accounting services, expense accrual and payment
services and fund valuation. Under each agreement, 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.
46
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
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,
47
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:
48
- -----------------------------------------------------------------------------------
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
49
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.
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.
50
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.
51
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 pays Federated Aggressive Declares and pays
semi-annually Growth Fund annually
IAI Long Term Growth Fund
IAI Capital Appreciation Fund
- ----------------------------------------------------------------------------------------------------------------------
IAI Growth and Income Fund Declares and pays Federated American Declares daily and
semi-annually Leaders Fund, Inc. pays quarterly
- ----------------------------------------------------------------------------------------------------------------------
IAI Money Market Fund Declares daily and Automated Cash Declares daily and
pays monthly Management Trust pays monthly
- ----------------------------------------------------------------------------------------------------------------------
IAI Bond Fund Declares and pays Federated Bond Fund Declares and pays
monthly monthly
- ----------------------------------------------------------------------------------------------------------------------
IAI Regional Fund Declares and pays Federated Capital Declares and pays
semi-annually Appreciation Fund quarterly
- ----------------------------------------------------------------------------------------------------------------------
IAI Midcap Growth Fund Declares and pays Federated Growth Declares and pays
semi-annually Strategies Fund annually
- ----------------------------------------------------------------------------------------------------------------------
IAI International Fund Declares and pays Federated International Declares and pays
semi-annually Equity Fund annually
- ----------------------------------------------------------------------------------------------------------------------
IAI Growth Fund Declares and pays Federated Large Cap Declares and pays
semi-annually Growth Fund annually
- ----------------------------------------------------------------------------------------------------------------------
IAI Balanced Fund Declares and pays Federated Stock and Bond Declares and pays
semi-annually Fund, Inc. quarterly
- ----------------------------------------------------------------------------------------------------------------------
52
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. 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.
RISK FACTORS
The following tables compare the principal risks of investing in the
IAI Funds and the corresponding Federated Funds. The tables are arranged
alphabetically according to the name of the Federated Fund.
53
- --------------------------------------------------------------------------------
IAI EMERGING GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated Aggressive Growth Fund is
the IAI Emerging Growth Fund are subject to the following principal
substantially the same as those of the risks:
Federated Aggressive Growth Fund,
except that the IAI Emerging Growth o STOCK MARKET RISKS. The value of
Fund has the following additional equity securities in the Fund's
risks: portfolio will fluctuate and, as
a result, the Fund's share price
may decline suddenly or over a
o RISKS OF THE TECHNOLOGY SECTOR. A sustained period of time.
portion of the Fund currently is
invested in the technology o LIQUIDITY RISKS. The equity
sector. Technology is an securities in which the Fund
extremely competitive industry invests may be less readily
where rapid new developments marketable and may be subject to
could have a dramatic impact on a greater fluctuation in price
company's earnings growth than other securities.
potential. In addition, many Consequently, the Fund may have
technology companies are to accept a lower price to sell
sensitive to global and domestic a security, sell other
economic conditions and, for some securities to raise cash or give
companies, earnings growth may be up an investment opportunity,
tied to product cycles within any of which could have a
their specific industries. If negative effect on the Fund's
technology continues to advance performance.
at an accelerated rate and the
number of companies and product o RISKS RELATED TO COMPANY SIZE.
offerings continues to expand, Because the smaller companies in
these companies could become which the Fund may invest may
increasingly sensitive to short have unproven track records, a
product cycles within their limited product or service base
specific industries and and limited access to capital,
aggressive pricing. 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.
- --------------------------------------------------------------------------------
54
- --------------------------------------------------------------------------------
IAI LONG TERM GROWTH FUND FEDERATED AGGRESSIVE GROWTH FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated Aggressive Growth Fund is
the IAI Long Term Growth Fund are subject to the following principal
substantially the same as those of the risks:
the Federated Aggressive Growth Fund,
except that the IAI Long Term Growth o STOCK MARKET RISKS. The value of
Fund has the following additional equity securities in the Fund's
risks: portfolio will fluctuate and, as
a result, the Fund's share price
o RISKS OF THE TECHNOLOGY SECTOR. A may decline suddenly or over a
portion of the Fund currently is sustained period of time.
invested in the technology
sector. Technology is an o LIQUIDITY RISKS. The equity
extremely competitive industry securities in which the Fund
where rapid new developments invests may be less readily
could have a dramatic impact on a marketable and may be subject to
company's earnings growth greater fluctuation in price
potential. In addition, many than other securities.
technology companies are Consequently, the Fund may have
sensitive to global and domestic to accept a lower price to sell
economic conditions and, for some a security, sell other
companies, earnings growth may be securities to raise cash or give
tied to product cycles within up an investment opportunity,
their specific industries. If any of which could have a
technology continues to advance negative effect on the Fund's
at an accelerated rate and the performance.
number of companies and product
offerings continues to expand, o RISKS RELATED TO COMPANY SIZE.
these companies could become Because the smaller companies in
increasingly sensitive to short which the Fund may invest may
product cycles within their have unproven track records, a
specific industries and limited product or service base
aggressive pricing. and limited access to capital,
they may be more likely to fail
Prior to the IAI Board of Directors' than larger companies.
approval of the change in the name of
the IAI LONG TERM GROWTH FUND to the o SECTOR RISKS. As the Fund's
IAI LONG TERM GROWTH FUND and certain adviser allocates more of the
changes to the FUND'S non-fundamental Fund's portfolio holdings to a
investment limitations, the principal particular sector, the Fund's
risks of investing in the IAI Long Term performance will be more
Growth Fund were substantially similar susceptible to any economic,
to those of the Federated Aggressive business or other developments
Growth Fund, except that IAI Long Term which generally affect that
Growth Fund had the following sector.
additional risks:
o RISKS OF FOREIGN INVESTING.
o RISKS OF VALUE STOCKS. In Because the Fund invests in
selecting these value stocks, the securities issued by foreign
Fund's adviser will be exercising companies, the Fund's share
opinions and judgments which may price may be more affected by
be contrary to those of the foreign economic and political
majority of investors. There is a conditions, taxation policies
risk that the judgment of the and accounting and auditing
majority may be correct, in which standards than would otherwise
case the Fund may incur losses, be the case.
or its profits may be limited.
Even if the adviser's judgment o RISKS RELATED TO INVESTING FOR
is correct, there may be a long GROWTH. The growth stocks in
security which the Fund invests are which the Fund invests are
typically more volatile than capital typically more volatile than
and may depend more be nonproductive value stocks and may depend more
dividends period of time. on price changes than dividends
for returns.
o RISKS OF THE TECHNOLOGY SECTOR. A
portion of the Fund currently is
invested in the technology
sector. Technology is an
extremely competitive industry
where rapid new developments
could have a dramatic impact on a
- --------------------------------------------------------------------------------
55
- --------------------------------------------------------------------------------
company's earnings growth
potential. In addition, many
technology companies are
sensitive to global and domestic
economic conditions and, for some
companies, earnings growth may be
tied to product cycles within
their specific industries. If
technology continues to advance
at an accelerated rate and the
number of companies and product
offerings continues to expand,
these companies could become
increasingly sensitive to short
product cycles within their
specific industries and
aggressive pricing.
- --------------------------------------------------------------------------------
56
- --------------------------------------------------------------------------------
IAI CAPITAL APPRECIATION FUND FEDERATED AGGRESSIVE GROWTH FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in the Federated Aggressive Growth Fund is
IAI Capital Appreciation Fund are subject to the following principal
substantially the same as those of the risks:
Federated Aggressive Growth Fund,
except that the IAI Capital o STOCK MARKET RISKS. The value of
Appreciation Fund has the following equity securities in the Fund's
additional risks: portfolio will fluctuate and, as
a result, the Fund's share price
o RISKS OF THE TECHNOLOGY SECTOR. A may decline suddenly or over a
portion of the Fund currently is sustained period of time.
invested in the technology
sector. Technology is an o LIQUIDITY RISKS. The equity
extremely competitive industry securities in which the Fund
where rapid new developments invests may be less readily
could have a dramatic impact on a marketable and may be subject to
company's earnings growth greater fluctuation in price
potential. In addition, many than other securities.
technology companies are Consequently, the Fund may have
sensitive to global and domestic to accept a lower price to sell
economic conditions and, for some a security, sell other
companies, earnings growth may be securities to raise cash or give
tied to product cycles within up an investment opportunity,
their specific industries. If any of which could have a
technology continues to advance negative effect on the Fund's
at an accelerated rate and the performance.
number of companies and product
offerings continues to expand, o RISKS RELATED TO COMPANY SIZE.
these companies could become Because the smaller companies in
increasingly sensitive to short which the Fund may invest may
product cycles within their have unproven track records, a
specific industries and limited product or service base
aggressive pricing. 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.
- --------------------------------------------------------------------------------
57
- --------------------------------------------------------------------------------
IAI GROWTH AND INCOME FUND FEDERATED AMERICAN LEADERS FUND, INC.
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated American Leaders Fund, Inc.
the IAI Growth and Income Fund are is subject to the following principal
substantially similar to those of the risks:
Federated American Leaders Fund, Inc.
However, the Fund uses the "growth" o STOCK MARKET RISKS. The value of
style of investing rather than the equity securities in the Fund's
"value" style, and is thus subject to portfolio will fluctuate and, as
the following principal risk: a result, the Fund's share price
may decline suddenly or over a
o RISKS OF GROWTH STOCKS. The Fund sustained period of time.
invests primarily in stocks of
companies that the Fund's adviser o RISKS RELATING TO INVESTING FOR
believes have above-average VALUE. Due to the Fund's value
prospects for growth. If the style of investing, the Fund's
adviser incorrectly assesses a share price may lag that of
company's prospects for growth, other funds using a different
or if its judgment about how investment style. Due to their
other investors will value the relatively low valuations, value
company's growth is wrong, then stocks are typically less
the price of the company's stock volatile than growth stocks. For
may decrease, or it may not instance, the price of a value
increase to the level that the stock may experience a smaller
adviser had anticipated. 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 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.
- --------------------------------------------------------------------------------
58
- --------------------------------------------------------------------------------
IAI MONEY MARKET FUND AUTOMATED CASH MANAGEMENT TRUST
(INSTITUTIONAL SERVICE SHARES)
- --------------------------------------------------------------------------------
The principal risks of investing in the Automated Cash Management Trust is
IAI Money Market Fund are substantially subject to the following principal
the same as those of Automated Cash risks:
Management Trust.
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.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAI BOND FUND FEDERATED BOND FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in The Federated Bond Fund is subject to
the IAI Bond Fund are substantially the following principal risks:
similar to those of the Federated Bond
Fund, except that IAI Bond Fund has o INTEREST RATE RISKS. Prices of
the following additional risks: fixed income securities rise and
fall in response to changes in the
o RISKS OF PREFERRED STOCKS AND interest rate paid by similar
CONVERTIBLE SECURITIES. The risks securities. Interest rate changes
associated with investing in have a greater effect on the price
preferred stocks and convertible of fixed income securities with
securities are similar to the longer durations.
risks of investing in equity
securities, including the ris o CREDIT RISKS. There is a
that the prices of the securities possibility that issuers of
will decline in response to the securities in which the Fund may
activities of the issuing company invest may default in the
or in response to general market payment of interest or principal
and/or economic conditions. on the securities when due,
which would cause the Fund to
o RISKS OF DERIVATIVE INSTRUMENTS. lose money. Many fixed income
The use of derivative instruments securities receive credit
exposes the Fund to additional ratings from services who assign
risks and transaction costs. ratings by assessing the
Successful use of these likelihood of issuer default.
instruments depends on the Fund's Lower credit ratings correspond
adviser's ability to correctly to higher credit risk. Fixed
forecast the direction of market income securities generally
- --------------------------------------------------------------------------------
59
- --------------------------------------------------------------------------------
movements. The Fund's performance compensate for greater credit
could be worse than if the Fund risk by paying interest at a
had not used these instruments if higher rate.
the Fund's adviser's judgment
proves incorrect. In addition, o LIQUIDITY RISKS. The fixed
even if the adviser's forecast is income securities in which the
correct, there may be an Fund invests may be less readily
imperfect correlation between the marketable and may be subject to
price of derivative instruments greater fluctuation in price
and movements in the prices of than other securities.
the securities, interest rates or Consequently, the Fund may have
currencies being hedged. to accept a lower price to sell
a security, sell other
o RISKS OF DOLLAR ROLL securities to raise cash or give
TRANSACTIONS. The use of mortgage up an investment opportunity,
dollar rolls could increase the any of which could have a
volatility of the Fund's share negative effect on the Fund's
price. It could also diminish the performance.
Fund's investment performance if
the Fund's adviser does not o RISKS ASSOCIATED WITH
predict mortgage prepayments and NONINVESTMENT GRADE SECURITIES.
interest rates correctly. 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.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAI REGIONAL FUND FEDERATED CAPITAL APPRECIATION FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated Capital Appreciation Fund is
the IAI Regional Fund are subject to the following principal
substantially similar to those of the risks:
Federated Aggressive Growth Fund,
except that IAI Regional Fund may o STOCK MARKET RISKS. The value of
have greater exposure to the equity securities in the Fund's
following risks of geographic portfolio will fluctuate and, as
limitation by virtue of investing a result, the Fund's share price
primarily in a certain geographic region: may decline suddenly or over a
sustained period of time.
o RISKS OF GEOGRAPHIC LIMITATION. o LIQUIDITY RISKS. The equity
The Fund's policy of investing securities in which the Fund
primarily in a certain geographic invests may be less readily
region means that it will be marketable and may be subject to
subject to adverse economic, greater fluctuation in price
political or other developments than other securities.
in that region. Moreover, because Consequently, the Fund may have
of this geographic limitation, to accept a lower price to sell
the Fund may be less diversified a security, sell other
by industry and company than securities to raise cash or give
other funds with a similar up an investment opportunity,
investment objective and no such any of which could have a
geographic limitation. negative effect on the Fund's
performance.
- --------------------------------------------------------------------------------
60
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAI MIDCAP GROWTH FUND FEDERATED GROWTH STRATEGIES FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated Growth Strategies Fund is
the IAI Midcap Growth Fund are subject to the following principa;
substantially similar to those of
the Federated Growth Strategies o STOCK MARKET RISKS. The value of
Fund. 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 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 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,
- --------------------------------------------------------------------------------
61
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAI INTERNATIONAL FUND FEDERATED INTERNATIONAL EQUITY FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in The Federated International Equity
the IAI International Fund are Fund is subject to the following
substantially similar to those of the principal risks:
Federated International Equity Fund,
except that IAI International Fund has o STOCK MARKET RISKS. The value of
the following additional risks: equity securities in the Fund's
portfolio will fluctuate and, as a
o RISKS OF VALUE STOCKS. The Fund result, the Fund's share price may
looks for undervalued securities decline suddenly or over a
with appraised investment values sustained period of time.
greater than their market prices.
These securities can remain o CURRENCY RISKS. Exchange rates
undervalued for years. There is a for currencies fluctuate daily.
risk that their prices will never Foreign securities are normally
reach what the Fund's sub-adviser denominated and traded in
believes is the securities' true foreign currencies. As a result,
value, or that their prices will the value of the Fund's foreign
go down. investments and the value of its
shares may be affected favorably
o RISKS OF FOREIGN CURRENCY HEDGING or unfavorably by changes in
TRANSACTIONS. Attempts by the currency exchange rates relative
Fund to minimize the effects of to the U.S. dollar. The
currency fluctuations through the combination of currency risk and
use of foreign currency hedging market risks tends to make
transactions may not be securities traded in foreign
successful or the Fund's hedging markets more volatile than
transactions may limit the Fund's securities traded exclusively in
ability to take advantage of a the United States.
favorable change in the value of
foreign currencies. 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
- --------------------------------------------------------------------------------
62
- --------------------------------------------------------------------------------
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
financial press. In addition,
foreign countries may lack
financial 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 problems could cause
the Fund to miss attractive
investment opportunities. The
inability to dispose of a
portfolio security caused by
settlement problems could result
either in losses to the Fund due
to a subsequent decline in value
of the portfolio security or
could result in possible
liability to the Fund. In
addition, security settlement
and clearance 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
- --------------------------------------------------------------------------------
63
- --------------------------------------------------------------------------------
rate between the Euro and the
U.S. dollar will have a
significant impact on the value
of the Fund's investments.
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 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IAI GROWTH FUND FEDERATED LARGE CAP GROWTH FUND
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in Federated Large Cap Growth Fund is
the IAI Growth Fund are substantially subject to the following principal
similar to those of the Federated risks:
Large Cap Growth Fund.
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 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 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.
- --------------------------------------------------------------------------------
64
- --------------------------------------------------------------------------------
IAI BALANCED FUND FEDERATED STOCK AND BOND FUND, INC.
(CLASS A)
- --------------------------------------------------------------------------------
The principal risks of investing in the The Federated Stock and Bond Fund,
IAI Balanced Fund are substantially Inc. is subject to the following
similar to those of the Federated principal risks:
Stock and Bond Fund, Inc., except
that IAI Balanced Fund has the The specific risks associated with
following additional risks: equity securities are as follows:
o RISKS OF FOREIGN SECURITIES. o STOCK MARKET RISKS. The value
Investing in foreign securities of equity securities in the
typically involves risks not Fund's portfolio will fluctuate
associated with U.S. investing. and, as a result, the Fund's
Risks of foreign investing share price may decline suddenly
include the risk that the Fund or over a sustained period of
may experience a decline in net time.
asset value resulting from
changes in exchange rates between o LIQUIDITY RISKS. The equity
the U.S. dollar and foreign and fixed income securities in
currencies, the risk of adverse which the Fund invests may be
political and economic less readily marketable and may
developments, and the possibility be subject to greater
of expropriation, nationalization fluctuation in price than other
or confiscatory taxation or securities. Consequently, the
limitations on the removal of Fund may have to accept a lower
Fund assets. price to sell a security, sell
other securities to raise cash
o RISKS OF DERIVATIVE INSTRUMENTS. or give up an investment
The use of derivative instruments opportunity, any of which could
exposes the Fund to additional have a negative effect on the
risks and transaction costs. Fund's performance.
Successful use of these
instruments depends on the Fund's o RISKS RELATED TO COMPANY SIZE.
adviser's ability to correctly Because the smaller companies in
forecast the direction of market which the Fund may invest may
movements. The Fund's performance have unproven track records, a
could be worse than if the Fund limited product or service base
had not used these instruments if and limited access to capital,
the adviser's judgment proves they may be more likely to fail
incorrect. In addition, even if than larger companies.
the Fund's adviser's forecast is
correct, there may be an o SECTOR RISKS. As the Fund's
imperfect correlation between the adviser allocates more of the
price of derivative instruments Fund's portfolio holdings to a
and movements in the prices of particular sector, the Fund's
the securities, interest rates or performance will be more
currencies being hedged. susceptible to any economic,
business or other developments
o RISKS OF DOLLAR ROLL which generally affect that
TRANSACTIONS. The use of mortgage sector.
dollar rolls could increase the
volatility of the Fund's share o RISKS RELATED TO INVESTING FOR
price. It could also diminish the VALUE. Due to their relatively
Fund's investment performance if low valuations, value stocks are
the Fund's adviser does not typically less volatile than
predict mortgage prepayments and growth stocks. For instance, the
interest rates correctly. 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.
- --------------------------------------------------------------------------------
65
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
66
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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. 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
scale 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
67
being proposed in conjunction with the sale by IAI of its mutual fund advisory
business to Federated Investors.
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
68
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.
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
[insert date], 2000 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 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
69
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 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.
70
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 such 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.
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.
71
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.
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 Kirkpatrick & Lockhart LLP 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
72
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 that
Federated Fund in exchange solely for that Federated Fund's shares or on the
subsequent distribution of those shares to that IAI Fund's shareholders in
exchange for their IAI Fund shares; (3) the Federated Fund will recognize no
gain or loss on its receipt of those assets in exchange solely for that
Federated Fund's shares; (4) the Federated Fund's basis in those assets will be
the same as that IAI Fund's basis therein immediately before the Reorganization,
and that Federated Fund's holding period for those assets will include that IAI
Fund's holding period therefor; (5) an IAI Fund shareholder will recognize no
gain or loss on the constructive exchange of such shareholder's IAI Fund shares
solely for Federated Fund shares pursuant to the Reorganization; 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
such 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.
You should recognize that an opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or any court. The IAI Funds do not 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.
73
The Federated Funds do not anticipate that taxable sales involving
significant amounts of securities of the combined portfolios will have to be
made after the Reorganizations to effect a realignment with the policies and
investment practices of the Federated Funds.
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.
74
- -------------------------------------------------------------------------------------------------------------------
FEDERATED
CATEGORY FEDERATED MASSACHUSETTS BUSINESS
IAI FUNDS MARYLAND CORPORATIONS TRUSTS
- -------------------------------------------------------------------------------------------------------------------
1. Par Value Each share has a par value Each share has a par value No par value
of $.01 of $.001++
- -------------------------------------------------------------------------------------------------------------------
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 owning at least 10% of
immediately preceding 15 the outstanding shares** of the 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
- -------------------------------------------------------------------------------------------------------------------
- -------------------
++ Each share of Federated International Equity Fund has a par value of $.0001.
** Federated Bond Fund shareholders have a right to call a special meeting of shareholders upon the request of
shareholders holding at least 25% of the outstanding shares entitled to vote.
75
- -------------------------------------------------------------------------------------------------------------------
FEDERATED
CATEGORY FEDERATED MASSACHUSETTS BUSINESS
IAI FUNDS MARYLAND CORPORATIONS TRUSTS
- -------------------------------------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------------------------------------
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 shareholder's
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 A plurality Majority of shares entitled A plurality
or Trustees to vote
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
76
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......... 149,870,913 2,237,945 151,140,768
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
77
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
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.. $31.02* $20.87 $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 $1,793,848,577
Net Asset Value Per Share.. $49.81* $17.96 $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.. $33.19* $10.46 $33.19*
Shares Outstanding......... 21,547,011 1,126,036 21,901,887
78
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.. $17.09* $11.50 $17.09*
Shares Outstanding......... 42,764,478 733,987 43,258,472
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.. $18.34* $ 9.85 $18.34*
Shares Outstanding......... 14,383,326 1,165,531 15,009,128
* NET ASSET VALUE OF CLASS A SHARES.
** NET ASSET VALUE OF INSTITUTIONAL SERVICE SHARES
INFORMATION ABOUT THE FEDERATED FUNDS AND THE IAI FUNDS
FEDERATED FUNDS
Information about each Federated Fund is contained in the Federated
Fund's 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, option
one, or by writing the Federated Funds at Federated Investors Funds, 5800
Corporate Drive, Pittsburgh, PA 15237-7000. The Federated Funds are subject to
79
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 SEC's 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 Fund's 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
80
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
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
SEC's 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.
81
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 [800#]. 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 shareholder's 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
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
IAI Bond Fund
IAI Capital Appreciation Fund
IAI Emerging Growth Fund
IAI Growth Fund
IAI Growth and Income Fund
IAI International Fund
IAI Long Term Growth Fund
IAI Midcap Growth Fund
IAI Money Market Fund
IAI Regional Fund
[On the record date, the Directors and officers of each IAI Fund as a
group owned less than 1% of the outstanding shares of each IAI Fund.] To the
best knowledge of IAI, as of the record date, no person, except as set forth in
82
the table below, owned beneficially or of record 5% or more of the outstanding
shares of any IAI Fund. [INCLUDE OTHER "CONTROL PERSONS"]
SHARES OWNED PERCENT OF
NAME OF FUND NAME AND ADDRESS OF RECORD AND OUTSTANDING
BENEFICIALLY SHARES
- ------------------- ----------------------- ------------------- -------------
[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. [INCLUDE OTHER "CONTROL
PERSONS"]
SHARES OWNED PERCENT OF
NAME OF FUND NAME AND ADDRESS OF RECORD AND OUTSTANDING
BENEFICIALLY SHARES
- ------------------------ ------------------ ------------------- -------------
Approval of the Plan with respect to an IAI Fund requires the
affirmative vote of a majority of the outstanding shares on the record date
entitled to vote and represented at the meeting in person or by proxy. 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
83
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 or a vote withheld 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
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
84
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.
85
FORM OF AGREEMENT AND PLAN OF REORGANIZATION - EXHIBIT A
DRAFT 6/15/00
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of {______ __}, 2000, between Federated Stock and Bond Fund, Inc.
("Trust"), on behalf of the fund listed on Schedule A to this Agreement
("Schedule A") ("Acquiring Fund"), and IAI Investment Funds VI, Inc. ("IAI VI"),
a Minnesota corporation ("Corporation"), on behalf of the series thereof listed
on Schedule A ("Target Fund"). Each Acquiring Fund and Target Fund is sometimes
referred to herein individually as a "Fund" and collectively as the "Funds," and
Trust and each Corporation are sometimes referred to herein individually as an
"Investment Company" and collectively as the "Investment Companies.") All
agreements, representations and warranties, actions, and obligations described
herein made or to be taken or undertaken by a Fund are made and shall be taken
or undertaken by Trust on behalf of each Acquiring Fund and by IAI VI on behalf
of each of its Target Funds.
The Investment Companies wish to effect six separate reorganizations, each
described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended ("Code"), and intend this Agreement to be, and adopt it as, a "plan of
reorganization" within the meaning of the regulations under section 368 of the
Code ("Regulations"). Each reorganization will involve the transfer of the
assets of a Target Fund to the corresponding Acquiring Fund listed on Schedule A
in exchange solely for voting shares of beneficial interest in that Acquiring
Fund, followed by the constructive distribution of those shares PRO RATA to the
holders of shares of common stock of that Target Fund ("Target Fund Shares") in
exchange therefor, all on the terms and conditions set forth herein. (All such
transactions involving each Target Fund and its corresponding Acquiring Fund are
referred to herein as a "Reorganization.") For convenience, the balance of this
Agreement refers only to a single Reorganization, one Acquiring Fund, one Target
Fund, and one Corporation, but the provisions of this Agreement shall apply
separately to each Reorganization (except that provisions hereof enclosed in
brackets shall apply only to IAI VI and the series thereof). The consummation of
one Reorganization shall not be contingent on the consummation of any other
Reorganization.
Target Fund has a single class of shares. Acquiring Fund's shares are
divided into multiple classes of shares, including Class A shares. Only
Acquiring Fund's Class A shares ("Acquiring Fund Shares"), which are
substantially similar to the Target Fund Shares, are involved in the
Reorganization.
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
1.1. Target Fund agrees to assign, sell, convey, transfer, and deliver all
of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor to issue and deliver to Target Fund the number
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares determined by dividing the value of the Assets by the net asset value
("NAV") of an Acquiring Fund Share (both computed as set forth in paragraph
2.1). Such transactions shall take place at the Closing (as defined in paragraph
3.1).
1.2. The Assets shall include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on Target Fund's books,
and other property owned by Target Fund at the Effective Time (as defined in
paragraph 3.1).
1.3. Target Fund agrees to discharge (or to have its investment adviser
assume), at or before the Effective Time, all its liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, and whether or not specifically referred to in this Agreement
(collectively "Liabilities").
1.4. At or immediately before the Effective Time, Target Fund shall
declare and pay to its shareholders a dividend and/or other distribution in an
amount large enough so that it will have distributed all of its investment
company taxable income (computed without regard to any deduction for dividends
paid) and substantially all of its realized net capital gain, if any, for the
current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target Fund shall distribute the Acquiring Fund Shares it receives
pursuant to paragraph 1.1 to Target Fund's shareholders of record, determined as
of the Effective Time (each, a "Shareholder"), in constructive exchange for
their Target Fund Shares. Such distribution shall be accomplished by Trust's
transfer agent's opening accounts on Acquiring Fund's share transfer books in
the Shareholders' names and transferring such Acquiring Fund Shares thereto.
Each Shareholder's account shall be credited with the respective PRO rata number
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder. All outstanding Target Fund Shares, including any
represented by certificates, shall simultaneously be canceled on Target Fund's
share transfer books. Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares issued in connection with the Reorganization.
1.6. [To bind all holders of Target Fund Shares to the Reorganization, and
in particular to bind them to the cancellation and retirement of the outstanding
Target Fund Shares, Corporation shall, before the Effective Time, (a) obtain
approval pursuant to Minnesota law of articles of amendment ("Amendment") to its
amended and restated articles of incorporation (in substantially the form
attached hereto as Schedule B) and (b) file same with the Secretary of State of
Minnesota.]
1.7. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, Target Fund shall be terminated and any
further actions shall be taken in connection therewith as required by applicable
law.
1.8. Any reporting responsibility of Target Fund to a public authority is
and shall remain its responsibility up to and including the date on which it is
terminated.
1.9. Any transfer taxes payable on issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target Fund's books of the
Target Fund Shares constructively exchanged therefor shall be paid by the person
2
to whom such Acquiring Fund Shares are to be issued, as a condition of such
transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), the value of the Assets and the NAV
of an Acquiring Fund Share shall be computed on the date of the Closing
("Valuation Time"), using the valuation procedures set forth in Acquiring Fund's
then-current prospectus and statement of additional information ("SAI").
2.2. All computations pursuant to paragraph 2.1 shall be made by or under
the direction of Firstar Mutual Fund Services, LLC, subject to verification by
Federated Investors, Inc. of the prices used in such computations.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Trust's principal office on
or about September 15, 2000, or at such other place and/or on such other date as
to which the Investment Companies may agree. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of business
on the date thereof or at such other time as to which the Investment Companies
may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the
New York Stock Exchange is closed to trading or trading thereon is restricted or
(b) trading or the reporting of trading on that exchange or elsewhere is
disrupted, so that accurate appraisal of the value of the Assets and the NAV of
an Acquiring Fund Share is impracticable, the Effective Time shall be postponed
until the first business day after the day when such trading has fully resumed
and such reporting has been restored.
3.2. Corporation shall deliver to Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth for all portfolio
securities included therein and all other Assets their adjusted basis and
holding period, by lot, for federal income tax purposes. Corporation's custodian
shall deliver at the Closing a certificate of an authorized officer stating that
(a) the Assets held by the custodian will be transferred to Acquiring Fund at
the Effective Time and (b) all necessary taxes in conjunction with the delivery
of the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made.
3.3. Corporation's transfer agent shall deliver to Trust at the Closing a
statement of an authorized officer thereof certifying that its records contain
the names and addresses of the Shareholders and the number and percentage
ownership of outstanding Target Fund Shares owned by each Shareholder, all as of
the Effective Time. Trust's transfer agent shall deliver at the Closing a
certificate as to the opening on Acquiring Fund's share transfer books of
accounts in the Shareholders' names. Trust shall issue and deliver a
confirmation to Corporation evidencing the Acquiring Fund Shares to be credited
to Target Fund at the Effective Time or provide evidence satisfactory to
Corporation that such Acquiring Fund Shares have been credited to Target Fund's
account on Acquiring Fund's books. At the Closing, [Corporation shall deliver to
Trust a copy of the Amendment certified by the Secretary of State of Minnesota
and] each Investment Company shall deliver to the other bills of sale, checks,
3
assignments, stock certificates, receipts, or other documents the other
Investment Company or its counsel reasonably requests.
3.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Corporation represents and warrants as follows:
4.1.1. Corporation is a corporation that is duly organized, validly
existing, and in good standing under the laws of the State of Minnesota;
and its [amended and restated] articles of incorporation[, as amended by
the Amendment] ("Articles of Incorporation") are on file with the
Secretary of the State of Minnesota;
4.1.2. Corporation is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"), and such registration is in full force and effect;
4.1.3. [Target Fund is a duly established and designated series of
Corporation; and] all Target Fund Shares outstanding at the Effective Time
will have been duly authorized and duly and validly issued and outstanding
shares of Target Fund, fully paid and non-assessable;
4.1.4. At the Closing, Target Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and on delivery and payment for the Assets, Acquiring Fund will acquire
good and marketable title thereto;
4.1.5. Target Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the Securities Act of
1933, as amended ("1933 Act"), and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
4.1.6. Target Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, applicable law or
any provision of Corporation's Articles of Incorporation or By-Laws or of
any agreement, instrument, lease, or other undertaking to which Target
Fund is a party or by which it is bound or result in the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Target Fund is a party or by which it is
bound, except as previously disclosed in writing to and accepted by Trust;
4
4.1.7. Except as otherwise disclosed in writing to and accepted by
Trust, all material contracts and other commitments of or applicable to
Target Fund (other than this Agreement and investment contracts, including
options, futures, and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target Fund thereunder will be made,
at or prior to the Effective Time, without either Fund's incurring any
liability or penalty with respect thereto and without diminishing or
releasing any rights Target Fund may have had with respect to actions
taken or omitted or to be taken by any other party thereto prior to the
Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to
Corporation's knowledge) threatened against Corporation [with respect to
Target Fund] or any of its properties or assets that, if adversely
determined, would materially and adversely affect Target Fund's financial
condition or the conduct of its business; and Corporation knows of no
facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Corporation's board of directors; and, subject to approval by
Target Fund's shareholders, this Agreement constitutes a valid and legally
binding obligation of Target Fund, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
[and the Amendment] shall have been duly authorized by all necessary
action by Target Fund's shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), the 1940 Act, or applicable state
securities laws for the execution or performance of this Agreement by
Corporation, except for (a) the filing with the Securities and Exchange
Commission ("SEC") of a registration statement by Trust on Form N-14
relating to the Acquiring Fund Shares issuable hereunder, and any
supplement or amendment thereto ("Registration Statement"), including
therein a prospectus/proxy statement ("Proxy Statement"), and (b) such
consents, approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
5
in light of the circumstances under which such statements were made, not
misleading; provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on and in
conformity with information furnished by Trust for use therein;
4.1.13. There are no Liabilities other than Liabilities disclosed or
provided for in Corporation's financial statements referred to in
paragraph 4.1.19 and Liabilities incurred by Target Fund in the ordinary
course of its business subsequent to March 31, 2000, or otherwise
previously disclosed to Trust, none of which has been materially adverse
to the business, assets, or results of Target Fund's operations;
4.1.14. Target Fund [is a "fund" as defined in section 851(g)(2) of
the Code; it] qualified for treatment as a regulated investment company
under Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; the Assets will be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing; and Target Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M
did not apply to it;
4.1.15. Target Fund is not under the jurisdiction of a court in a
"title 11 or similar case" (within the meaning of section 368(a)(3)(A) of
the Code);
4.1.16. Not more than 25% of the value of Target Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
4.1.17. During the five-year period ending on the Closing Date,
neither Target Fund nor any person "related" (as defined in section
1.368-1(e)(3) of the Regulations without regard to section
1.368-1(e)(3)(i)(A) thereof) to Target Fund will have directly or through
any transaction, agreement, or arrangement with any other person, (a)
acquired Target Fund Shares with consideration other than Acquiring Fund
Shares or Target Fund Shares, except for shares redeemed in the ordinary
course of Target Fund's business as a series of an open-end investment
company as required by the 1940 Act, or (b) made distributions with
respect to Target Fund Shares, except for (i) dividends qualifying for the
deduction for dividends paid (as defined in section 561 of the Code)
referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code and (ii)
additional distributions, to the extent they do not exceed 50% of the
value (without giving effect to such distributions) of the proprietary
interest in Target Fund on the Closing Date;
4.1.18. Target Fund's federal income tax returns, and all applicable
state and local tax returns, for all taxable years through and including
the taxable year ended March 31, 1999, have been timely filed and all
taxes payable pursuant to such returns have been timely paid; and
6
4.1.19. Corporation's financial statements for the year ended March
31, 2000, to be delivered to Trust, fairly represent Target Fund's
financial position as of such date and the results of its operations and
changes in its net assets for the period then ended.
4.2. Trust represents and warrants as follows:
4.2.1. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable
shares ("Business Trust"), that is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts; and a copy of its
Amended and Restated Declaration of Trust ("Declaration of Trust") is on
file with the Secretary of the Commonwealth of Massachusetts;
4.2.2. Trust is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full force
and effect at the Effective Time;
4.2.3. Acquiring Fund is a duly established and designated series of
Trust;
4.2.4. No consideration other than Acquiring Fund Shares will be
issued in exchange for the Assets in the Reorganization;
4.2.5. The Acquiring Fund Shares to be issued and delivered to
Target Fund hereunder will, at the Effective Time, have been duly
authorized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of Acquiring Fund, fully paid
and non-assessable;
4.2.6. Acquiring Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
4.2.7. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, applicable law or
any provision of the Declaration of Trust or Trust's By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Corporation;
4.2.8. Except as otherwise disclosed in writing to and accepted by
Corporation, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Trust's knowledge) threatened against Trust with respect to Acquiring Fund
or any of its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition or
the conduct of its business; and Trust knows of no facts that might form
the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
7
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.2.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Trust's board of trustees (together with Corporation's board
of directors, the "Boards"); no approval of this Agreement by Acquiring
Fund's shareholders is required under the Declaration of Trust, Trust's
By-Laws, or applicable law; and this Agreement constitutes a valid and
legally binding obligation of Acquiring Fund, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights and by general principles
of equity;
4.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act, or
applicable state securities laws for the execution or performance of this
Agreement by Trust, except for (a) the filing with the SEC of the
Registration Statement and (b) such consents, approvals, authorizations,
and filings as have been made or received or as may be required subsequent
to the Effective Time;
4.2.11. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and regulations thereunder and (b) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading; provided that the foregoing shall not apply to statements in
or omissions from the Proxy Statement made in reliance on and in
conformity with information furnished by Corporation for use therein;
4.2.12. Acquiring Fund is a "fund" as defined in section 851(g)(2)
of the Code; it qualified for treatment as a RIC for each past taxable
year since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.2.13. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another business trust or a corporation or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.2.14. Immediately after the Reorganization, (a) not more than 25%
of the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or fewer
issuers;
8
4.2.15. Acquiring Fund does not directly or indirectly own, nor at
the Effective Time will it directly or indirectly own, nor has it directly
or indirectly owned at any time during the past five years, any shares of
Target Fund;
4.2.16. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years through and
including the taxable year ended October 31, 1999, have been timely filed
and all taxes payable pursuant to such returns have been timely paid; and
4.2.17. Trust's financial statements for the year ended October 31,
1999, to be delivered to Corporation, fairly represent Acquiring Fund's
financial position as of that date and the results of its operations and
changes in its net assets for the year then ended.
4.3. Each Investment Company represents and warrants as follows:
4.3.1. The fair market value of the Acquiring Fund Shares received
by each Shareholder will be approximately equal to the fair market value
of its Target Fund Shares constructively surrendered in exchange therefor;
4.3.2. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.3. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.4. Pursuant to the Reorganization, Target Fund will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target Fund immediately before the
Reorganization. For the purposes of this representation, any amounts used
by Target Fund to pay its Reorganization expenses and to make redemptions
and distributions immediately before the Reorganization (except (a)
redemptions in the ordinary course of its business required by section
22(e) of the 1940 Act and (b) regular, normal dividend distributions made
to conform to its policy of distributing all or substantially all of its
income and gains to avoid the obligation to pay federal income tax and/or
the excise tax under section 4982 of the Code) after the date of this
Agreement will be included as assets held thereby immediately before the
Reorganization;
4.3.5. None of the compensation received by any Shareholder who is
an employee of or service provider to Target Fund will be separate
consideration for, or allocable to, any of the Target Fund Shares held by
such Shareholder; none of the Acquiring Fund Shares received by any such
Shareholder will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other service
agreement; and the consideration paid to any such Shareholder will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services;
9
4.3.6. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" (within the meaning of section
304(c) of the Code) of Acquiring Fund; and
4.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187).
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that such ordinary course will include declaring and paying customary dividends
and other distributions (including the dividend and/or other distribution
referred to in paragraph 1.4) and changes in operations contemplated by each
Fund's normal business activities.
5.2. Target Fund covenants to call a shareholders' meeting to consider and
act on this Agreement [and the Amendment] and to take all other action necessary
to obtain approval of the transactions contemplated hereby.
5.3. Target Fund covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
5.4. Target Fund covenants that it will assist Trust in obtaining
information Trust reasonably requests concerning the beneficial ownership of
Target Fund Shares.
5.5. Target Fund covenants that its books and records (including all books
and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal and state securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and state
securities laws it deems appropriate to continue its operations after the
Effective Time.
10
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by each Board and[, together with the Amendment,]
shall have been approved by Target Fund's shareholders in accordance with
Corporation's Articles of Incorporation and By-Laws and applicable law[; and the
Amendment shall have been duly filed with the Secretary of State of Minnesota].
6.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on either Fund's assets or properties, provided that either
Investment Company may for itself waive any of such conditions.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Corporation shall have received an opinion of Dickstein Shapiro Morin
& Oshinsky LLP, counsel to Trust, substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of Trust, a
Business Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under the Declaration of Trust to
own all its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.4.2. This Agreement has been duly authorized, executed, and
delivered by Trust on behalf of Acquiring Fund; no approval of this
Agreement by Acquiring Fund's shareholders is required under the
Declaration of Trust, Trust's By-Laws, or applicable law; and assuming due
11
authorization, execution, and delivery of this Agreement by Corporation
[on behalf of Target Fund], this Agreement is a valid and legally binding
obligation of Trust with respect to Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights and by general
principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized, validly issued
and outstanding, and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate the
Declaration of Trust or Trust's By-Laws or any provision of any agreement
(known to such counsel, without any independent inquiry or investigation)
to which Trust (with respect to Acquiring Fund) is a party or by which it
is bound or (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, judgment, or decree to
which Trust (with respect to Acquiring Fund) is a party or by which it is
bound, except as set forth in such opinion or as previously disclosed in
writing to and accepted by Corporation;
6.4.5. No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Trust (on
behalf of Acquiring Fund) of the transactions contemplated herein, except
those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and
those that may be required under state securities laws;
6.4.6. Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Trust (with respect to Acquiring Fund) or any of its
properties or assets attributable or allocable to Acquiring Fund and (b)
Trust (with respect to Acquiring Fund) is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects Acquiring Fund's business,
except as set forth in such opinion or as otherwise disclosed in writing
to and accepted by Corporation.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel, (2) make assumptions regarding the authenticity,
genuineness, and/or conformity of documents and copies thereof without
independent verification thereof, (3) limit such opinion to applicable federal
and state law, and (4) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with such counsel who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
12
6.5. Trust shall have received an opinion of Dorsey & Whitney, counsel to
Corporation, substantially to the effect that:
6.5.1. Target Fund is [a duly established series of Corporation,] a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Minnesota with power under its Articles of
Incorporation to own all its properties and assets and, to the knowledge
of such counsel, to carry on its business as presently conducted[; and the
Amendment has been duly filed with the Secretary of State of Minnesota].;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Corporation [on behalf of Target Fund] and (b) assuming due
authorization, execution, and delivery of this Agreement by Trust on
behalf of Acquiring Fund, is a valid and legally binding obligation of
Corporation [with respect to Target Fund], enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Corporation's Articles of Incorporation[, as amended by the Amendment,] or
By-Laws or any provision of any agreement (known to such counsel, without
any independent inquiry or investigation) to which Corporation [(with
respect to Target Fund)] is a party or by which it is bound or (to the
knowledge of such counsel, without any independent inquiry or
investigation) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Corporation [(with respect to Target Fund)] is a party or by which
it is bound, except as set forth in such opinion or as previously
disclosed in writing to and accepted by Trust;
6.5.4. No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Corporation
[(on behalf of Target Fund)] of the transactions contemplated herein,
except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act
and those that may be required under state securities laws;
6.5.5. Corporation is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Corporation [(with respect to Target Fund)] or any of its
properties or assets [attributable or allocable to Target Fund] and (b)
Corporation [(with respect to Target Fund)] is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects Target Fund's
business, except as set forth in such opinion or as otherwise disclosed in
writing to and accepted by Trust.
13
In rendering such opinion, such counsel may (1) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (2) limit such opinion to applicable
federal and state law, and (3) define the word "knowledge" and related terms to
mean the knowledge of attorneys then with such counsel who have devoted
substantive attention to matters directly related to this Agreement and the
Reorganization.
6.6. Each Investment Company shall have received an opinion of Kirkpatrick
& Lockhart LLP, addressed to and in form and substance reasonably satisfactory
to it, as to the federal income tax consequences mentioned below ("Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations and warranties made in this Agreement, which such counsel may
treat as representations and warranties made to it, and in separate letters
addressed to such counsel and the certificates delivered pursuant to paragraph
3.4. The Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein and conditioned on consummation of the
Reorganization in accordance with this Agreement, for federal income tax
purposes:
6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely
for Acquiring Fund Shares, followed by Target Fund's distribution of those
shares PRO RATA to the Shareholders constructively in exchange for their
Target Fund Shares, will qualify as a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
6.6.2. Target Fund will recognize no gain or loss on the transfer of
the Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares
or on the subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Fund Shares;
6.6.3. Acquiring Fund will recognize no gain or loss on its receipt
of the Assets in exchange solely for Acquiring Fund Shares;
6.6.4. Acquiring Fund's basis in the Assets will be the same as
Target Fund's basis therein immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target Fund's
holding period therefor;
6.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Fund Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
6.6.6. A Shareholder's aggregate basis in the Acquiring Fund Shares
to be received by it in the Reorganization will be the same as the
aggregate basis in its Target Fund Shares to be constructively surrendered
in exchange for those Acquiring Fund Shares, and its holding period for
those Acquiring Fund Shares will include its holding period for those
Target Fund Shares, provided the Shareholder held them as capital assets
at the Effective Time.
Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any asset as to which any unrealized gain or loss is
14
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.
At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.
7. BROKERAGE FEES
Each Investment Company represents and warrants to the other that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
8. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target Fund's shareholders:
9.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before November 30, 2000; or
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no
liability for damages on the part of either Fund, or the trustees/directors or
officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target Fund's shareholders, in any manner
mutually agreed on in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
15
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Pennsylvania; provided that, in the
case of any conflict between such laws and the federal securities laws, the
latter shall govern.
11.2. Each party agrees that any arbitration hearing, suit, action, or
other legal proceeding arising out of or relating to this Agreement (a) if
brought by Corporation, will be brought, if in state court, in the Commonwealth
of Pennsylvania in Allegheny County or, if in federal court, in the Western
District of Pennsylvania and (b) if brought by Trust, will be brought, if in
state court, in the State of Minnesota in Hennepin County or, if in federal
court, in the District of Minnesota.
11.3. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
11.4. Corporation acknowledges that Trust is a Business Trust. This
Agreement is executed by Trust on behalf of Acquiring Fund and by its trustees
and/or officers in their capacities as such, and not individually. Trust's
obligations under this Agreement are not binding on or enforceable against any
of its trustees, officers, or shareholders but are only binding on and
enforceable against Acquiring Fund's assets and property; and a trustee of Trust
shall not be personally liable hereunder to Corporation or its directors or
shareholders for any act, omission, or obligation of Trust or any other trustee
thereof. Corporation agrees that, in asserting any rights or claims under this
Agreement [on behalf of Target Fund], it shall look only to Acquiring Fund's
assets and property in settlement of such rights or claims and not to such
trustees, officers, or shareholders.
11.5. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
FEDERATED STOCK AND BOND FUND, INC.
By:
-------------------------
{Name}
{Title}
IAI INVESTMENT FUNDS VI, INC.,
on behalf its series,
IAI Balanced Fund
By:
-------------------------
{Name}
{Title}
17
SCHEDULE A
- -------------------------------------------------------------------------------------------------------
TARGET FUNDS ACQUIRING FUNDS
Name of Fund Series of (All Series of Trust)
- -------------------------------------------------------------------------------------------------------
IAI Balanced Fund IAI Investment Funds VI, Inc. Federated Stock and Bond Fund, Inc.
- -------------------------------------------------------------------------------------------------------
18
SCHEDULE B
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
IAI INVESTMENT FUNDS VI, INC.
([Name of IAI Fund] Transaction)
The undersigned officer of IAI Investment Funds VI, Inc. (the
"Corporation"), a Minnesota corporation which is subject to the provisions of
Minnesota Statutes, Chapter 302A, hereby certifies that the following amendment
to the Corporation's amended and restated articles of incorporation has been
adopted by the Board of Directors and by the requisite vote of shareholders of
the Corporation pursuant to said Chapter 302A:
WHEREAS, the Corporation is registered as an open-end management
investment company (i.e., a mutual fund) under the Investment Company Act of
1940 and offers its shares to the public in several series, each of which
represents a separate and distinct portfolio of assets; and
WHEREAS, it is desirable and in the best interests of the holders of the
Class [ ] shares of the Corporation (also known as "[Name of IAI Fund]"), one of
the series of the Corporation (hereinafter, the "Acquired Fund"), that the
assets belonging to the Acquired Fund be sold to [Name of Federated Fund] (the
"Acquiring Fund"), one of the series of [Name of Federated Trust], a
Massachusetts business trust (the "Trust"), in exchange for shares of the
Acquiring Fund, which shares will be distributed PRO RATA to the former
shareholders of the Acquired Fund; and
WHEREAS, the Corporation and the Trust have entered into an Agreement and
Plan of Reorganization and Termination dated [ ], 2000 (the
"Reorganization Agreement"), providing for the foregoing transactions; and
WHEREAS, the Reorganization Agreement requires that, in order to bind all
holders of shares of the Acquired Fund to the foregoing transactions, and in
particular to bind such holders to the cancellation and retirement of the
outstanding Acquired Fund shares, it is necessary to adopt an amendment to the
Corporation's amended and restated articles of incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's amended and
restated articles of incorporation be, and the same hereby are, amended to add
the following Article 5.[ ] at the end of Article 5 thereof:
5.[ ] (a) For the purposes of this Article 5.[ ], the following terms
shall have the following meanings:
19
"Acquired Fund" means the Class [ ] shares of the Corporation (also known
as "[Name of IAI Fund]").
"Acquiring Fund" means the [Name of Federated Fund], a series of the
Trust.
"Acquiring Fund Shares" means the Class A shares of the Acquiring Fund.
"Effective Time" has the meaning set forth in the Reorganization
Agreement.
"Reorganization Agreement" means that Agreement and Plan of Reorganization
and Termination dated [ ], 2000, to which the Acquired Fund and the Acquiring
Fund are parties.
"Trust" means [Name of Federated Trust], a Massachusetts business trust.
(b) At the Effective Time, the assets belonging to the Acquired Fund
and the General Assets allocated to the Acquired Fund shall be transferred to
the Acquiring Fund in exchange for Acquiring Fund Shares, all as set forth in
the Reorganization Agreement. Such Acquiring Fund Shares shall be distributed to
Acquired Fund shareholders as set forth in (c) below. For purposes of the
foregoing, the terms "assets belonging to" and "General Assets" have the
meanings assigned to them in Articles 7(b) and 7(c) of the Corporation's amended
and restated articles of incorporation.
(c) At the Effective Time, each issued and outstanding Acquired Fund
share shall be, without further action, exchanged for that number of Acquiring
Fund Shares determined in accordance with Paragraphs 1 and 2 of the
Reorganization Agreement, and such Acquired Fund shares shall be cancelled and
retired. The distribution of such Acquiring Fund Shares to Acquired Fund
shareholders shall be accomplished in the manner set forth in Paragraph 1.5 of
the Reorganization Agreement.
(d) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to (c) above shall have the status of authorized
and unissued shares of the Corporation, without designation as to series or
class.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed these Articles of Amendment on behalf of the Corporation on [ ], 2000.
IAI INVESTMENT FUNDS VI, INC.
By
---------------------------------
Its
-------------------------------
20
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)
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 ______________. [HAS NOT YET BEEN
FILED -- TO BE INCLUDED IN THE DEFINITIVE]
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
Investment Funds IV, Inc. 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 Investment Funds VIII, Inc.
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 ______________. [HAS NOT YET BEEN
FILED -- TO BE INCLUDED IN THE DEFINITIVE]
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 0000745968-99-000013.
4
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 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 ______________. [HAS NOT YET
BEEN FILED -- TO BE INCLUDED IN THE DEFINITIVE]
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 ______________. [HAS NOT YET BEEN FILED -- TO BE INCLUDED IN
THE DEFINITIVE]
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, 1.10% declining to
1.00% 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 $2,480,684 13,994,245
----------- ----------- ----------- ------------ ---------- ------------
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 asset value.
3 See Notes to Pro Forma Financial Statements for discussion of pro forma adjustments.
9
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) $ (88,591) $100,056,993
------------ ------------ ------------ ------------ ------------ ------------
(See Notes to Pro Forma Financial Statements for a discussion of Pro Adjustments)
10
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 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
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
11
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 6,300 367,763 (1)Albany Molecular Research 1,395,162 251,012 367,763
4,100 700 1,000 20,375 (1)Antigenics 83,537 14,262 20,375
22,200 4,000 5,900 306,800 (1)Coherent 1,154,400 208,000 306,800
33,300 6,000 8,800 65,450 (1)Eclipse Surgical Technologies 247,669 44,625 65,450
16,200 2,900 4,300 223,063 (1)Emisphere Technologies 840,375 150,438 223,063
56,300 10,100 14,900 258,888 (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
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.
12
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.
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
13
Transportation--.9%
84,500 84,500 SkyWest, Inc.
24,700 6,500 31,200 (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
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
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
14
(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
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
15
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
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
16
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
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 173,315
Air Communications Series B 0
17
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 1,199,587 1,199,587
Investment Company - 0.4%
Total 2,549,122 3,748,709
Firstar Institutional Money 375,260 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 335,306,093 467,869,250
(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.
18
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.
19
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.
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.
20
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 409,637 408,637
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
3 See Notes to Pro Forma Financial Statements for discussion of pro forma
adjustments.
21
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 Legend to Pro Forma Adjustments on the following page)
(See Notes to Pro Forma Financial Statements)
22
_______________________________________________________
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
--------------------------------- ==============
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
--------------------------------- ==============
23
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
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
24
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
--------------------------------- ==============
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
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
25
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
--------------------------------- ==============
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
--------------------------------- ==============
26
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
--------------------------------- ==============
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
--------------------------------- ==============
27
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
==============
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.
28
PART C
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of this Registration
Statement.
Federated Stock and Bond Fund, Inc.
Part C
Other Information
ITEM 15. INDEMNIFICATION; (1)
- -------- ---------------
ITEM 16. EXHIBITS
- -------- --------
(1) (a) Conformed copy of Articles of Restatement of Charter, as
amended; (2)
(a) Conformed copy of the Registrant's Articles of Amendment dated
March 29, 1996; (3)
(2) Copy of By-Laws of the Registrant as amended; (2)
(a) Copy of Amendment No. 13 to By-Laws of the Registrant; (3)
(b) Copy of Amendment No. 14 to By-Laws of the Registrant; (3)
(c) Copy of Amendment No. 15 to By-Laws of the Registrant; (3)
(3) Voting Trust Agreements - none.
(4) A copy of the Agreement and Plan of Reorganization is included as
Exhibit A to the Combined Proxy Statement and Prospectus of this
Registration Statement; (filed herewith)
(5) (a) Copy of Specimen Certificate for Shares of Capital Stock of the
Registrant; (4)
(6) (a) Conformed copy of Investment Advisory Contract of the
Registrant; (1)
(7) (a) Conformed copy of Distributor's Contract of the Registrant; (5)
(b) Conformed copy of Exhibit B to the Distributor's Contract of the
Registrant; (4)
(c) Conformed copy of Distributor's Contract; (6)
(d) Conformed copy of Amendment to the Distribution Plan; (6)
(e) Conformed copy of the Specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan Trustee/
Mutual Funds Service Agreement; (7)
(8) Bonus, Profit-Sharing or Pension Plans - none.
(9) (a) Conformed copy of the Custodian Contract of the Registrant; (1)
(b) Conformed copy of Custodian Fee Schedule; (8)
(c) Conformed copy of Amended and Restated Shareholder Services
Agreement; (8)
(d) Conformed copy of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services; (9)
(10) (a) Conformed Copy of Rule 12b-1 Distribution Plan of the Registrant,
including Exhibit A; (4)
(11) Conformed copy of the Opinion of Counsel as to legality of shares being
registered; (filed herewith)
(12) Conformed copy of the Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters; (filed herewith)
(13) None.
(14) Conformed copies of Consents of Independent Public Accountants;
(filed herewith)
(15) Financial Statements omitted from Part B - none.
(16) Conformed copy of Powers of Attorney; (10)
(a) Conformed copy of Limited Power of Attorney; (11)
(b) Conformed copy of Power of Attorney of Chief Investment Officer
of the Registrant; (3)
(c) Conformed copy of Power of Attorney of Treasurer of the
Registrant; (3)
(c) Conformed copy of Power of Attorney of Director of the
Registrant; (10)
(d) Conformed copy of Power of Attorney of Director of the
Registrant; (10)
(e) Conformed copy of Power of Attorney of Director of the
Registrant; (10)
(f) Conformed copy of Power of Attorney of Director of the
Registrant; (10)
(17) Form of Proxy; (filed herewith)
- -------------------------------------------------------------------------------
(1) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 85 on Form N-1A filed December 29, 1994. (File Nos.
2-10415 and 811-1)
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 87 on Form N-1A filed December 28, 1995. (File Nos.
2-10415 and 811-1)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 98 on Form N-1A filed December 30, 1998. (File Nos.
2-10415 and 811-1)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 88 on Form N-1A filed July 1, 1996. (File Nos. 2-10415
and 811-1)
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 83 on Form N-1A filed December 28, 1993. (File Nos.
2-10415 and 811-1)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 96 on Form N-1A filed December 29, 1997. (File Nos. 2-
10415 and 811-1)
(7) Response is incorporated by reference to Item 24(b)(6) of the Cash
Trust Series II Registration Statement on Form N-1A, filed with the SEC
on July 24, 1995. (File No. 33-38550 and 811-6269)
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 94 on Form N-1A filed October 31, 1997. (File Nos.
2-10415 and 811-1)
(9) Response is incorporated by reference to Item 24(b)(9)(iii) of the
Federated GNMA Trust Registration Statement on Form N-1A filed with the
SEC on March 25, 1996 (File Nos. 2-10415 and 811-1)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 100 on Form N-1A filed December 28, 1999. (File Nos.
2-10415 and 811-1)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 91 on Form N-1A, filed December 23, 1996. (File Nos. 2-
10415 and 811-1)
ITEM 17. UNDERTAKINGS
- ------- ------------
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for the reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that in determining liability under the Securities Act
of 1933, as amended, each post-effective amendment shall be deemed to
be a new Registration Statement for the securities offered therein; and
the offering of the securities at that time shall be deemed to be
initial BONA FIDE offering of them.
(3) Registrant hereby undertakes to file a post-effective amendment to this
registration statement on Form N-14, containing an opinion of counsel
supporting the tax consequences of the reorganization described herein
within a reasonable time after receipt of such opinion, and, in any
event, prior to the consummation of the reorganization.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, FEDERATED STOCK & BOND FUND, INC., its Registration Statement on
Form N-14 to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
19th day of June, 2000.
FEDERATED STOCK & BOND FUND, INC.
By: /s/ C. Grant Anderson
---------------------
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
June 19, 2000
Pursuant to the requirements to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ C. Grant Anderson Attorney In Fact For the June 19, 2000
--------------------- Persons Listed Below
C. Grant Anderson
Assistant Secretary
NAME TITLE
John F. Donahue* President and Director
(Chief Executive Officer)
John W. McGonigle* Executive Vice President and Secretary
Richard J. Thomas * Treasurer (Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
John F. Cunningham* Director
J. Christopher Donahue* Director
Lawrence D. Ellis, M.D.* Director
Peter E. Madden* Director
Charles F. Mansfield, Jr* Director
John E. Murray, Jr., J.D., S.J.D.* Director
Marjorie P. Smuts* Director
John S. Walsh* Director
* By Power of Attorney