1940 Act File No. 811-07461
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 1 ................................ X
FEDERATED INVESTMENT PORTFOLIOS
(Exact name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esq., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
EXPLANATORY NOTE
This Amendment to the Registrant's Registration Statement on Form N-1A ( the
"Registration Statement") has been filed by the Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, beneficial
interests in the series of the Registrant are not registered under the
Securities Act of 1933, as amended ( the "1933 Act"), because such interests
will be issued solely in private placement transactions that do not involve
any "public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant's series may only be made by investment
companies, insurance company separate accounts, common or commingled trust
funds or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. The Registration
Statement does not constitute an offer to sell, or the solicitation of an
offer to buy, any beneficial interests in any series of the Registrant.
PART A.
Responses to Items 1, 2, 3 and 5A have been omitted pursuant to paragraph 4 of
the General Instruction F to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
Federated Investment Portfolios (the "Trust") is an open-end management
investment company which was organized as a Massachusetts business trust under
a Declaration of Trust dated as of September 29, 1995. The Declaration permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities ("Series"). The
shares in any one Series may be offered in separate classes. The Board of
Trustees ("Trustees") has currently established one diversified Series, Bond
Index Portfolio (the "Portfolio").
Beneficial interests in the Portfolio are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933 (the "1933 Act"). Investments in
the Portfolio may only be made by investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations
or entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer
to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the 1933 Act.
Federated Management is the investment adviser for the Portfolio and has
delegated the daily management of the security holdings of the Portfolio to
United States Trust Company of New York ("U.S. Trust Company," and
collectively, with Federated Management, the "investment managers").
The Trust is utilizing certain proprietary rights, know-how and financial
services referred to as Hub and Spoke from Signature Financial Group, Inc.
Hub and Spoke is a two-tier master/feeder fund structure and a registered
service mark of Signature Financial Group, Inc.
Investment Objectives and Policies
Introduction
Unless otherwise stated, the investment objective, policies and strategies
discussed herein and in Part B are deemed "non-fundamental," i.e., the
approval of the investors in the Portfolio is not required to change the
Portfolio's investment objective or any of its investment policies and
strategies.
The investment objective of the Portfolio is to provide investment results
that correspond to the investment performance of the Lehman Brothers Aggregate
Bond Index (the "Aggregate Bond Index"), a broad market-weighted index which
encompasses U.S. Treasury and agency securities, corporate investment grade
bonds, and mortgage-backed securities, each with maturities greater than one
year. The Portfolio seeks to achieve its investment objective by replicating
the yield and total return of the Aggregate Bond Index through a statistically
selected sample of debt instruments. The Aggregate Bond Index is a broad
market-weighted index of U.S. investment grade fixed income securities.
Additional information about the investment policies and strategies of the
Portfolio appears in Part B. There can be no assurance that the investment
objective of the Portfolio will be achieved.
Investment Policies and Strategies
U.S. Trust Company, the sub-adviser for the Portfolio, is a state-chartered
bank and trust company which offers a variety of specialized fiduciary and
financial services to high net worth individuals, institutions and
corporations. As one of the largest institutions of its type, U.S. Trust
Company prides itself in offering an attentive and high level of service to
each of its clients.
Investment Philosophy. The Portfolio is not managed pursuant to traditional
methods of active investment management, which involve the buying and selling
of securities based upon economic, financial and market analyses and
investment judgment. Instead, the Portfolio, utilizing a passive or indexing
investment approach, will attempt to duplicate the investment performance of
the Aggregate Bond Index.
The Portfolio seeks to duplicate the investment performance of the Aggregate
Bond Index through statistical sampling procedures, that is, the Portfolio
will invest in a selected group - not the entire universe - of securities in
the Aggregate Bond Index. This group of securities, when taken together, is
expected to perform similarly to the Aggregate Bond Index as a whole. The
sampling technique is expected to enable the Portfolio to track the price
movements and performance of the Aggregate Bond Index, while minimizing
brokerage, custodial and accounting costs.
The Trust expects that there will be a close correlation between the
Portfolio's performance and that of the Aggregate Bond Index in both rising
and falling markets. The Portfolio will attempt to maximize the correlation
between its performance and that of the Aggregate Bond Index. The investment
managers of the Portfolio seek a correlation of 0.95 or better. In the event
that a correlation of 0.95 or better is not achieved, the Trustees of the
Trust will review methods for increasing such correlation with the investment
managers, such as through adjustments in securities holdings of the Portfolio.
A correlation of 1.0 would indicate a perfect correlation, which would be
achieved when the Portfolio's net asset value, including the value of its
dividend and capital gains distributions, increases or decreases in exact
proportion to changes in the Aggregate Bond Index. The Portfolio's investment
managers monitor the correlation between the performance of the Portfolio and
the Aggregate Bond Index on a regular basis. Factors such as the size of the
Portfolio's securities holdings, transaction costs, management fees and
expenses, brokerage commissions and fees, the extent and timing of cash flows
into and out of the Portfolio, and changes in the securities markets and the
index itself, are expected to account for any differences between the
Portfolio's performance and that of the Aggregate Bond Index.
The Portfolio invests at least 80% of its assets in a portfolio of securities
consisting of a representative selection of debt instruments included in the
Aggregate Bond Index. The Portfolio intends to remain fully invested, to the
extent practicable, in a pool of securities that match the yield and total
return of the Aggregate Bond Index.
LEHMAN BROTHERS AGGREGATE BOND INDEX. The Aggregate Bond Index is a broad
market-weighted index which encompasses three major classes of United States
investment grade fixed income securities with maturities greater than one
year: U.S. Treasury and agency securities, corporate bonds, and mortgage-
backed securities. The Index measures the total investment return (capital
change plus income) provided by a universe of fixed income securities,
weighted by the market value outstanding of each security. The securities
included in the Index generally meet the following criteria, as defined by
Lehman Brothers: an outstanding market value of at least $100 million and
investment grade quality (rated a minimum of Baa by Moody's Investors Service,
Inc.("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P")). The
Aggregate Bond Index is composed of the following kinds of securities: public
obligations of the U.S. Government; publicly issued debt of U.S. Government
agencies and quasi-federal corporations; corporate debt guaranteed by the U.S.
Government; fixed rate nonconvertible dollar-denominated corporate debt; 15-
and 30-year fixed rate securities backed by mortgage pools of the Government
National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FNMA); and
asset-backed pass-through securities representing pools of credit card
receivables and auto or home equity loans.
As of December 31, 1995, the following classes of fixed income securities
represented the stated proprotions of the total market value of the Aggregate
Bond Index:
U.S. Treasury and government
agency securities 53%
Corporate bonds 18%
Mortgage- and asset-backed securities 29%
The Portfolio has a policy of weighting its holdings so as to approximate the
relative composition of the securities contained in the Aggregate Bond Index,
under normal circumstances. Therefore, for each of the three classes of fixed
income securities listed above, the variation in weighting between the assets
held by the Portfolio and the assets in the Aggregate Bond Index is not
expected to be greater than plus or minus 5%. These weightings will be
monitored at the time securities are purchased by the Portfolio.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance: Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury Bonds
generally have initial maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. Government agencies and instrumentalities, such
as Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; other securities,
such as those of the Federal Home Loan Banks, are supported by the right of
the issuer to borrow from the Treasury. Securities issued by the Federal
National Mortgage Association are supported by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; other securities, such as those issued by the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentailities, no assurance can be
given that it will always do so, since it is not so obligated by law. The
Portfolio, the yields of funds investing in the Portfolio, and the value of
beneficial interests in the Portfolio, are not guaranteed by the U.S.
Government or any federal agency or instrumentality.
CORPORATE BONDS. The Portfolio may purchase debt securities of United States
corporations only if they are deemed investment grade, that is, they carry a
rating of at least Baa from Moody's or BBB from S&P or, if not rated by these
rating agencies, are judged by the investment managers of the Portfolio to be
of comparable quality. With respect to securities rated Baa by Moody's and
BBB by S&P, interest and principal payments are regarded as adequate for the
present; however, securities with these ratings may have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make interest and principal
payments than is the case with higher grade bonds. The Portfolio intends to
dispose of, in an orderly manner, any security which is downgraded below
investment grade subsequent to its purchase. See Item 13(a) in Part B for a
more detailed explanation of these ratings.
Corporate bonds are subject to call risk during periods of falling interest
rates. Securities with high stated interest rates may be prepaid (or called)
prior to maturity, requiring the Portfolio to invest the proceeds at generally
lower interest rates. Call provisions, common in many corporate bonds, allow
bond issuers to redeem bonds prior to maturity (at a specific price). When
interest rates are falling, bond issuers often exercise these call provisions,
paying off bonds that carry high stated interest rates and often issuing new
bonds at lower rates. For the Portfolio, the result would be that bonds with
high interest rates are called and must be replaced with lower-yielding
instruments. In these circumstances, the income of the Portfolio would
decline.
MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Portfolio
may purchase mortgage and mortgage-related securities such as pass-throughs
and collateralized mortgage obligations that meet the Portfolio's selection
criteria and are investment grade or of comparable quality (collectively,
"Mortgage Securities"). Mortgage pass-throughs are securities that pass
through to investors an undivided interest in a pool of underlying mortgages.
These are issued or guaranteed by U.S. government agencies such as GNMA, FNMA,
and FHLMC. Other mortgage pass-throughs consist of whole loans originated and
issued by private limited purpose corporations or conduits. Collateralized
mortgage obligation bonds are obligations of special purpose corporations that
are collateralized or supported by mortgages or mortgage securities such as
pass-throughs.
As a result of its investments in Mortgage Securities, the mortgage-backed
securities in the Portfolio may be subject to a greater degree of market
volatility as a result of unanticipated prepayments of principal. During
periods of declining interest rates, the principal invested in mortgage-backed
securities with high interest rates may be repaid earlier than scheduled, and
the Portfolio will be forced to reinvest the unanticipated payments at
generally lower interest rates. When interest rates fall and principal
prepayments are reinvested at lower interest rates, the income that the
Portfolio derives from mortgage-backed securities is reduced. In addition,
like other fixed income securities, Mortgage Securities generally decline in
price when interest rates rise.
Because the Portfolio will seek to represent all major sectors of the
investment grade fixed income securities market, the Portfolio may be a
suitable vehicle for those investors seeking ownership in the "bond market" as
a whole, without regard to particular sectors. The Portfolio is intended to
be a long-term investment vehicle and is not designed to provide investors
with a means of speculating on short-term bond market movements. Because of
potential share price fluctuations, the Portfolio may be inappropriate for
investors who have short-term objectives or who require stability of
principal. Investors should not consider the Portfolio a complete investment
program.
ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS
The Portfolio may utilize the investment strategies and techniques described
below.
SAMPLING AND TRADING IN THE PORTFOLIO. The Portfolio does not expect to hold
all of the individual issues which comprise the Aggregate Bond Index because
of the large number of securities involved. Instead, the Portfolio will hold a
representative sample of securities, selecting one or two issues to represent
entire classes or types of securities in the Index. This sampling technique is
expected to be an effective means of substantially duplicating the income and
capital returns provided by the Index.
To reduce transaction costs, the Portfolio's securities holdings will not be
automatically traded or re-balanced to reflect changes in the Aggregate Bond
Index. The Portfolio will seek to buy round lots of securities and may trade
large blocks of securities. These policies may cause a particular security to
be over- or under-represented in the Portfolio relative to its Index weighting
or result in its continued ownership by the Portfolio after its deletion from
the Index, thereby reducing the correlation between the Portfolio and the
Index. The Portfolio is not required to buy or sell securities solely because
the percentage of its assets invested in Index securities changes when their
market values increase or decrease. In addition, in order to more closely
correlate to the Index, the Portfolio may omit or remove Index securities from
its portfolio and substitute other Index securities if the investment managers
believe the removed security to be insufficiently liquid or believe the merit
of the investment has been substantially impaired by extraordinary events or
financial conditions. The investment managers of the Portfolio seek a
correlation of 0.95 or better between the performance of the Portfolio and
that of the Aggregate Bond Index. See "Investment Philosophy and Strategies"
above.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place in the future, beyond the normal settlement date, at a stated
price and yield. Securities purchased on a forward commitment or when-issued
basis are recorded as an asset and are subject to changes in value based upon
changes in the general level of interest rates. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed
at the time the commitment is made, but delivery and payment for the
securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Portfolio will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities, as the case may be. At the
time the Portfolio enters into a transaction on a when-issued or forward
commitment basis, a segregated account consisting of cash or high grade liquid
debt securities equal to the value of the when-issued or forward commitment
securities will be established and maintained. There is a risk that the
securities may not be delivered and that the Portfolio may incur a loss.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Trustees of the Trust. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest, and this value is maintained during
the term of the agreement. If the seller defaults and the collateral value
declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
disposition of collateral may be delayed or limited. Investments in certain
repurchase agreements and certain other investments which may be considered
illiquid are limited. See "Illiquid Investments; Privately Placed and other
Unregistered Securities" below.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds, in an amount
up to one-third of the value of its total assets, for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and not
for leverage. The Portfolio may also agree to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase agreement"). The
Securities and Exchange Commission ("SEC") views reverse repurchase agreements
as a form of borrowing. At the time the Portfolio enters into a reverse
repurchase agreement, it will place in a segregated custodial account cash,
U.S. Government securities or high-grade debt obligations having a value equal
to the repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities sold by
the Portfolio may decline below the repurchase price of those securities.
INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash position, the Portfolio may invest in securities issued by other
investment companies which invest in high quality, short-term debt securities
and which determine their net asset value per share based on the amortized
cost or penny-rounding method. In addition to the advisory fees and other
expenses the Portfolio bears directly in connection with its own operations,
as a shareholder of another investment company the Portfolio would bear its
pro rata portion of the other investment company's advisory fees and other
expenses. As such, the Portfolio's investors would indirectly bear the
expenses of the other investment company some or all of which would be
duplicated. Securities of other investment companies may be acquired by the
Portfolio to the extent permitted under the 1940 Act, that is, the Portfolio
may invest a maximum of up to 10% of its total assets in securities of other
investment companies so long as not more than 3% of the total outstanding
voting stock of any one investment company is held by the Portfolio. In
addition, not more than 5% of the Portfolio's total assets may be invested in
the securities of any one investment company.
FUTURES CONTRACTS AND OPTIONS. The Portfolio may purchase put and call
options on securities, indices of securities and futures contracts. The
Portfolio may also purchase and sell futures contracts. Futures contracts on
securities and securities indices will be used primarily to accommodate cash
flows or in anticipation of taking a market position when, in the opinion of
the investment managers, available cash balances do not permit economically
efficient purchases of securities. Moreover, the Portfolio may sell futures
and options to "close out" futures and options it may have purchased or to
protect against a decrease in the price of securities it owns but intends to
sell. The Portfolio will not invest in futures or options as part of a
defensive strategy to protect against potential market declines. See "Futures
Contracts and Options on Futures Contracts" in Part B.
The Portfolio may (a) purchase exchange-traded and over the counter (OTC) put
and call options on securities and indices of securities, (b) purchase and
sell futures contracts on securities and indices of securities and (c)
purchase put and call options on futures contracts on securities and indices
of securities. In addition, the Portfolio may sell (write) exchange-traded
and OTC put and call options on securities and indices of securities and on
futures contracts on securities and indices of securities. The staff of the
SEC has taken the position that OTC options are illiquid and, therefore,
together with other illiquid securities held by the Portfolio, cannot exceed
15% of the Portfolio's net assets. The Portfolio intends to comply with this
limitation.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their
use will increase the Portfolio's return. While the use of these techniques
by the Portfolio may reduce certain risks associated with owning its portfolio
securities, these investments entail certain other risks. If the Portfolio's
investment managers apply a strategy at an inappropriate time or judge market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's potential to
realize gains as well as limit its exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. In addition, the Portfolio
will incur transaction costs, including trading commissions and option
premiums, in connection with its futures and options transactions and these
transactions could significantly increase the Portfolio's turnover rate. For
more information on these investment techniques, see Part B.
The Portfolio may purchase and sell put and call options on securities,
indices of securities and futures contracts, or purchase and sell futures
contracts, only if such options are written by other persons and if
(i) the aggregate premiums paid on all such options which are held at any time
do not exceed 20% of the Portfolio's total net assets, and (ii) the aggregate
margin deposits required on all such futures and premium on options thereon
held at any time do not exceed 5% of the Portfolio's total assets. The
Portfolio may also be subject to certain limitations pursuant to the
regulations of the Commodity Futures Trading Commission. The Portfolio does
not have any current intention of purchasing futures contracts or investing in
put and call options on securities, indices of securities, or futures
contracts if more than 5% of its net assets would be at risk from such
transactions.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933 (the "1933 Act"), and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it
is valued by the Portfolio. The price the Portfolio pays for illiquid
securities or receives upon resale may be lower than the price paid or
received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
Acquisitions of illiquid investments by the Portfolio are subject to the
following non-fundamental policies. The Portfolio may not invest in
additional illiquid securities if, as a result, more than 15% of the market
value of its net assets would be invested in illiquid securities. The
Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the
Portfolio's investment managers and approved by the Trustees. The Trustees of
the Trust will monitor the implementation of these guidelines on a periodic
basis. Because Rule 144A is relatively new, it is not possible to predict how
markets in Rule 144A securities will develop. If trading in Rule 144A
securities were to decline, these securities could become illiquid after being
purchased, increasing the level of illiquidity of the Portfolio. As a result,
the Portfolio might not be able to sell these securities when the investment
managers wish to do so, or might have to sell them at less than fair value.
SHORT-TERM INSTRUMENTS. The Portfolio may invest in short-term income
securities in accordance with its investment objective and policies as
described above. The Portfolio may also make money market investments pending
other investments or settlement, or to maintain liquidity to meet investor
redemptions. Although the Portfolio normally seeks to remain substantially
fully invested in securities selected to match the Aggregate Bond Index
consistent with seeking a correlation of 0.95 or better between the
Portfolio's performance and that of its corresponding index, the Portfolio may
invest temporarily up to 20% of its assets in certain short-term fixed income
securities. The Portfolio will not invest in short-term instruments as part
of a defensive strategy to protect against potential market declines. Short-
term investments include: obligations of the U.S. Government and its agencies
or instrumentalities; commercial paper and other debt securities; variable and
floating rate securities; bank obligations; repurchase agreements
collateralized by these securities; and shares of other investment companies
that primarily invest in any of the above-referenced securities. Commercial
paper consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. Other corporate obligations in which the Portfolio
may invest consist of high quality, U.S. dollar-denominated short-term bonds
and notes (including varaible amount master demand notes) issued by domestic
and foreign corporations. The Portfolio may invest in commercial paper issued
by major corporations in reliance on the exemption from registration afforded
by Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only
to finance current transactions and must mature in nine months or less.
Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation in
the commercial paper market is very limited.
The Portfolio may invest in U.S. dollar-denominated certificates of deposits,
bankers' acceptances and other short-term obligations issued by domestic banks
and domestic or foreign branches or subsidiaries of foreign banks.
Certificates of deposit are certificates evidencing the obligation of a bank
to repay funds deposited with it for a specified period of time. Such
instruments include Yankee Certificates of Deposit ("Yankee CDs"), which are
certificates of deposit denominated in U.S. dollars and issued in the United
States by the domestic branch of a foreign bank. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits which may be held by the
Portfolio are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Portfolio will not invest more than
15% of the value of its net assets in time deposits maturing in longer than
seven days and other instruments which are deemed illiquid or not readily
marketable. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations which have either fixed,
floating or variable interest rates.
The Portfolio will limit its short-term investments to those U.S. dollar-
denominated instruments which are determined by or on behalf of the Trustees
of the Trust to present minimal credit risks and which are of "high quality"
as determined by a major rating service (i.e., rated P-1 by Moody's or A-1 by
S&P) or, in the case of instruments which are not rated, are deemed to be of
comparable quality pursuant to procedures established by the Trustees of the
Trust. The Portfolio may invest in obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of
their most recently published financial statements) in excess of $100 million.
Investments in high quality short-term instruments may, in many circumstances,
result in a lower yield than would be available from investments in
instruments with a lower quality or longer term.
SECURITIES LENDING. The Portfolio may seek to increase its income by lending
securities to banks, brokers or dealers and other recognized institutional
investors. Such loans may not exceed 30% of the value of the Portfolio's
total assets. In connection with such loans, the Portfolio will receive
collateral consisting of cash, U.S. Government or other high quality
securities, irrevocable letters of credit issued by a bank, or any combination
thereof. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. The
Portfolio can increase its income through the investment of any such
collateral consisting of cash. The Portfolio continues to be entitled to
payments in amounts equal to the interest or dividends payable on the loaned
security and in addition, if the collateral received is other than cash,
receives a fee based on the amount of the loan. Such loans will be terminable
at any time upon specified notice. The Portfolio might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio.
SHORT SALES "AGAINST THE BOX." In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. The Portfolio may engage in short sales only if at
the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The
Portfolio may make a short sale as a hedge, when it believes that the value of
a security owned by it (or a security convertible or exchangeable for such
security) may decline, or when the Portfolio wants to sell the security at an
attractive current price but wishes to defer recognition of gain or loss for
tax purposes. Not more than 40% of the Portfolio's total assets would be
involved in short sales "against the box."
CERTAIN OTHER OBLIGATIONS. Consistent with its investment objectives,
policies and restrictions, the Portfolio may also invest in participation
interests, guaranteed investment contracts and zero coupon obligations. See
Part B. In order to allow for investments in new instruments that may be
created in the future, upon the Trust supplementing this Part A, the Portfolio
may invest in obligations other than those listed previously, provided such
investments are consistent with the Portfolio's investment objective, policies
and restrictions.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
represented by cash and cash items (including receivables), government
securities, securities of other investment companies, and other securities
which for purposes of this calculation are subject to the following
fundamental limitations: (a) the Portfolio may not invest more than 5% of its
total assets in the securities of any one issuer, and (b) the Portfolio may
not own more than 10% of the outstanding voting securities of any one issuer.
In addition, the Portfolio may not invest 25% or more of its assets in the
securities of issuers in any one industry, unless the securities in a single
industry were to comprise 25% or more of the Aggregate Bond Index in which
case the Portfolio will invest 25% or more of its assets in that industry.
These are fundamental investment polices which may not be changed without
investor approval.
Part B includes further discussion of investment strategies and techniques,
and a listing of other fundamental investment restrictions and non-fundamental
investment policies which govern the investment policies of the Portfolio.
Fundamental investment restrictions may not be changed without the approval of
the investors in the Portfolio. If a percentage restriction (other than a
restriction as to borrowing) or a rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Portfolio or a later change in the
rating or a security held by the Portfolio is not considered a violation of
the policy.
The investment objective of the Portfolio may be changed without the approval
of the Portfolio's investors but not without written notice thereof to the
Portfolio's investors thirty days prior to implementing the change. If there
were a change in the Portfolio's investment objective, investors should
consider whether the Portfolio remains an appropriate investment in light of
their then-current financial position and needs. There can, of course, be no
assurance that the investment objective of the Portfolio will be achieved.
See "Investment Restrictions" in Part B for a description of the fundamental
investment policies and restrictions of the Portfolio that cannot be changed
without approval by the holders of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the "1940 Act")
of the Portfolio. Except as stated otherwise, the investment objective,
policies, strategies and restrictions described herein and in Part B are non-
fundamental.
ITEM 5. MANAGEMENT OF THE REGISTRANT
(a) Board of Trustees. The Trust is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the investors.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
(b) Adviser. Federated Management (the "Adviser"), located at 1001 Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779 is responsible for the
management of the Portfolio's assets pursuant to an Investment Advisory
Agreement (the "Advisory Agreement") with the Trust on behalf of the
Portfolio.
Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Portfolio and its securities.
These codes recognize that such persons owe a fiduciary duty to the
Portfolio's investors and must place the interests of investors ahead of the
employees' own interest. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Portfolio; prohibit purchasing securities in initial
public offerings; and prohibit taking profits on securities held for less than
sixty days. Violations of the codes are subject to review by the Trustees,
and could result in severe penalties.
Advisory Fees. For its services under the Advisory Agreement, the Adviser is
entitled to receive from the Portfolio a fee accrued daily and paid monthly at
an annual rate equal to .25 of 1% of the Portfolio's average daily net assets.
The Adviser has agreed to waive all investment advisory fees with respect to
the Portolio. This waiver may be terminated at any time, although Federated
Investors has agreed to maintain total operating expenses (after waivers and
reimbursements) of the Portfolio at no greater than 0.20% of average net
assets for the twelve month period following January 2, 1996. The Adviser has
also undertaken to reimburse the Portfolio for operating expenses in excess of
limitations established by certain states.
Adviser's Background. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250
funds under managment and/or administration by its subsidiaries, as of
December 31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,000 financial
inistitions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Sub-Adviser. Federated Management has delegated the daily management of the
Portfolio's security holdings to U.S. Trust Company (the "Sub-Adviser"). U.S.
Trust Company is located at 770 Broadway, New York, New York. Subject to the
general guidance and policies set by the Trustees of the Trust, Federated
Management closely monitors the Sub-Adviser's application of the Portfolio's
investment policies and strategies, and regularly evaluates the Sub-Adviser's
investment results and trading practices.
Sub-Advisory Fees. Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Adviser and the Sub-Adviser, the Sub-Adviser makes the
day-to-day investment decisions and portfolio selections for the Portfolio,
consistent with the general guidelines and policies established by the Adviser
and the Trustees of the Trust. For the investment management services it
provides to the Portfolio, the Sub-Adviser is compensated only by the Adviser,
and receives no fees directly from the Trust. For its services under the Sub-
Advisory Agreement, the Sub-Adviser is entitled to receive from the Adviser a
fee accrued daily and paid monthly at an annual rate equal to .12 of 1% of the
Portfolio's average daily net assets. U.S. Trust, the Sub-Adviser, has agreed
to waive all sub-advisory fees with respect to the Portfolio, which waiver may
be terminated at any time. The Sub-Adviser furnishes at its own expense all
services, facilities and personnel necessary in connection with managing the
Portfolio's investments and effecting securities transactions for the
Portfolio.
Sub-Adviser's Background. U.S. Trust Company is a state-chartered trust
company which provides trust and banking services to individuals, corporations
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency services, and personal and corporate banking. U.S. Trust
Company is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York
Clearing House Association. On June 30, 1995, U.S. Trust Company's Asset
Management Group had approximately $41.2 billion in assets under management.
U.S. Trust Company, which has its principal offices at 114 West 47th Street,
New York, New York, is a subsidiary of U.S. Trust Corporation, a registered
bank holding company. U.S. Trust Company also serves as investment adviser to
Excelsior Funds, Inc. (formerly known as UST Master Funds, Inc.), Excelsior
Tax-Exempt Funds, Inc. (formerly known as UST Master Tax-Exempt Funds, Inc.)
and Excelsior Institutional Trust, all of which are registered investment
companies. U.S. Trust Company also serves as investment adviser to the UST
Variable Series, Inc.
It is the responsibility of U.S. Trust Company in its capacity as Sub-Adviser
to make the day-to-day investment decisions for the Portfolio and to place the
purchase and sales orders for securities transcations of the Portfolio,
subject to the general supervision of Federated Management. U.S. Trust
Company furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio.
INVESTMENTS IN THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
Certain Relationships and Activities. U.S. Trust Company and its affiliates
may have deposit, loan and other commercial banking relationships with the
issuers of securities which may be purchased on behalf of the Portfolio,
including outstanding loans to such issuers which could be repaid in whole or
in part with the proceeds of securities so purchased. U.S. Trust Company has
informed the Portfolio that, in making investment decisions, it does not
obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolio, U.S. Trust Company will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by the Portfolio
is a customer of U.S. Trust Company, its parents or its subsidiaries or
affiliates. When dealing with its customers, U.S. Trust Company, its parents,
subsidiaries, and affiliates will not inquire or take into consideration
whether securities of such customers are held by any fund managed by U.S.
Trust Company or any such affiliate.
Bank Regulatory Matters. The Glass-Steagall Act and other banking laws and
regulations presently prohibit a bank holding company registered under the
Bank Holding Company Act of 1956, such as U.S. Trust Company, or any affiliate
thereof, from sponsoring, organizing, or controlling a registered, open-end
investment company that is continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling, or distributing securities in
general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent, or custodian to
such investment company or from purchasing shares of such a company as agent
for and upon the order of their customers. Based on advice of its counsel, it
is the position of U.S. Trust Company that the investment sub-advisory
services it performs under the Sub-Advisory Agreement with the Trust do not
constitute underwriting activities and are consistent with the requirements of
the Glass-Steagall Act. State laws on this issue may differ from the
interpretations of relevant federal law and banks and financial institutions
may be required to register as dealers pursuant to state securities law.
Future changes in either federal statutes or regulations relating to the
permissible activities of banks, as well as future judicial or administrative
decisions and interpretations of present and future statutes and regulations,
could prevent a bank from continuing to perform all or part of its investment
management activities. If a bank were prohibited from so acting, alternative
means for continuing the management of the Portfolio would be sought. In such
event, changes in the operation of the Portfolio might occur. The Trustees of
the Trust do not expect that investors in the Portfolio would suffer any
adverse financial consequences as a result of these occurrences.
(c) Susan M. Nason has been the Portfolio's portfolio manager since its
inception. Ms. Nason joined Federated Investors in 1987 and has been a Vice
President of the Adviser since 1993. Ms. Nason served as an Assistant Vice
President of the Adviser from 1990 until 1992, and from 1987 until 1990 she
acted as an investment analyst. Ms. Nason is a Chartered Financial Analyst and
received her M.B.A. in Finance from Carnegie Mellon University.
Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President, of
U.S. Trust Company, Structured Investment Management Department, have been
portfolio managers of the Portfolio since its inception and are responsible
for the day-to-day management of the Portfolio. Mr. Theccanat has been
managing structured investment portfolios at U.S. Trust Company since January,
1990. Prior to this, Mr. Theccanat was a Vice President of Drexel Burnham &
Lambert, and was responsible for interest rate and foreign exchange risk
management. Mr. Tavel designs, develops and implements analytic procedures
and services utilizing quantitative and financial information. He has over 17
years of experience in the execution of decision support systems at U.S. Trust
Company and previously at Lehman Asset Management, where he was Director of
Institutional Computer Services.
(d) Federated Services Company, through its subsidiary Federated
Administrative Services, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Administrative Services also maintains the
Trust's portfolio accounting records. Federated Services Company, a
Pennsylvania corporation, is a subsidiary of Federated Investors and is
located at Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania, 15222-3779. Federated Services Company provides these services
for each Series in the Trust at an annual rate, accrued daily and paid
monthly, which relates to the average aggregate daily net assets of each
Series as specified below:
Average Aggregate Daily Net
Maximum Administrative Fee Assets of the Series
0.050 of 1% on the first $1 billion
0.045 of 1% on the next $1 billion
0.040 of 1% on the next $1 billion
0.025 of 1% on the next $1 billion
0.010 of 1% on the next $1 billion
0.005 of 1% on assets in excess of $5 billion
The minimum administrative fee shall be $60,000 annually for each Series
(unless waived). From time to time, Federated Services Company may waive all
or a portion of its fee, and has agreed to waive a portion of the
administrative fee for the Portfolio for the twelve month period following
January 2, 1996.
(e) Federated Services Company has contracted on behalf of its subsidiary,
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts,
to serve as transfer agent and dividend disbursing agent for the Trust.
(f) The expenses of the Trust include the compensation of its Trustees who are
not affiliated with the investment managers or Federated Services Company;
governmental fees; interest charges; taxes; fees and expenses of independent
auditors, of legal counsel and of any transfer agent, custodian, registrar or
portfolio accounting agent of the Trust; insurance premiums; and expenses of
calculating the net asset value of, and the net income on, interests in the
Portfolio.
(g) Not applicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) The Portfolio is a series of the Trust, which is organized as a series
trust under the laws of the Commonwealth of Massachusetts. Under the
Declaration of Trust, the Trustees are authorized to issue beneficial
interests in one or more series (each a "Series"). Currently, only the Bond
Index Portfolio is being offered to investors.
Investments in a Series may not be transferred, but an investor may withdraw
all or any portion of its investment. Certificates of shares of beneficial
interests in the Trust will not be issued. Investors in a Series (e.g.,
investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of that Series
(and of no other Series) or of the overall obligations of the Trust. However,
the risk of an investor in a Series incurring financial loss on account of
such liability is limited to circumstances in which the Series itself is
unable to meet its obligations. Investors in a Series have no preemptive or
conversion rights and are fully paid and non-assessable, except as set forth
below.
Each investor is entitled to a vote in proportion to the amount of its
investment in a Series. Investors in a Series do not have cumulative voting
rights, and a plurality of the aggregate beneficial interests in all
outstanding Series may elect all of the Trustees if they choose to do so and
in such event other investors would not be able to elect any Trustees.
Investors in each Series will vote as a separate class, except as to voting
for the election or removal of Trustees, the termination of the Trust, as
otherwise required by the 1940 Act, or if determined by the Trustees to be a
matter which affects all Series. As to any matter which does not affect a
particular Series, only investors in the one or more affected Series are
entitled to vote. The Trust is not required and has no current intention of
holding annual meetings of investors, but the Trust will hold special meetings
of investors when, in the judgment of the Trust's Trustees, it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors under certain
circumstances (e.g., upon application and submission of certain specified
documents to the Trustees by a specified number of investors) have the right
to communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also
have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation of
a Series, investors would be entitled to share pro rata in the net assets of
that Series (and no other Series) available for distribution to investors.
(b) As of March 5, 1996, Excelsior Institutional Bond Index Fund owned
approximately 99.37% of the beneficial interests of the Portfolio and
therefore, may, for certain purposes, be deemed to control the Portfolio and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
(c) Not applicable.
(d) Not applicable.
(e) Investor inquiries regarding the Trust may be directed to the Trust,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (1-800-245-
4270).
(f) The Portfolio determines its net income and realized capital gains, if
any, on each Portfolio Business Day (as defined below) and allocates all such
income and gain pro rata among the investors in the Portfolio at the time of
such determination.
The "net income" of the Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less
(ii) all actual and accrued expenses of the Portfolio determined in accordance
with generally accepted accounting principles. Interest income includes
discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the Portfolio. All the net income of the
Portfolio is allocated pro rata among the investors in the Portfolio (and no
other Series).
(g) Under its anticipated method of operation, the Portfolio will not be
subject to any income tax. However, each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing
instruments of the Trust) of the Portfolio's ordinary income and capital gain
in determining its income tax liability. The determination of such share will
be made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
For more information on tax matters, see Item 20 in Part B.
(h) Not applicable.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
(a) Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 above.
Federated Securities Corp., Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779 serves as the Trust's Placement Agent. It
is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated
Securities Corp. receives no fee for its services as placement agent for the
Trust. Federated Securities Corp. is a wholly-owned subsidiary of Federated
Investors.
(b) The net asset value of the Portfolio is determined each day as of the
close of trading (normally 4:00 p.m., Eastern Time) (the "Valuation Time") on
the New York Stock Exchange, Monday through Friday, except on (i) days on
which there are not sufficient changes in the value of the Portfolio's
portfolio securities such that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. Any day on which the
Portfolio may determine its net asset value, as described above, may
hereinafter be referred to as a "Portfolio Business Day."
Assets in the Portfolio which are traded on a recognized domestic exchange or
are quoted on a national securities market are valued at the last sale price
on the securities exchange on which such securities are primarily traded or at
the last sale price on such national securities market. Securities traded
only on over-the-counter markets are valued on the basis of closing over-the-
counter bid prices. Restricted securities, securities for which market
quotations are not readily available, and other assets are valued at fair
value, pursuant to guidelines adopted by the Trustees of the Trust. Absent
unusual circumstances, debt securities maturing in 60 days or less are valued
at amortized cost. Some of the securities acquired by the Portfolio may be
traded on over-the-counter markets on days which are not Portfolio Business
Days. In such cases, the net asset value of the shares may be significantly
affected on days when investors neither purchase nor redeem their shares of
beneficial interest in the Portfolio. The Portfolio may use one or more
independent pricing services in connection with the pricing of its portfolio
securities. For additional information on the valuation of the Portfolio's
securities, see Item 19 in Part B.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Portfolio Business Day. As of the Valuation Time on each
such day, the value of each investor's beneficial interests in the Portfolio
will be determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the Valuation Time on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Valuation Time on such
day, plus or minus, as the case may be, the amount of net additions to or
reductions in the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as of the Valuation Time
on the following Portfolio Business Day.
The Trust reserves the right to cease accepting investments in the Portfolio
at any time or to reject any investment order.
(c) An investment in the Portfolio may be made without sales load at the net
asset value next determined if an order is received "in good order" by the
Trust.
(d) There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the
account of the Portfolio's custodian bank by a Federal Reserve Bank).
(e) Not applicable.
(f) Not applicable.
ITEM 8. REDEMPTION OR REPURCHASE
(a) An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Trust by the designated cutoff
time for each accredited investor. The proceeds of a reduction or withdrawal
will be paid by the Trust in federal funds normally on the Portfolio Business
Day the withdrawal is effected, but in any event within seven days. The
Trust, on behalf of the Portfolio, reserves the right to pay redemptions in
kind. See Item 19 in Part B. Investments in the Portfolio may not be
transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during
any period in which the New York Stock Exchange ("NYSE") is closed (other than
weekends or holidays) or trading on the NYSE is restricted or, to the extent
otherwise permitted by the 1940 Act, if an emergency exists.
(b)Not applicable.
(c)Not applicable.
(d)Not applicable.
ITEM 9. PENDING LEGAL PROCEEDINGS
None.
PART B.
ITEM 10. COVER PAGE
This Part B sets forth information which may be of interest to investors but
which is not necessarily included in Part A as it may be amended from time to
time. This Part B should be read only in conjunction with Part A, a copy of
which may be obtained by an investor without charge by writing the Trust or
calling 1-800-245-4270.
ITEM 11. TABLE OF CONTENTS
General Information and History B-1
Investment Objective and Policies B-1
Investment Restrictions B-20
Management of the Registrant B-24
Control Persons and Principal
Holders of Securities B-31
Investment Advisory and Other
Services B-31
Brokerage Allocation and Other
Practices B-34
Capital Stock and Other Securities B-36
Purchase, Redemption, and Pricing
of Securities being Offered B-38
Tax Status B-39
Underwriters B-41
Calculation of Performance Data B-41
Financial Statements B-41
ITEM 12. GENERAL INFORMATION AND HISTORY
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES
(a) Part A contains additional information about the investment objectives and
policies and management techniques of the Portfolio. This Part B should only
be read in conjunction with Part A of the registration statement.
Except as stated otherwise, all investment policies and restrictions described
herein are non-fundamental. Accordingly, the approval of the investors in the
Portfolio is not required to change any of the investment objectives, policies
or management techniques of the Portfolio discussed herein or in Part A of
this registration statement, unless otherwise indicated.
ASSET-BACKED SECURITIES
Asset-backed securities have structural characteristics similar to mortgage-
backed securities but have underlying assets that generally are not mortgage
loans or interests in mortgage loans.
The Portfolio may invest in asset-backed securities including, but not limited
to, interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables, equipment leases,
manufactured housing (mobile home) leases, or home equity loans. These
securities may be in the form of pass-through instruments or asset-backed
bonds. The securities are issued by non-governmental entities and carry no
direct or indirect government guarantee.
The credit characteristics of asset-backed securities differ in a number of
respects from those of traditional debt securities. The credit quality of
most asset-backed securities depends primarily upon the credit quality of the
assets underlying such securities, how well the entity issuing the securities
is insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
Credit card receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit the
servicer of such receivable to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there
is a risk that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then re-registered because the owner and
obligor moves to another state, such re-registration could defeat the original
security interest in the vehicle in certain cases. In addition, because of
the large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of asset-backed
securities backed by automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
BANK OBLIGATIONS
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks
are subject to federal examination and to a substantial body of federal law
and regulation. As a result of federal or state laws and regulations,
domestic banks, among other things, generally are required to maintain
specified levels of reserves, are limited in the amounts which they can loan
to a single borrower, and are subject to other regulations designed to promote
financial soundness. However, not all of such laws and regulations apply to
the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of
deposit ("CDs") and time deposits ("TDs"), may be general obligations of the
parent banks in addition to the issuing branch, or may be limited by the terms
of a specific obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. Foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan limitations,
and accounting, auditing and financial record keeping requirements. In
addition, less information may be publicly available about a foreign branch of
a domestic bank or about a foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal or state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A domestic branch of a foreign bank with assets in
excess of $1 billion may be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and branches
licensed by certain states may be required to: (1) pledge to the regulator,
by depositing assets with a designated bank within the state, a certain
percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.
The Portfolio may purchase three types of commercial paper, as classified by
exemption from registration under the 1933 Act. The three types include open
market, privately placed, and letter of credit commercial paper. Trading of
such commercial paper is conducted primarily by institutional investors
through investment dealers or directly through the issuers. Individual
investor participation in the commercial paper market is very limited.
OPEN MARKET. "Open market" commercial paper refers to the commercial paper of
any industrial, commercial, or financial institution which is openly traded,
including directly issued paper. "Open market" paper's 1933 Act exemption is
under Section 3(a)(3) which limits the use of proceeds to current
transactions, limits maturities to 270 days and requires that the paper
contain no provisions for automatic rollovers.
PRIVATELY PLACED. "Privately placed" commercial paper relies on the exemption
from registration provided by Section 4(2) of the 1933 Act, which exempts
transactions by an issuer not involving any public offering. The commercial
paper may only be offered to a limited number of accredited investors.
"Privately placed" commercial paper has no maturity restriction and may be
considered illiquid. See "Illiquid Securities" below.
LETTER OF CREDIT. "Letter of credit" commercial paper is exempt from
registration under Section 3(a)(2) of the 1933 Act. It is backed by an
irrevocable or unconditional commitment by a bank to provide funds for
repayment of the notes. Unlike "open market" and "privately placed"
commercial paper, "letter of credit" paper has no limitations on purchasers.
LENDING OF PORTFOLIO SECURITIES
The Portfolio has the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, the
Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by either investing the cash collateral in short-
term securities subject to payment of a rebate fee to the borrower or
obtaining a fee from the borrower when U.S. Government obligations are used as
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The
Portfolio will adhere to the following conditions whenever its securities are
loaned: (i) the Portfolio must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the loaned securities including
accrued interest exceeds the level of the collateral; (iii) the Portfolio must
be able to terminate the loan at any time subject to prior notice; (iv) the
Portfolio must receive a reasonable return on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower. However, if a material event adversely
affecting the loaned securities were to occur, the Portfolio would terminate
the loan and regain the right to vote the securities.
VARIABLE RATE AND FLOATING SECURITIES
The Portfolio may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of 397
days, but which permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding 397 days, in each case upon not more
than 30 days' notice. Variable rate demand notes include master demand notes
which are obligations that permit the Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. The interest rates on
these notes fluctuate from time to time. The issuer of such obligations
normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating rate demand obligation is based
on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are collateralized by letters of
credit or other credit support arrangements provided by banks. Because these
obligations are direct lending arrangements between the lender and borrower,
it is not contemplated that such instruments generally will be traded, and
there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Portfolio may
invest in obligations which are not so rated only if its investment managers
determine that at the time of investment the obligations are of comparable
quality to the other obligations in which the Portfolio may invest. The
investment managers of the Portfolio will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Portfolio. The Portfolio will not invest more than
15% of the value of its net assets in floating or variable rate demand
obligations as to which it cannot exercise the demand feature on not more than
seven days' notice if there is no secondary market available for these
obligations, and in other securities that are not readily marketable. See
"Investment Restrictions" below.
PARTICIPATION INTERESTS
The Portfolio may purchase from financial institutions participation interests
in securities in which the Portfolio may invest. A participation interest
gives the Portfolio an undivided interest in the security in the proportion
that the Portfolio's participation interest bears to the total principal
amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less.
If the participation interest is unrated, or has been given a rating below
that which is permissible for purchase by the Portfolio, the participation
interest will be backed by an irrevocable letter of credit or guarantee of a
bank, or the payment obligation otherwise will be collateralized by U.S.
Government securities, or, in the case of unrated participation interests, the
investment managers of the Portfolio must have determined that the instrument
is of comparable quality to those instruments in which the Portfolio may
invest. For certain participation interests, the Portfolio will have the
right to demand payment, on not more than seven days' notice, for all or any
part of the Portfolio's participation interest in the security, plus accrued
interest. As to these instruments, the Portfolio intends to exercise its
right to demand payment only upon a default under the terms of the security,
as needed to provide liquidity to meet redemptions or to maintain or improve
the quality of its investment portfolio. The Portfolio will not invest more
than 15% of its net assets in participation interests that do not have this
demand feature, and in other securities that are not readily marketable.
Currently, the Portfolio does not intend to invest more than 5% of its net
assets in participation interests during the current year. See "Investment
Restrictions" below.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them which, if possible at all, would result
in additional expense and delay. Adverse market conditions could impede such
a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.
The Portfolio's investment managers will monitor the liquidity of Rule 144A
securities for the Portfolio under the supervision of Trust's Trustees. In
reaching liquidity decisions, the investment managers will consider, among
other things, the following factors: (1) the frequency of trades and quotes
for the security, (2) the number of dealers and other potential purchasers
wishing to purchase or sell the security, (3) dealer undertakings to make a
market in the security and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
UNSECURED PROMISSORY NOTES
The Portfolio also may purchase unsecured promissory notes ("Notes") which are
not readily marketable and have not been registered under the 1933 Act,
provided such investments are consistent with the Portfolio's investment
objectives and policies. The Portfolio will invest no more than 15% of its
net assets in such Notes and in other securities that are not readily
marketable (which securities would include floating and variable rate demand
obligations as to which the Portfolio cannot exercise the demand feature
described above and as to which there is no secondary market). Currently, the
Portfolio does not intend to invest any of its assets in unsecured promissory
notes during the coming year. See "Investment Restrictions" below.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the
New York Stock Exchange or a subsidiary thereof) at an agreed-upon date within
a number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of
the underlying security, usually U.S. Government or government agency issues.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. The Portfolio's risk
is limited to the ability of the seller to pay the agreed upon amount on the
delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although the Portfolio may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered
into by the Portfolio are fully collateralized, with such collateral being
marked to market daily.
The Portfolio may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage.
One means of borrowing is by agreeing to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase agreement"). At
the time the Portfolio enters into a reverse repurchase agreement it will
place in a segregated custodial account cash, U.S. Government securities or
high-grade debt obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline
below the repurchase price of those securities.
GUARANTEED INVESTMENT CONTRACTS
The Portfolio may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, the Portfolio makes cash
contributions to a deposit fund of the insurance company's general account.
The insurance company then credits guaranteed interest to the fund. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Because the Portfolio may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment and, together with other
instruments in the Portfolio which are not readily marketable, will not exceed
15% of the Portfolio's net assets. The term of a GIC will be 13 months or
less. In determining average weighted portfolio maturity, a GIC will be
deemed to have a maturity equal to the longer of the period of time remaining
until the next readjustment of the guaranteed interest rate or the period of
time remaining until the principal amount can be recovered from the issuer
through demand. Currently, the Portfolio intends to invest 5% or less of its
net assets in GICs during the current year.
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that under normal circumstances, the
Portfolio would take delivery of such securities. Prior to committing to the
purchase of a security on a when-issued or on a forward delivery basis, the
Portfolio will establish procedures consistent with the relevant policies of
the SEC. Those policies currently recommend that an amount of the Portfolio's
assets equal to the amount of the purchase commitment be held aside or
segregated to be used to pay for the commitment. Therefore, the Portfolio
expects always to have cash, cash equivalents, or high quality debt securities
sufficient to cover any purchase commitments or to limit any potential risk.
Although the Portfolio does not intend to make such purchases for speculative
purposes and intends to adhere to SEC policies, purchases of securities on a
when-issued or forward delivery basis may involve additional risks than other
types of securities purchases. For example, the Portfolio may have to sell
assets which have been set aside in order to meet redemptions. Also, if the
Portfolio determines it is advisable as a matter of investment strategy to
sell the when-issued or forward delivery securities, the Portfolio would be
required to meet its obligations from its then available cash flow or the sale
of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or forward delivery securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
When the Portfolio engages in when-issued or forward delivery transactions, it
relies on the other party to consummate the trade. Failure of such other
party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities and any subsequent fluctuations in
their market value are taken into account when determining the market value of
the Portfolio starting on the day the Portfolio agrees to purchase the
securities. The Portfolio does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
ZERO COUPON OBLIGATIONS
The Portfolio may acquire zero coupon obligations when consistent with its
investment objectives and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since interest income is accrued throughout the term of the
zero coupon obligation but is not actually received until maturity, the
Portfolio, which is required for tax purposes to distribute to its investors a
certain percentage of its income, may have to sell other securities to
distribute the income prior to maturity of the zero coupon obligation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
General. The successful use of such instruments by the Portfolio may depend
in part upon its investment managers' skill and experience with respect to
such instruments. Should interest rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities will not be
perfect and could produce unanticipated losses.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase or
sale for future delivery of securities, or contracts based on financial
indices. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through
a futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S.
Government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. The Portfolio may also enter into
futures contracts which are based on fixed income securities issued by
entities other than the U.S. Government, including corporate debt securities,
or contracts based on financial indices including any index of U.S. Government
securities, or corporate debt securities.
At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and
the payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline or increase
in the contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the case
where the Portfolio holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest rates without
actually buying or selling fixed-income securities. For example, if interest
rates were expected to increase, the Portfolio might enter into futures
contracts for the sale of debt securities. Such a sale would have much the
same effect as selling an equivalent value of the debt securities owned by the
Portfolio. If interest rates did increase, the value of the debt security in
the Portfolio would decline, but the value of the futures contracts to the
Portfolio would increase at approximately the same rate, thereby keeping the
net asset value of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates
are expected to increase. However, since the futures market is more liquid
than the cash market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without having to sell
its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases
of debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, the Portfolio
could take advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At that time,
the futures contracts could be liquidated and the Portfolio could then buy
debt securities on the cash market. To the extent the Portfolio enters into
futures contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect
to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment managers may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the investment managers
believe that use of such contracts will benefit the Portfolio, if the judgment
of the investment managers about the general direction of interest rates is
incorrect, the Portfolio's overall performance would be poorer than if it had
not entered into any such contract. For example, if the Portfolio has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of debt securities held by it and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Portfolio has insufficient cash, it may have to sell debt securities to
meet daily variation margin requirements. Such sales of bonds may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts. The Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price
of the underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities. As with the
purchase of futures contracts, when the Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is
below the exercise price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call option
the Portfolio has written is exercised, the Portfolio will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For
example, the Portfolio may purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased.
The Trustees of the Trust have adopted the requirement that futures contracts
and options on futures contracts be used either (i) as a hedge without regard
to any quantitative limitation, or (ii) for other purposes to the extent that
immediately thereafter the aggregate amount of initial margin deposits on all
(non-hedge) futures contracts of the Portfolio and premiums paid on
outstanding (non-hedge) options on futures contracts owned by the Portfolio
does not exceed 5% of the market value of the net assets of the Portfolio. In
addition, the aggregate market value of the outstanding futures contracts
purchased by the Portfolio may not exceed 50% of the market value of the total
assets of the Portfolio. Neither of these restrictions will be changed by the
Trust's Trustees without considering the policies and concerns of the various
applicable federal and state regulatory agencies.
OPTIONS ON SECURITIES
The Portfolio may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options"). However, the
Portfolio may forgo the benefits of appreciation on securities sold or may pay
more than the market price on securities acquired pursuant to call and put
options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If
the option is exercised, a decision over which the Portfolio has no control,
the Portfolio must sell the underlying security to the option holder at the
exercise price. By writing a covered call option, the Portfolio forgoes, in
exchange for the premium less the commission ("net premium"), the opportunity
to profit during the option period from an increase in the market value of the
underlying security above the exercise price.
When the Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By
writing a covered put option, the Portfolio, in exchange for the net premium
received, accepts the risk of a decline in the market value of the underlying
security below the exercise price. The Portfolio will only write put options
involving securities for which a determination is made at the time the option
is written that the Portfolio wishes to acquire the securities at the exercise
price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to reflect
the current market value of the option written. The current market value of a
traded option is the last sale price or, in the absence of a sale, the closing
bid price. If an option expires on its stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, the Portfolio will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold), and the deferred credit
related to such option will be eliminated. If a call option is exercised, the
Portfolio will realize a gain or loss from the sale of the underlying security
and the proceeds of the sale will be increased by the premium originally
received. The writing of covered call options may be deemed to involve the
pledge of the securities against which the option is being written.
Securities against which call options are written will be segregated on the
books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in exchange for the
premium paid, to purchase a security at a specified price during the option
period. The Portfolio would ordinarily have a gain if the value of the
securities increased above the exercise price sufficiently to cover the
premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at
a specified price during the option period. The purchase of protective puts
is designed merely to offset or hedge against a decline in the market value of
the Portfolio's portfolio securities. Put options also may be purchased by
the Portfolio for the purpose of affirmatively benefiting from a decline in
the price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains
and losses on the purchase of protective put options would tend to be offset
by countervailing changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other non-fundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
options may also be restricted by the requirements of the Code, for its
qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
The Portfolio may engage in over-the-counter options transactions with broker-
dealers who make markets in these options. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New
York and who agree to (and are expected to be capable of) entering into
closing transactions, although there can be no guarantee that any such option
will be liquidated at a favorable price prior to expiration. The investment
managers will monitor the creditworthiness of dealers with whom the Portfolio
enters into such option transactions, under the general supervision of the
Trust's Trustees.
OPTIONS ON SECURITIES INDICES
In addition to options on securities, the Portfolio may also purchase and
write (sell) call and put options on securities indices. Such options give
the holder the right to receive a cash settlement during the term of the
option based upon the difference between the exercise price and the value of
the index. Such options will be used for the purposes described under
"Options on Securities."
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if its
investment managers believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
its investment managers believe the market is sufficiently developed such that
the risk of trading in such options is no greater than the risk of trading in
options on securities.
Price movements in the Portfolio's securities may not correlate precisely with
movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities
indices require settlement in cash, the investment managers may be forced to
liquidate portfolio securities to meet the Portfolio's settlement obligations.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales only if at the time of the short sale it
owns or has the right to obtain, at no additional cost, an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box."
In a short sale, the seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the
short position will be maintained by its custodian or qualified sub-custodian.
While the short sale is open, the Portfolio maintains in a segregated account
an amount of securities equal in kind and amount to the securities sold short
or securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position.
The Portfolio will not engage in short sales against the box for investment
purposes. The Portfolio may, however, make a short sale as a hedge, when it
believes that the price of a security may decline, causing a decline in the
value of a security (or a security convertible or exchangeable for such
security), or when the Portfolio wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for
federal income tax purposes or for purposes of satisfying certain tests
applicable to regulated investment companies under the Code. In such case,
any future losses in the Portfolio's long position should be reduced by a gain
in the short position. Conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced depends upon the amount of the security sold short relative
to the amount the Portfolio owns. There are certain additional transaction
costs associated with short sales against the box, but the Portfolio will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
As a non-fundamental operating policy, not more than 40% of the Portfolio's
total assets would be involved in short sales against the box.
CERTAIN OTHER OBLIGATIONS
In order to allow for the investments in new instruments that may be created
in the future, upon the Trust supplementing this registration statement, the
Portfolio may invest in obligations other than those listed previously,
provided such investments are consistent with the Portfolio's investment
objective, policies and restrictions.
RATING SERVICES
Ratings represent the opinions of rating services as to the quality of the
securities that they undertake to rate. It should be emphasized, however,
that the ratings are relative and subjective and are not absolute standards of
quality. Although these ratings are an initial criterion for selection of
portfolio investments, the investment managers also make their own evaluations
of these securities, subject to review by the Trustees of the Trust. After
purchase by the Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to dispose of the obligation, but
its investment managers will consider such an event in their determination of
whether the Portfolio should continue to hold the obligation. A description
of the ratings used herein and in Part A is as follows:
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
NR--"NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy. S&P may apply a plus
(+) or minus (-) to the above rating classifications to show relative standing
within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
AAA--Bonds which are rated "AAA" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA--Bonds which are rated "AA" are judged to be of high quality by all
standards. Together with the "AAA" group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "AAA" securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in "AAA" securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated "BAA" are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "AA" through "B" in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. the obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated "PRIME-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. "PRIME-
1" repayment capacity will normally be evidenced by the following
characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o broad margins in earnings coverage of fixed financial charges and high
internal cash generation; or
o well-established access to a range of financial markets and assured sources
of alternate liquidity.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1+."
(b) INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of the
Portfolio and may not be changed with respect to the Portfolio without the
approval of a "majority of the outstanding voting securities" of the
Portfolio. "Majority of the outstanding voting securities" under the 1940 Act
and as used in this Part B and Part A means, with respect to the Portfolio,
the lesser of (i) 67% or more of the total beneficial interest of the
Portfolio present at a meeting, if the holders of more than 50% of the total
beneficial interests of the Portfolio are present or represented by proxy, or
(ii) more than 50% of the total beneficial interests of the Portfolio.
With respect to each fundamental investment restriction and each non-
fundamental investment policy listed below, if a percentage restriction (other
than a restriction as to borrowing) or a rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or
assets are so utilized, a later change in such percentage resulting from
changes in the Portfolio's total assets or the value of the Portfolio's
securities, or a later change in the rating of a portfolio security, will not
be considered a violation of the relevant restriction or policy.
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the Portfolio's
assets (including such borrowing) less liabilities (not including such
borrowing), it may borrow money, enter into reverse repurchase agreements, and
purchase when-issued securities, and except that it may pledge, mortgage or
hypothecate its assets to secure such borrowings, reverse repurchase
agreements, or when-issued securities, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for purposes of this
restriction, and except that assets may be pledged to secure letters of credit
solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute.
The Portfolio will not purchase securities while borrowings exceed 5% of the
Portfolio's total assets;
(2) underwrite securities issued by other persons except insofar as the Trust
or the Portfolio may technically be deemed an underwriter under the 1933 Act
in selling a portfolio security;
(3) make loans to other persons except (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed
30% of the Portfolio's total assets (taken at market value), (b) through the
use of repurchase agreements or the purchase of short-term obligations, or (c)
by purchasing debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests in
partnerships substantially all of whose assets consist of real estate but
excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (the Trust
may hold and sell, for the Portfolio's portfolio, real estate acquired as a
result of the Portfolio's ownership of securities);
(5) invest 25% or more of its assets in any one industry (excluding U.S.
Government securities), unless the bonds issued by companies in a single
industry were to comprise 25% or more of Lehman Brothers Aggregate Bond Index,
in which case the Portfolio will invest 25% or more of its assets in that
industry; or
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security
for purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies, the Portfolio will not as a matter of operating
policy:
(i) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of purchases
and sales of securities may be obtained and except that deposits of initial
deposit and variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase securities issued by any other investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market,
is part of a plan of merger or consolidation; provided, however, that
securities of any investment company will not be purchased for the Portfolio
if such purchase at the time thereof would cause (a) more than 10% of the
Portfolio's total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the
Portfolio's total assets (taken at the greater of cost or market value) to be
invested in any one investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Portfolio;
(iv) purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be deemed
a single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(v) purchase or retain in the Portfolio's portfolio any securities issued by
an issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer or partner of the Adviser or
Sub-Adviser of the Portfolio, if after the purchase of the securities of such
issuer for the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken at market
value, of such issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
(vi) invest more than 5% of the Portfolio's net assets in warrants (valued at
the lower of cost or market), but not more than 2% of the Portfolio's net
assets may be invested in warrants not listed on the New York Stock Exchange
or the American Stock Exchange;
(vii) make short sales of securities or maintain a short position (excluding
short sales if the Portfolio owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any
further consideration, securities of equivalent kind and amount) if such short
sales represent more than 25% of the Portfolio's net assets (taken at market
value); provided, however, that the value of the Portfolio's short sales of
securities (excluding U.S. Government securities) of any one issuer may not be
greater than 2% of the value (taken at market value) of the Portfolio's net
assets or more than 2% of the securities of any class of any issuer;
(viii) enter into repurchase agreements providing for settlement in more than
seven days after notice, or purchase securities which are not readily
marketable, if, in the aggregate, more than 15% of its net assets would be so
invested;
(ix) purchase puts, calls, straddles, spreads or any combination thereof, if
by reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Portfolio's total assets;
(x) invest more than 10% of its total assets in securities subject to
restrictions on resale under the Securities Act of 1933, except for commercial
paper issued under Section 4(2) of the Securities Act of 1933 and certain
other restricted securities which meet the criteria for liquidity as
established by the Trustees of the Trust; or
(xi) invest more than 5% of the value of its total assets in securities of
issuers which have records of less than three years of continuous operations,
including the operation of the Trust.
(c) See policies (i) through (xi) above.
(d) Portfolio turnover
Although the Portfolio is managed to reflect the composition of the Lehman
Brothers Aggregate Bond Index, the Portfolio may sell securities irrespective
of how long such securities have been held. Ordinarily, securities will be
sold from the Portfolio only to reflect certain administrative changes in the
Lehman Brothers Aggregate Bond Index (including mergers or changes in its
composition) or to accommodate cash flows into and out of the Portfolio while
maintaining the similarity of its portfolio to its benchmark index. The
Portfolio may sell a portfolio investment immediately after its acquisition if
the investment managers believe that such a disposition is consistent with the
investment objective of the Portfolio. Portfolio investments may be sold for
a variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments.
Except as may be required to ensure satisfaction of certain tests applicable
to regulated investment companies under the Code, portfolio changes are made
without regard to the length of time a security has been held, or whether a
sale would result in the recognition of a profit or loss. The Portfolio may
engage in short-term trading to achieve its investment objective. Portfolio
turnover may vary greatly from year to year as well as within a particular
year. The Portfolio's portfolio turnover rate may also be affected by cash
requirements for redemptions of shares and by regulatory provisions which
enable a fund to receive certain favorable tax treatment. Portfolio turnover
will not be a limiting factor in making portfolio decisions. Portfolio
trading is engaged in for the Portfolio if its investment managers believe
that a transaction net of costs (including custodian charges) will help
achieve the Portfolio's investment objective.
The annual portfolio turnover rate for the Portfolio is not expected to exceed
100%. A rate of 100% indicates that the equivalent of all of the Portfolio's
assets have been sold and reinvested in a calendar year. A high rate of
portfolio turnover may involve correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the
Portfolio and ultimately by the investors in the Portfolio. High portfolio
turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions
resulting from such gains are considered ordinary income for Federal income
tax purposes. See Item 6 above and Item 20 below.
ITEM 14. MANAGEMENT OF THE REGISTRANT
(a) Officers and Trustees of the Trust are listed below with their principal
occupations, addresses, birthdates, and present positions with the Trust,
including any affiliation with Federated Management, Federated Securities
Corp., Federated Services Company, Federated Shareholder Services Company,
Federated Administrative Services, and the Funds (as defined below).
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Director, Federated Services Company; Trustee, Federated Administrative
Services, Federated Shareholder Services Company, and Federated Shareholder
Services; President or Executive Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Weston, MA
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Executive Vice President and Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated Securities
Corp., Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the 1940
Act.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; FTI Funds; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Exchange Fund, Ltd.; Federated Fund for U.S. Government Securities Inc.;
Federated GNMA Trust; Federated Government Trust; Federated High Income
Securities Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government
Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.; High Yield
Cash Trust; Insurance Management Series; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds;
World Investment Series, Inc.
(c)
TRUSTEES' COMPENSATION
AGGREGATE TOTAL
NAME, COMPENSATION COMPENSATION
POSITION WITH FROM PAID
TRUST REGISTRANT* FROM FUND COMPLEX+
John F. Donahue, $0 $0 for the Trust and 54
Trustee other investment companies in the Fund
Complex
J.Christopher Donahue $0 $0 for the Trust and 16
President and Trustee other investment companies in the Fund
Complex
Thomas G. Bigley++ $0 $86,331 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $0 $115,760 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
William J. Copeland $0 $115,760 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
James E. Dowd $0 $115,760 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $0 $104,898 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $0 $115,760 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
Peter E. Madden $0 $104,898 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
Gregor F. Meyer $0 $104,898 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
John E. Murray, Jr. $0 $104,898 for the Trust and 54 Trustee other
investment companies in the Fund Complex
Wesley W. Posvar $0 $104,898 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $0 $104,898 for the Fund
Trustee and 54 other investment companies in the
Fund Complex
* The Trust has not yet paid any fees to the Trustees.
+ The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
(b) See response to 14(a).
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) As of March 5, 1996 the following investors of record owned 5% or more of
the Portfolio's outstanding beneficial interests:
Excelsior Institutional Bond Index Fund, a portfolio of Excelsior
Institutional Trust, a registered, open-end investment company organized under
the laws of the State of Delaware, located at 73 Tremont Street, Boston,
Massachusetts, 02108, owned approximately 99.37% of the Portfolio's
outstanding beneficial interests.
(b) Not applicable.
(c) Officers and Trustees own less than 1% of the Registrant's outstanding
shares.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
(a-b) See Items 5 and 14 above.
The Adviser or Sub-Adviser shall not be liable to the Trust or any investor
for any losses that may be sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by them, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon them by their contract with the Trust.
For its advisory services, the Adviser receives an annual investment advisory
fee as described in Part A.
The Advisory Agreement and the Sub-Advisory Agreement will continue in effect
with respect to the Portfolio as long as such continuance is specifically
approved at least annually by the Trustees of the Trust or by a majority vote
of the investors in the Portfolio and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Advisory Agreement, the Sub-
Advisory Agreement, as the case may be, or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory Agreement
or Sub-Advisory Agreement. The Advisory Agreement and the Sub-Advisory
Agreement were both approved by the Trust's Trustees on October 3, 1995. The
Adviser, Sub-Adviser, and administrator have agreed to waive certain fees.
The Advisory Agreement and Sub-Advisory Agreement provide that the Adviser and
Sub-Adviser may render services to others, and each agreement is terminable by
the Trust without penalty on not more than 60 days' nor less than 30 days'
written notice when authorized either by majority vote of the investors in the
Portfolio, with the vote of each being in proportion to the amount of its
investment, or by a vote of a majority of the Trustees of the Trust, or by the
respective Adviser or Sub-Adviser on not more than 60 days' nor less than 30
days' written notice, the Advisory and Sub-Advisory Agreement each will
automatically terminate in the event of its assignment. The Advisory
Agreement and the Sub-Advisory Agreement provide that neither the Adviser, the
Sub-Adviser, nor their personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any investment, or for any act
or omission in the execution of security transactions for the Portfolio,
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of its or their obligations and duties under the Advisory and Sub-
Advisory Agreements.
Part A contains a description of the fees payable to the investment managers
under the Advisory and Sub-Advisory Agreements. The investment managers, if
required by applicable state law, shall reimburse the Portfolio's investors or
waive all or part of their respective fees up to, but not exceeding, the
investment advisory or sub-advisory fees, respectively, from the Portfolio.
Such reimbursement, if required, will be equal to the combined aggregate
annual expenses of an investor and the Portfolio which exceed that expense
limitation with the lowest threshold prescribed by any state in which those
investors are qualified for offer or sale. Management of the Trust has been
advised that the lowest such threshold currently in effect is 2 1/2% of net
assets up to $30,000,000, 2% of the next $70,000,000 of net assets and 1 1/2%
of net assets in excess of that amount.
(c) From time to time, Federated Services Company, through its subsidiary
Federated Administrative Services, may waive all or a portion of the
administrative fee and has agreed to waive a portion of the administrative fee
for the twelve-month period following January 2, 1996. For a further
description of expense reimbursements, see Item 5.
(d) Federated Services Company, through its subsidiary Federated
Administrative Services, provides administrative and personnel services to the
Registrant for a fee as described in Part A. Dr. Henry J. Gailliot, an officer
of Federated Management, the adviser to the Registrant, holds approximately
20% of the outstanding common stock and serves as a director of Commercial
Data Services, Inc., a company which provides computer processing services to
Federated Services Company.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Investors Bank and Trust Company, 79 Milk Street, 7th Floor, Boston,
Massachusetts, 02205, is custodian for the cash and securities of Portfolio.
The Independent Auditors for the Portfolio are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania, 15219.
(i) The fee paid by the Trust to Federated Shareholder Services Company, as
transfer agent, is based upon the size, type and number of accounts and
transactions made by investors. The fee paid by the Trust to Federated
Administrative Services for maintaining the Trust's accounting records (for
which the Portfolio bears its pro rata share) is based upon the level of the
Trust's average net assets for the period plus out-of-pocket expenses.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
(a)Research services provided by brokers and dealers may be used by the
investment managers or by their affiliates in advising the Portfolio and other
accounts. To the extent that receipt of these services may supplant services
for which the investment managers or their affiliates might otherwise have
paid, it would tend to reduce their expenses.
The Portfolio's purchase and sales of securities may be principal
transactions, that is, securities may be purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases and, therefore, the Portfolio
does not anticipate paying brokerage commissions in such transactions.
Purchases and sales of the Portfolio's portfolio securities will usually be
principal transactions without brokerage commissions. Any transactions for
which the Portfolio pays a brokerage commission will be effected at the best
price and execution available. Purchases from underwriters of securities
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and the asked price.
Allocations of transactions, including their frequency, to various dealers is
determined by the investment managers in their best judgment and in a manner
deemed to be in the best interest of the investors in the Portfolio rather
than by any formula. The primary consideration is prompt execution of orders
in an effective manner at the most favorable price.
The Advisory and Sub-Advisory Agreements provide that, in executing portfolio
transactions and selecting brokers or dealers, the investment managers will
seek to obtain the best net price and the most favorable execution. The
investment managers shall consider factors they deem relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis.
In addition, the Advisory and Sub-Advisory Agreements authorize the investment
managers, to the extent permitted by law and subject to the review of Trust's
Trustees, to cause the Portfolio to pay a broker which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker for effecting the same transaction, provided that the
investment managers determine in good faith that such commission is reasonable
in relation to the value of the brokerage and research services provided by
such broker, viewed in terms of either that particular transaction or the
overall responsibilities of the investment managers to the accounts as to
which they exercise investment discretion. Such brokerage and research
services might consist of reports and statistics on specific companies or
industries, general summaries of groups of stocks and their comparative
earnings, or broad overviews of the stock market and the economy. Such
services might also include reports on global, regional, and country-by-
country prospects for economic growth, anticipated levels of inflation,
prevailing and expected interest rates, and the outlook for currency
relationships.
Supplementary research information so received is in addition to and not in
lieu of services required to be performed by the investment managers and does
not reduce the investment advisory fees (if any) payable by the Portfolio.
Such information may be useful to the investment managers in serving the
Portfolio and other clients and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to the investment
managers in carrying out their obligations to the Portfolio.
Investment decisions for the Portfolio will be made independently from those
for any other account or investment company that is or may in the future
become managed by its investment managers or any of their affiliates. If,
however, the Portfolio and other investment companies or accounts managed by
the same investment manager are contemporaneously engaged in the purchase or
sales of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might
adversely affect the price paid or received by the Portfolio or the size of
the position obtainable for the Portfolio. In addition, when purchases or
sales of the same security for the Portfolio and for other investment
companies managed by the same investment manager occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales. Furthermore,
in certain circumstances affiliates of the investment managers whose
investment portfolios are managed internally, rather than by the investment
managers, might seek to purchase or sell the same type of investments at the
same time as the Portfolio. Such an event might also adversely affect the
Portfolio.
(b) None.
(c) See response to (a).
(d) Not applicable.
(e) Not applicable.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
(a) Investors in a Series will be held personally liable for the obligations
and liabilities of that Series (and of no other Series) and the Trust,
subject, however, to indemnification by the Trust in the event that there is
imposed upon an investor any liability or obligation of the Series or Trust.
The Declaration of Trust also provides that the Trust may maintain appropriate
insurance for the protection of the Trust, its Trustees, officers, employees
and agents, and covering possible tort and other liabilities. The risk of an
investor incurring financial loss on account of investor liability is limited
to circumstances in which the Series or the Trust itself is unable to meet its
obligations.
Investors in a Series are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro
rata in that Series (and no other Series) net assets available for
distribution to its investors. The Trust reserves the right to create and
issue additional Series of beneficial interests, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and of no other Series).
Investments in a Series have no preference, preemptive, conversion or similar
rights and are fully paid and nonassessable, except as set forth below.
Investments in the Portfolio may not be transferred. Certificates representing
an investor's beneficial interest in the Portfolio are not issued.
Any property of the Trust is allocated and belongs to a specific Series to the
exclusion of all other Series. All consideration received by the Trust for the
issuance and sale of beneficial interests in a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings and proceeds thereof, and any funds or payments derived from
any reinvestment of such proceeds, is held by the Trustees in a separate
account or accounts (a Series) for the benefit of investors in that Series and
irrevocably belongs to that Series for all purposes.
The Trust's Declaration of Trust may be amended without the vote of investors,
except that investors have the right to approve by affirmative majority vote
any amendment which would adversely affect their voting rights, alter the
procedures to amend the Declaration of Trust of the Trust, as required by law
or by the Trust's registration statement, or as submitted to them by the
Trustees. Any amendment submitted to investors which the Trustees determine
would affect the investors of any Series shall be authorized by vote of the
investors of such Series and no vote will be required of investors in a Series
not affected.
The Trust or any Series may enter into a merger or consolidation, or sell all
or substantially all of its assets, if approved (a) at a meeting of investors
by investors representing the lesser of (i) 67% or more of the beneficial
interests in the affected Series present or represented at such meeting, if
investors in more than 50% of all such beneficial interests are present or
represented by proxy, or (ii) more than 50% of all such beneficial interests
(hereinafter referred to as a "Majority Investor Vote") are present or
represented by proxy, or (b) by an instrument in writing without a meeting,
consented to by a Majority Investor Vote of the investors holding a majority
of the beneficial interests in the affected Series.
The Trust's Declaration of Trust provides that obligations of the Trust are
not binding upon the Trustees individually, but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
The Trust's Declaration of Trust further provides that it will indemnify its
Trustees, officers, employees and agents against liabilities and expenses
incurred in connection with litigation in which they may be involved because
of their offices with the Trust, unless, as to liability to the Trust or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices. In the case of settlement, the By-laws of the Trust provide
that such indemnification will not be provided unless it has been determined
by a court or other body approving the settlement or other disposition, or by
a reasonable determination, based upon a review of readily available facts, by
vote of a majority of disinterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
(b) Not applicable.
ITEM 19. PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING OFFERED
(a) Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 in Part A of this
Registration Statement.
(b) Portfolio securities are valued on the basis of market quotations when
they are readily available. The Portfolio values mortgage-backed and other
debt securities for which market quotations are not readily available at their
fair value as determined in good faith, utilizing procedures approved by the
Trustees of the Trust, on the basis of valuations provided either by dealers
or a pricing service. Absent unusual circumstances, debt securities having a
remaining maturity of sixty days or less when purchased, and debt securities
originally purchased with maturities in excess of sixty days but which
currently have maturities of sixty days or less, are valued at cost adjusted
for amortization of premium and accretion of discounts.
Interest rate futures contracts held by the Portfolio are valued on the basis
of closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will
be determined in good faith utilizing procedures approved by the Trustees of
the Trust.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Trust's Trustees. While no single standard for determining fair value exists,
as a general rule, the current fair value of a security would appear to be the
amount which the Portfolio could expect to receive upon its current sale.
Some, but not necessarily all, of the general factors which may be considered
in determining fair value include: (i) the fundamental analytical data
relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold.
Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include:
type of security, financial statements of the issuer, cost at date of
purchase, size of holding, discount from market value, value of unrestricted
securities of the same class at the time of purchase, special reports prepared
by analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
securities, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.
(c) The Portfolio reserves the right, at its complete discretion, to redeem
its shares of beneficial interest wholly or partly in portfolio securities
("redemption in kind") instead of in cash, and to deliver one or more
portfolio securities in satisfaction of the redemption request regardless of
which securities were deposited by the investor or the composition of the
portfolio of the Portfolio at the time of redemption.
ITEM 20. TAX STATUS
The Trust is organized as a Massachusetts business trust. The Portfolio is
not subject to any income or franchise tax in the Commonwealth of
Massachusetts. However, each investor in the Portfolio will be taxable on its
share (as determined in accordance with the governing instruments of the
Trust) of the Portfolio's ordinary income and capital gains in determining its
income tax liability. The determination of such share of ordinary income and
gains will be made in accordance with the Code and regulations promulgated
thereunder.
It is intended that, under interpretations of the Internal Revenue Service,
(1) the Portfolio will be treated for federal income tax purposes as a
partnership which is not a publicly traded partnership, and (2) for purposes
of determining whether an investor in the Portfolio satisfies requirements of
Subchapter M of the Code, the investor will be deemed to own a proportionate
share of the Portfolio's assets and will be deemed to be entitled to the
Portfolio's income attributable to that share. The Trust has advised its
initial investors that it intends to conduct its operations so as to enable
investors to satisfy those requirements.
The Portfolio, intending to be taxed as a partnership, will not be subject to
federal income taxation. Instead, an investor must take into account, in
computing its federal income tax liability, its share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether it has received any cash distributions from the Portfolio.
Withdrawals by investors from the Portfolio generally will not result in their
recognizing any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Portfolio prior to the distribution,
(2) income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio, and (3) gain or
loss will be recognized if the distribution is in liquidation of that entire
interest and consists solely of cash and/or unrealized receivables. The basis
of an investor's interest in a Portfolio generally equals the amount of cash
and the basis of any property that the investor invests in the Portfolio,
increased by the investor's share of income plus or minus any unrealized or
realized gain or loss from the Portfolio, and decreased by the amount of any
cash distributions and the basis of any property distributed from the
Portfolio.
The Portfolio's taxable year-end will be May 31st. Although, as described
above, the Portfolio will not be subject to federal income tax, it will file
appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met. Such
investors are advised to consult their own tax advisors as to the tax
consequences of an investment in the Portfolio.
Other Taxation. Investors are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Portfolio.
ITEM 21. UNDERWRITERS
Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Not applicable.
ITEM 23. FINANCIAL STATEMENTS
(a) Investors of record will receive unaudited semi-annual reports and annual
reports audited by the Portfolio's independent auditors.
(b) The Financial Statements that follow represent financial information for
Bond Market Portfolio, a portfolio of St. James Portfolios, for the six months
ended November 30, 1995 (unaudited) and for the fiscal year ended May 31, 1995
(audited). This information is deemed relevant with respect to the Portfolio
and its investors since the Portfolio's investment objective, policies, and
limitations are essentially identical to those of Bond Market Portfolio, and
the Portfolio has succeeded to the financial history and performance of Bond
Market Portfolio.
Past performance is not indicative of future performance. Investment returns
and principal values will vary and beneficial interests in the Portfolio may
be worth more or less at redemption than their original cost.
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1995 (UNAUDITED)
Principal
Amount Value
ASSET-BACKED SECURITIES -- 1.85%
$300,000 Premier Auto Trust, 6.35%,
due 5/2/00
(Cost $297,876)....... $ 302,061
CORPORATE OBLIGATIONS -- 14.08%
BEVERAGES -- 2.71%
275,000 Anheuser-Busch, 7.00%,
due 284,793
9/1/05....................
150,000 Pepsico, 7.625%, due
12/18/98.............. 157,876
442,669
COMMUNICATIONS -- 3.35%
250,000 Motorola, 7.50%, due
5/15/25............... 273,863
250,000 Sprint, 8.125%, due
7/15/02............... 274,330
548,193
DRUGS -- 1.30%
200,000 American Home Products,
7.70%, due 2/15/00.... 212,828
FINANCE -- 4.00%
110,000 Bank of Boston, 6.625%,
due 110,119
12/1/05..................
500,000 Lehman Brothers
Holdings, 8.50%, due
8/1/15............... 544,810
654,929
RETAIL -- 0.98%
150,000 Penney (J.C.), 7.375%, due
6/15/04............... 160,408
UTILITIES -- 1.74%
275,000 Duke Power, 7.50%, due
8/1/25............... 283,673
TOTAL CORPORATE
OBLIGATIONS
(Cost $2,211,191)..... 2,302,700
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1995 (UNAUDITED)
Principal
Amount Value
FOREIGN GOVERNMENT
OBLIGATION -- 1.91%
$ Province of Ontario,
300,000 7.00%, due 8/4/05
(Cost $ 312,945
$304,390)..............
U.S. GOVERNMENT & AGENCY
MORTGAGE-BACKED
SECURITIES -- 26.45%
Federal Home Loan
Mortgage Association
311,394 9.00%, due 4/1/22. 328,670
357,028 7.00%, due 5/1/24......... 358,239
342,167 7.00%, due 6/1/24...... .. 342,389
Federal National Mortgage
344,663 Association 348,789
508,243 7.00%, due 6/1/09......... 530,133
440,011 8.50%, due 8/1/23......... 439,848
417,180 7.00%, due 5/1/24..... ... 417,026
7.00%, due 6/1/24.........
Government National Mortgage
Association
212,198 9.50%, due 1/15/19........ 228,603
235,777 9.50%, due 10/15/20....... 253,611
481,131 7.00%, due 6/15/24... .... 491,442
574,954 7.50%, due 6/15/24........ 587,275
TOTAL U.S. GOVERNMENT & AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $4,146,224)......... 4,326,025
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 7.16%
200,000 Federal Home Loan
Mortgage Association,
7.23%, due 12/17/02....... 205,190
900,000 Private Export Funding,
7.30%, due 1/31/02........ 965,826
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $1,128,601)......... 1,171,016
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1995 (UNAUDITED)
Principal
Amount Value
UNITED STATES TREASURY
OBLIGATIONS -- 44.18%
United States Treasury Notes
$ 6.50%, due $
1,220,000 5/15/97....... 1,238,495
825,000 6.50%, due 8/15/97...... 839,825
1,225,000 7.125%, due 1,279,745
500,000 10/15/98..... 523,045
650,000 7.00%, due 4/15/99...... 735,007
505,000 8.875%, due 5/15/00..... 521,650
6.25%, due 2/15/03......
United States Treasury Bonds
500,000 7.25%, due 5/15/04..... 548,830
245,000 9.375%, due 2/15/06..... 311,341
1,100,000 7.25%, due 5/15/16...... 1,228,910
TOTAL UNITED STATES
TREASURY OBLIGATIONS
7,226,848
(Cost $6,802,075).....
TOTAL INVESTMENTS -- 95.63%
(Cost $14,890,357)........ $15,641,595
OTHER ASSETS AND LIABILITIES
(NET) -- 4. 37%....... 715,264
TOTAL NET ASSETS -- 100.00%. $16,356,859
(See Notes which are an integral part of the Financial Statements)
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Principal
Amount Value
CORPORATE OBLIGATIONS -- 12.91%
ASSET-BACKED SECURITIES -- 1.85%
$ Premier Auto Trust, 6.35%, due $ 300,654
300,000 5/02/00........................
BANKING -- 0.65%
110,000 Bank of Boston, 6.625%, due 12/01/05................ 105,238
COMMUNICATION -- 3.12%
500,000 MCI Communications Sr.
Nts., 7.625%, due 11/07/96... 508,335
CONSUMER SERVICES -- 3.16%
500,000 Hertz, 9.125%, due 8/01/96...... 514,760
FINANCIAL SERVICES -- 3.18%
500,000 General Electric Capital, 8.75%, due 517,490
11/26/96...............
RETAIL -- 0.95%
150,000 Penney (J.C.), 7.375%, due 6/15/04.......... 155,822
TOTAL CORPORATE OBLIGATIONS
(Cost $2,077,387)........ 2,102,299
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 28.03%
Federal Home Loan Mortgage
Corporation
379,254 9.00%, due 4/01/22...... 395,505
359,360 7.00%, due 5/01/24....... 353,826
354,429 7.00%, due 6/01/24..... 348,971
Federal National Mortgage
Association
353,093 7.00%, due 6/01/09...... 355,412
546,337 8.50%, due 8/01/23...... 565,000
461,342 7.00%, due 5/01/24..... 453,952
419,458 7.00%, due 6/01/24...... 412,738
Government National Mortgage
Association
286,756 9.50%, due 1/15/19...... 303,884
267,859 9.50%, due 10/15/20...... 282,853
1,084,327 7.50%, due 6/15/24...... 1,091,604
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS
(Cost $4,427,700).....
4,563,745
</TABLE>
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1995
Principal
Amount Value
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 1.24%
Federal Home Loan
Mortgage Association
$ 7.23%, due 12/17/02
200,000 (Cost $189,153)..... 201,192
UNITED STATES TREASURY
OBLIGATIONS -- 52.33%
United States Treasury Notes
1,270,000 6.500%, due 5/15/97. 1,284,681
825,000 6.500%, due 8/15/97.. 835,312
500,000 7.125%, due 10/15/98.. 517,890
500,000 7.000%, due 4/15/99.. 516,955
650,000 8.875%, due 5/15/00.. 728,306
1,230,000 6.250%, due 2/15/03... 1,228,266
500,000 7.250%, due 5/15/04... 531,015
1,000,000 7.500%, due 2/15/05.. 1,084,060
United States Treasury Bonds
245,000 9.375%, due 2/15/06 301,695
1,000,000 7.250%, due 5/15/16 1,052,030
400,000 7.500%, due 11/15/24 439,936
TOTAL UNITED STATES
TREASURY OBLIGATIONS
(Cost $8,081,590).. 8,520,146
SHORT-TERM OBLIGATION -- 2.56%
TIME DEPOSIT
416,748 National Westminster Bank
(Nassau), 5.46%, due
6/01/95
(Cost $416,748)... 416,748
TOTAL INVESTMENTS -- 97.07%
(Cost $15,192,578)....... 15,804,130
OTHER ASSETS AND LIABILITIES
(NET) -- 476,725
2.93%................
TOTAL NET ASSETS -- $16,280,855
100.00%......
(See Notes which are an integral part of the Financial Statements)
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
NOVEMBER 30, 1995
(UNAUDITED) MAY 31, 1995
ASSETS:
Investments in securities, at value (Note 3c)(a) $ 15,641,595 $ 15,804,130
Cash and cash equivalents 503,917 ----
Dividends and interest receivable 177,088 160,006
Receivable for investment securities sold ---- 278,876
Receivable from affiliate (Note 2a) 48,999 47,110
Prepaid expenses ---- 2,797
Deferred organization expense (Note 1d) 33,545 38,556
Total assets 16,405,144 16,331,475
LIABILITIES:
Due to servicing agent (Note 2b) 4,830 5,112
Organization expenses payable (Note 1d) 35,100 36,058
Accrued expenses and other liabilities 8,355 9,450
Total liabilities 48,285 50,620
NET ASSETS $ 16,356,859 $ 16,280,855
REPRESENTED BY:
Paid in capital for beneficial interests $ 16,356,859 $ 16,280,855
(a) Cost of investments $ 14,890,357 $ 15,192,578
(See Notes which are an integral part of the Financial Statements)
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
STATEMENTS OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED
NOVEMBER PERIOD ENDED
30, 1995 MAY 31, 1995*
(UNAUDITED
)
INVESTMENT INCOME (NOTE 1):
Interest $ 558,266 $ 1,428,528
EXPENSES (NOTE 1E):
Investment advisory fees (Note 2a) 19,483 47,955
Servicing and fund accounting agent fees (Note 2b) 28,759 54,279
Custodian fees (Note 2c) 3,400 6,749
Amortization of organization expenses (Note 1d) 4,053 8,354
Trustees' fees and expenses (Note 2d) 1,618 3,999
Auditing fees 5,500 5,000
Legal fees 2,502 4,594
Insurance expense 2,796 ----
Miscellaneous 371 479
Total expenses 68,482 131,409
Less: Waiver of fees (Note 2a) (19,483) (47,955)
Reimbursement of expenses (Note 2a) (48,999) (83,454)
Net expenses 0 0
Net investment income 558,266 1,428,528
REALIZED AND UNREALIZED GAIN (NOTE 3):
Net realized gain on investments 152,740 136,599
Net change in unrealized appreciation on investments 139,686 611,552
Net realized and unrealized gain 292,426 748,151
Change in net assets
resulting from operations $ 850,692 $ 2,176,679
</TABLE>
* For the period from July 11, 1994 (commencement of operations) to May 31,
1995.
(See Notes which are an integral part of the Financial Statements)
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
NOVEMBER 30, PERIOD
1995 (UNAUDITED) ENDED
MAY 31, 1995*
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS-
Net investment income $ 558,266 $ 1,428,528
Net realized gain on 152,740 136,599
investments
Net change in unrealized
appreciation on investments for 139,686 611,552
the period
Net increase in net assets
resulting from operations 850,692 2,176,679
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTEREST:
Additions 3,987,542 32,835,501
Reductions (4,762,230) (18,748,092)
Net increase (decrease) from
transactions in investors' (774,688) 14,087,409
beneficial interest
Total increase in Net Assets 76,004 16,264,088
NET ASSETS:
Beginning of period (Note 1) 16,280,855 16,767
End of period $ 16,356,859 $ 16,280,855
SUPPLEMENTARY DATA
RATIOS:
Expenses to Average Net 0.00% (c) 0.00% (c
Assets )
Net Investment Income to
Average Net Assets 7.16% (c) 7.45% (c
)
Expense waiver / 0.88% (c) 0.69% (c
reimbursement (a) )
Portfolio Turnover (b) 37% 67%
</TABLE>
* For the period from July 11, 1994 (commencement of operations) to May 31,
1995.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Portfolio Turnover calculation excludes in-kind transfers of securities
(See Notes 3a and 3b).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
The amounts and disclosures contained herein pertaining to November 30, 1995
and the six months then ended are unaudited. The amounts and disclosures
contained herein pertaining to May 31, 1995 and the period from July 11, 1994
(commencement of operations) to May 31, 1995 have been audited by Price
Waterhouse LLP.
1. SIGNIFICANT ACCOUNTING POLICIES:
St. James Portfolios (the "Portfolio Series") was organized as a New York
trust on May 11, 1994, with the Portfolios established as a separate series of
the Portfolio Series on the same date. The Portfolio Series is comprised of
twelve portfolios (the "Portfolios"), ten of which were active at November 30,
1995 and May 31, 1995. The financial statements included herein are only
those of Bond Market Portfolio (the "Portfolio"). The financial statements of
the other Portfolios are presented separately. The Portfolio had no
operations until July 11, 1994 (when operations commenced) other than matters
relating to its organization and registration as an open-end diversified
management investment company under the Investment Company Act of 1940 (the
"Act"), the sale of an initial beneficial interest (the "Initial Interest") of
the Portfolio at the purchase price of $16,667 to Excelsior Institutional Bond
Index Fund (the "Fund") and the sale of an Initial Interest of the Portfolio
at the purchase price of $100 to UST Distributors, Inc. The Declaration of
Trust permits the Portfolio Series to issue an unlimited number of beneficial
interests in each Portfolio.
United States Trust Company of The Pacific Northwest ("U.S. Trust
Pacific") is the investment advisor for the Portfolio. U.S. Trust Pacific has
delegated the daily management of the security holdings of the Portfolio to
United States Trust Company of New York ("U.S. Trust"), acting as subadvisor.
Signature Financial Services, Inc. ("SFSI") serves as the Portfolio's
servicing and fund accounting agent. U.S. Trust serves as the Portfolio's
custodian. U.S. Trust Pacific is a subsidiary of U.S. Trust.
The following is a summary of the significant accounting policies of the
Portfolio:
a) Valuation of Investments -- Investments in securities (including
financial futures) that are traded on a domestic exchange are valued at the
last sale price on the exchange on which such securities are primarily traded
or at the last sale price on a national securities market. Securities traded
over-the-counter are valued each business day on the basis of closing over-
the-counter bid prices. Securities for which there were no transactions are
valued at the average of the most recent bid and asked prices (as calculated
by an independent pricing service (the "Service") based upon its evaluation of
the market for such securities) when, in the judgment of the Service, quoted
bid and asked prices for securities are readily available and are
representative of the market. Bid price is used when no asked price is
available. Investments in securities that are primarily traded on foreign
security exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed
such value, then a fair value of those securities will be determined by
consideration of other factors under the direction of the Portfolio Series'
Trustees. A security which is traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary market on which the
security is traded.
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
All other foreign securities are valued at the last current bid quotation
if market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Trustees.
Securities for which market quotations are not readily available are
valued at fair value pursuant to guidelines adopted by the Portfolio Series'
Trustees. Short-term debt instruments with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value.
b) Security Transactions and Investment Income -- Security transactions
are recorded on a trade date basis. Realized gains and losses on investments
sold are recorded on the basis of identified cost. Interest income, including
where applicable amortization of discounts and premiums on investments, is
recorded on the accrual basis.
c) Repurchase Agreements -- The Portfolio may purchase portfolio
securities from financial institutions deemed to be creditworthy by the
investment advisor subject to the seller's agreement to repurchase and the
Portfolio's agreement to resell such securities at mutually agreed upon
prices. Securities purchased subject to such repurchase agreements are
deposited with the Portfolio's subcustodian or are maintained in the Federal
Reserve/Treasury book-entry system and must have, at all times, an aggregate
market value of not less than 102% of the repurchase price (including accrued
interest).
If the value of the underlying security, including accrued interest,
falls below 102% of the repurchase price plus accrued interest, the Portfolio
will require the seller to deposit additional collateral by the next business
day. Default or bankruptcy of the seller may, however, expose the Portfolio
to a risk of loss in the event that the Portfolio is delayed or prevented from
exercising its right to dispose of the underlying collateral securities or to
the extent that proceeds from a sale of the underlying securities were less
than the repurchase price under the agreement.
d) Deferred Organization Expense -- Organization expenses of the
Portfolio in the amount of $46,910 have been deferred and are being amortized
on a straight-line basis over a period not to exceed five years beginning with
the commencement of operations of the Portfolio.
Any amount received by the Portfolio from the Fund as a result of a
redemption of the Fund's Initial Interest will be applied so as to reduce the
amount of unamortized organization expenses of the Portfolio. The amount paid
by the Portfolio Series on behalf of the Portfolio on any withdrawal from the
Portfolio of the Initial Interest of UST Distributors, Inc. will be reduced by
a pro rata portion of any unamortized organization expenses of the Portfolio.
With regard to each Portfolio, this reduction will be determined with respect
to each withdrawal of an Initial Interest by calculating the proportion of the
amount of the Initial Interest withdrawn to the aggregate amount of the
Initial Interests then outstanding. The service providers to the Portfolio
have agreed to contribute to the Portfolio at the time of the termination,
liquidation, or dissolution of the Portfolio, an amount equal to the
unamortized organizational expense at such time.
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
e) Expense Allocation -- Expenses incurred by the Portfolio Series with
respect to any two or more Portfolios are allocated in proportion to the
average net assets of each Portfolio, except where allocation of direct
expenses to each Portfolio can otherwise be fairly made. Expenses directly
attributable to a Portfolio are charged to that Portfolio.
f) Federal Income Taxes -- The Portfolio will be treated as a
partnership for federal income tax purposes. As such, each investor in the
Portfolio will be subject to taxation on its share of that Portfolio's
ordinary income and capital gains. It is intended that the Portfolio's assets
will be managed in such a way that an investor in the Portfolio will be able
to satisfy the requirements of Subchapter M of the Internal Revenue Code.
2. INVESTMENT ADVISORY FEE, SUBADVISORY FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
a) Fees payable by the Portfolio pursuant to the provisions of an
Investment Advisory Agreement with U.S. Trust Pacific are payable monthly,
computed on the average daily values of the Portfolio's net assets at the
annual rate of 0.25%. For the six months ended November 30, 1995 and the
period from July 11, 1994 (commencement of operations) to May 31, 1995, U.S.
Trust Pacific voluntarily agreed to waive all of its investment advisory fees
amounting to $19,483 and $47,955, respectively.
In addition, U.S. Trust voluntarily agreed to reimburse the Portfolio for
all expenses exclusive of the investment advisory fee, taxes, interest,
brokerage commissions and extraordinary expenses. For the six months ended
November 30, 1995 and the period from July 11, 1994 (commencement of
operations) to May 31, 1995, U.S. Trust voluntarily reimbursed the Portfolio
in the amounts of $48,999 and $83,454, respectively.
Pursuant to separate subadvisory agreements between U.S. Trust Pacific
and the subadvisor, subadvisory fees are payable monthly by U.S. Trust
Pacific, computed on the average daily value of the Portfolio's net assets at
the maximum annual rate of 0.25%. The subavisor is compensated only by U.S.
Trust Pacific, and receives no fee directly from the Portfolio. For the six
months ended November 30, 1995, and the period from July 11, 1994
(commencement of operations) to May 31, 1995, subadvisory fees amounted to
$19,483 and $47,955, respectively, all of which were waived.
b) Pursuant to a Servicing and Fund Accounting Agreement ("Agreement")
with SFSI, SFSI serves as the servicing and fund accounting agent to the
Portfolio, providing fund accounting and other services necessary for the
operations of the Portfolio and furnishing office facilities required for
conducting the business of the Portfolio. Certain officers of SFSI serve as
officers of the Portfolio Series and are compensated by SFSI. Fees payable to
SFSI pursuant to the Agreement for its servicing functions are payable monthly
and computed on the average daily value of the Portfolio's net assets at the
following annual rates: 0.05% of the first $2 billion in assets; 0.08% of the
next $500 million; 0.07% of the next $500 million; 0.06% of the next $1
billion; and 0.05% thereafter. In addition, for its fund accounting services
under the Agreement, SFSI receives a fee payable monthly of $50,000 per year
per Portfolio plus out of pocket expenses. For the six months ended November
30, 1995 and the period from July 11, 1994 (commencement of operations) to May
31, 1995, fees charged under the Agreement for the Portfolio amounted to
$28,759 and $54,279, respectively.
c) U.S. Trust serves as custodian of the Portfolio's assets pursuant to
a Custody Agreement between U.S. Trust and the Portfolio. Pursuant to
delegation authority provided under the Custody Agreement, U.S. Trust has
entered into a subcustody agreement with Investors Bank & Trust Company
("IBT") with respect to the Portfolio. For services provided thereunder by
IBT, U.S. Trust has agreed to pay IBT a fee as agreed upon from time to time.
IBT receives no fee directly from the Portfolio for its subcustody services.
Fees received by U.S. Trust under the Custody Agreement for the six
months ended November 30, 1995 and the period from July 11, 1994 (commencement
of operations) to May 31, 1995 amounted to $3,400 and $6,749, respectively.
d) Independent Trustees of the Portfolio Series receive an annual
retainer of $8,000 and an additional $500 for each meeting of the Board of
Trustees attended. In addition, the Portfolio Series reimburses the
Independent Trustees for reasonable expenses incurred when acting in their
capacity as Trustees. Officers and Trustees deemed to be affiliated or
"interested persons" under the Act received no compensation from the Portfolio
Series or the Trust for their services.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES
a) Investment transactions (excluding short-term investments) for the
six months ended November 30, 1995 and the period ended May 31, 1995 were as
follows:
SIX MONTHS PERIOD
ENDED ENDED
NOVEMBER MAY 31,
30, 1995 1995*
COST OF PURCHASES $5,852,016 $12,633,873
CONTRIBUTION IN-KIND ---- $18,368,738
PROCEEDS FROM SALES $5,890,229 $16,140,644
*For the period from July 11, 1994 (commencement of operations) to May 31,
1995.
b) Investment transactions in U.S. Government and Agency Obligations
(excluding short-term investments) for the six months ended November 30, 1995
and the period ended May 31, 1995 were as follows:
SIX MONTHS PERIOD
ENDED ENDED
NOVEMBER MAY 31,
30, 1995 1995*
COST OF PURCHASES $2,632,664 $10,606,404
CONTRIBUTION IN-KIND ---- $18,320,517
PROCEEDS FROM SALES $4,357,254 $16,140,644
*For the period from July 11, 1994 (commencement of operations) to May 31,
1995.
ST. JAMES PORTFOLIOS
BOND MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
c) At November 30, 1995 and May 31, 1995, the cost and gross unrealized
appreciation and depreciation in the value of investments owned by the
Portfolio, as computed on a federal tax basis, were as follows:
NOVEMBER MAY 31,
30, 1995 1995
AGGREGATE COST $14,890,35 $15,192,578
7
GROSS UNREALIZED $751,238 $612,042
APPRECIATION
GROSS UNREALIZED ---- (490)
DEPRECIATION
NET UNREALIZED APPRECIATION $751,238 $611,552
4. SUBSEQUENT EVENTS (UNAUDITED)
On December 15, 1995, the Trustees of the Portfolio Series voted to
terminate the Portfolio Series as an investment company under the Investment
Company Act of 1940. U.S. Trust reimbursed the balance of unamortized
organizational expenses at November 15, 1995 of $33,545 in anticipation of a
decision to terminate the Portfolio Series.
REPORT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND INVESTORS OF THE
ST. JAMES PORTFOLIOS
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and changes in net assets and the supplementary data present
fairly, in all material respects, the financial position of the Bond Market
Portfolio (one of the portfolios constituting the St. James Portfolios) at May
31, 1995, and the results of its operations, the changes in its net assets,
and its supplementary data for the period from July 11, 1994 (commencement of
operations) to May 31, 1995, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 25, 1995
PART C. OTHER INFORMATION.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) The Financial Statements filed in item 23 of Part B are as
follows:
Bond Market Portfolio, a series of St. James Portfolios
Schedule of Investments (as of November 30,
1995 (unaudited))
Schedule of Investments (as of May 31,
1995(audited))
Statements of Assets and Liabilities (for the six month period
ended November 30, 1995 (unaudited) and for the fiscal year
ended
May 31, 1995 (audited))
Statements of Operations (for the six month period ended
November 30, 1995 (unaudited) and for the fiscal year ended
May 31, 1995 (audited))
Statements of Changes in Net Assets (for the six month period
ended November 30, 1995 (unaudited) and for the fiscal year
ended
May 31, 1995 (audited))
Notes to Financial Statements
Report of Price Waterhouse LLP
(b) Exhibits filed herewith:
(1) (i) Conformed copy of Registrant's Declaration of Trust;
(1)
(ii) Conformed copy of Registrant's Amended and Restated
Declaration of Trust (effective March 1, 1996); +
(2) (i) Copy of By-Laws of the Registrant; (1);
(ii) Copy of By-Laws of the Registrant as Amended and
Restated (Effective March 1, 1996);+
(3) Not applicable;
(4) Not applicable;
(5) (i) Conformed copy of Investment Advisory Contract of the
Registrant; +
(ii) Conformed copy of the Sub-Advisory Agreement of the
Registrant; +
(6) Not applicable;
(7) Not applicable;
(8) Conformed copy of the Custodian Agreement of the
Registrant; +
+ All exhibits have been filed electronically.
1. Response is incoportated by Reference to Registrant's Initial Registration
Statement on Form N-1A filed December 21, 1995. (File No. 811-07461).
(9) (i) Form of Agreement for Fund Accounting, Administrative
Services and Custody Services Procurement;+
(ii) Conformed Copy of the Placement Agent Contract of the
Registrant;+
(10) Not applicable;
(11) Not applicable;
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Not applicable;
(16) Not applicable;
(17) Not Applicable (Financial Data Schedules);
(18) Not Applicable;
(19) Conformed copy of Power of Attorney; (1)
ITEM 25.PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
None.
ITEM 26.NUMBER OF HOLDERS OF SECURITIES OF BOND INDEX PORTFOLIO AS OF FEBRUARY
22, 1996:
three.
ITEM 27.INDEMNIFICATION: (1)
ITEM 28.BUSINESS AND OTHER CONNECTIONS OF ADVISER:
(a)For a description of the other business of the Adviser, see the
section entitled "Management of the Registrant" in Part A. The
affiliations with the Registrant of four of the Trustees and one
of the Officers of the Adviser are included in Part B of this
Registration Statement under Management of the Registrant. The
remaining Trustee of the Adviser, and, in parenthesis, his
principal occupation, is Mark D. Olson (Partner, Wilson, Halbrook
and Bayard, 107 W. Market Street, Georgetown, Delaware, 19947).
+ All exhibits have been filed electronically.
1. Response is incoportated by Reference to Registrant's Initial Registration
Statement on Form N-1A filed December 21, 1995. (File No. 811-07461).
The remaining Officers of the Adviser are: William D. Dawson,
Henry A. Frantzen, J. Thomas Madden, and Mark L. Mallon,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins; Jonathan
Conley; and J. Alan Minteer, Senior Vice Presidents; J. Scott
Albrecht, Joseph M. Balestrino; Randall A. Bauer, David A.
Briggs, Kenneth J. cody; Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Dussel; Mark E. Durbiano, Kathleen M. Foody-
Malus, Thomas M. Franks, Edward C. Gonzales, Jeff A. Kozemchak,
Marian R. Marinack, John W. McGonigle, Susan M. Nason, Mary Jo
Ochson, Robert J. Ostrowski, Charles A. Ritter, Frank Semack;
William F. Stotz; James D. Roberge, Sandra L. Weber, and
Christopher H. Wiles, Vice Presidents, Edward C. Gonzales,
Treasurer, and John W. McGonigle, Secretary. The business
address of each of the Officers of the Adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals
are also officers of a majority of the Advisers to the Funds
listed in Part B of this Registration Statement.
1. Response is incoportated by Reference to Registrant's Initial Registration
Statement on Form N-1A filed December 21, 1995. (File No. 811-07461).
(b) Business and Other Connections of Sub-Adviser:
U.S. Trust Company is a full-service state-chartered bank and
trust company. U.S. Trust Company provides trust and banking
services to individuals, corporations and institutions, both
nationally and internationally, including investment management,
estate and trust administration, financial planning, corporate
trust and agency, and personal and corporate banking. U.S. Trust
Company is a member bank of the Federal Reserve System and the
Federal Deposit Insurance Corporation and is one of the twelve
members of the New York Clearing House Association. On September
1, 1995, U.S. Trust Company's Asset Management Group had
approximately $36 billion in assets under management. U.S. Trust
Company, which has its principal offices at 114 West 47th Street,
New York, NY 10036, is a wholly-owned subsidiary of U.S. Trust
Corporation, a registered bank holding company. Other than U.S.
Trust Corporation, no person owns more than 10% of the voting
securities of U.S. Trust Company.
The table below sets forth the name, address and principal
occupation of each of the Directors of U.S. Trust Company, and
the principal executive officer of U.S. Trust Company.
Position with
U.S. Trust Name Address Principal
Company Occupation
Trustee/Director Samuel C. Cravath, Swaine & Moore Partner in
Butler Worldwide Plaza Cravath,
825 Eighth Avenue Swaine & Moore
New York, NY 10019
Trustee/Director Peter O. Crisp Venrock Associates General
Room 560 Partner in
30 Rockefeller Plaza Venrock
New York, NY 10019 Associates
Trustee/Director Antonia M. Patterson, Belknap, Partner in
Grumbach Webb & Tyler Patterson,
30 Rockefeller Plaza Belknap, Webb
New York, NY 10112 & Tyler
Trustee/Director Marshall United States Trust Chairman of
Chairman of the Schwarz Company of New York the Board &
Board and Chief 114 West 47th Street Chief
Executive Officer New York, NY 10036 Executive
Officer of
U.S. Trust
Corporation
and United
States Trust
Company of New
York
Trustee/Director Phillippe de Metropolitan Museum Director of
Montebello of Art the
1000 Fifth Avenue Metropolitan
New York, NY Museum of Art
10029-0198
Trustee/Director Paul W. 250 Park Avenue Retired
Douglas Room 1900
New York, NY 10177
Trustee/Director Frederic C. Hamilton Oil Corp. Chairman of
Hamilton 1560 Broadway the Board of
Suite 2000 Hamilton Oil
Denver, CO 80202 Corp.
Trustee/Director John H. Hanson Industries Chairman and
Stookey 410 Park Avenue President,
New York, NY 10028 Quantum
Chemical
Corporation
Trustee/Director Robert N. Johnson & Johnson Vice Chairman
Wilson One Johnson & Johnson of the Board
Plaza of Johnson &
New Brunswick, NJ Johnson
08933
Trustee/Director Peter L. Wein, Malkin & Bettex Chairman of
Malkin Lincoln Building Wein, Malkin &
60 East 42nd Street Bettex
New York, NY 10165
Trustee/Director Richard F. 11 Over Rock Lane Retired
Tucker Westport, CT 06880
Trustee/Director Carroll L. Milbank, Tweed, Hadley Consulting
Wainright, Jr. & McCloy Partner of
One Chase Manhattan Milbank,
Plaza Tweed, Hadley
New York, NY 10005 & McCloy
Trustee/Director, Frederick B. United States Trust Vice Chairman
Vice Chairman, Taylor Company of New York and Chief
and Chief 114 West 47th Street Investment
Investment New York, NY 10036 Officer of
Officer U.S. Trust
Corporation
and United
States Trust
Company of New
York
Trustee/Director Jeffrey S. United States Trust President of
and President Maurer Company of New York U.S. Trust
114 West 47th Street Corporation
New York, NY 10036 and United
States Trust
Company of New
York
Trustee/Director Daniel P. Christie, Manson & Chairman,
Davison Woods International, Christie,
Inc. Manson & Woods
502 Park Avenue International,
New York, NY 10021 Inc.
Trustee/Director Orson D. Munn Munn, Bernhard & Chairman and
Associates, Inc. Director of
6 East 43rd Street Munn, Bernhard
28th Floor & Associates,
New York, NY 10017 Inc.
Trustee/Director Philip L. P.O. Box 386 Corporate
Smith Ponte Verde Beach, FL Director and
32004 Trustee
Trustee/Director Edwin D. P.O. Box 100 President
Etherington Old Lyme, CT 06371 Emeritus,
Wesleyan
University and
Former
President of
the American
Stock Exchange
ITEM 29. PRINCIPAL UNDERWRITERS:
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated
Investors Tower
Pittsburgh,
Pennsylvania
15222-3779
Federated Shareholder Federated
Services Company Investors Tower
(Transfer Agent and Pittsburgh,
Dividend Disbursing Agent) Pennsylvania
15222-3779
Federated Administrative Federated
Services (Administrator Investors Tower
and Portfolio Accountant) Pittsburgh,
Pennsylvania
15222-3779
Federated Management Federated
(Adviser) Investors Tower
Pittsburgh,
Pennsylvania
15222-3779
United States Trust 114 West
Company of New York 47th Street
(Sub-Adviser) New York,
New York
10036
Investors Bank and Trust 79 Milk Street,
Company (Custodian) 7th Floor
Boston,
Massachusetts,
02205
ITEM 31. MANAGEMENT SERVICES:
Not applicable.
ITEM 32. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of a special meeting of investors as though
such provisions of the Act were applicable to the Registrant.
Registrant hereby undertakes to furnish each investor to whom a Part
A is delivered, a copy of the Registrant's latest annual report,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, Federated Investment Portfolios, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
7th day of March, 1996.
FEDERATED INVESTMENT PORTFOLIOS
BY: /s/ S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
March 7, 1996
This Initial Registration Statement has been signed below by the following
person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/ S. Elliott Cohan
S. Elliott Cohan Attorney In Fact March 7, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit 8 Under Form N-1A
CUSTODIAN AGREEMENT
BETWEEN
FEDERATED INVESTMENT PORTFOLIOS
AND
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian
................................................................ 1
2.
Definitions...............................................................
............................. 1
2.1 Authorized
Person........................................................... 1
2.2
Board.....................................................................
.........
2.3
Security..................................................................
......... 1
2.4 Portfolio
Security............................................................ 1
2.5 Officers'
Certificate......................................................... 1
2.6 Book-Entry
System......................................................... 1
2.7
Depository................................................................
...... 1
2.8 Proper
Instructions.......................................................... 2
3. Separate
Accounts.......................................................................
........... 2
4. Certification as to Authorized
Persons.................................................... 2
5. Custody of
Cash...........................................................................
.......... 2
5.1 Purchase of
Securities...................................................... 3
5.2
Withdrawals...............................................................
... 3
5.3 Distributions and Expenses of
Trust................................... 3
5.4 Payment in Respect of
Securities...................................... 3
5.5 Repayment of
Loans......................................................... 3
5.6 Repayment of
Cash.......................................................... 3
5.7 Foreign Exchange
Transactions....................................... 3
5.8 Other Authorized
Payments............................................. 3
5.9
Termination...............................................................
...... 4
6.
Securities................................................................
............................... 4
6.1 Segregation and
Registration........................................... 4
6.2 Voting and
Proxies.......................................................... 4
6.3 Book-Entry
System......................................................... 4
6.4 Use of a
Depository......................................................... 5
6.5 Use of Book-Entry System for Commercial Paper........... 6
6.6 Use of Immobilization
Programs..................................... 7
6.7
Reserved...............................................................
7
6.8 Options and Futures
Transactions.................................... 7
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter.......................... 7
Page
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges.............................
8
6.9 Segregated
Account....................................................... 8
6.10 Interest Bearing Call or Time Deposits..........................
9
6.11 Transfer of
Securities.................................................... 9
7.
Withdrawals...............................................................
......................... 10
8. Merger, Dissolution, etc. of
Trust......................................................... 10
9. Actions of Bank Without Prior
Authorization...................................... 10
10. Collections and
Defaults.......................................................................
11
11. Maintenance of
Records........................................................................
11
12. Trust
Evaluation.....................................................................
............. 11
13. Concerning the
Bank...........................................................................
. 12
13.1 Performance of Duties;
Standard of Care
....................................................... 12
13.2 Agents and Subcustodians with Respect to Property
of the Trust Held in the United
States......................... 13
13.3 Reserved 13
13.4
Insurance.................................................................
..... 16
13.5 Fees and Expenses of
Bank.......................................... 16
13.6 Advances by
Bank......................................................16
14.
Termination...............................................................
.......................... 16
15.
Confidentiality...........................................................
.......................... 17
16.
Notices...................................................................
............................. 17
17.
Amendments................................................................
....................... 17
18.
Parties...................................................................
.............................. 17
19. Governing
Law............................................................................
....... 18
20.
Counterparts..............................................................
......................... 18
21. Limitation of
Liability......................................................................
. 18
CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st day of December, 1995, between FEDERATED
INVESTMENT PORTFOLIOS, a Massachusetts business trust (the "Trust") and
INVESTORS BANK & TRUST COMPANY (the "Bank").
The Trust, an open-end management investment company, desires to place and
maintain certain of its portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Trust, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Trust hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Trust by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Trust, as the case may be.
2.3 Security. The term security as used herein will have the same meaning
as when such term is used in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional undivided
interest in oil, gas, or other mineral rights, any put, call, straddle, option,
or privilege on any security, certificate of deposit, or group or index of
securities (including any interest therein or based on the value thereof), or
any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt
for, guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned
by the Trust.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Trust.
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-
Treasury Department Book Entry System for United States government,
2
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person as shall have
been designated in an Officers' Certificate, such instructions to be given in
such form and manner as the Bank and the Trust shall agree upon from time to
time, and (ii) instructions (which may be continuing instructions) regarding
other matters signed or initialed by such one or more persons from time to time
designated in an Officers' Certificate as having been authorized by the Board.
Oral instructions will be considered Proper Instructions if the Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Trust shall cause
all oral instructions to be promptly confirmed in writing. The Bank shall act
upon and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up
or confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to
report such discrepancy to the Trust. The Trust shall be responsible, at the
Trust's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action
3
requires the Bank to act the Trust shall give the Bank specific Proper
Instructions as to the action required. Upon receipt of an Officers'
Certificate as to the authorization by the Board accompanied by a detailed
description of procedures approved by the Trust, Proper Instructions may
include communication effected directly between electro-mechanical or
electronic devices provided that the Board and the Bank are satisfied that such
procedures afford adequate safeguards for the Trust's assets.
3. Separate Accounts. If the Trust has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Trust shall be deemed to refer to
the Trust acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Trust, including, without limitation, any
Portfolio Securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Trust shall be deemed to refer to duties and obligations with
respect to the individual series and any obligation or liability of the Trust
hereunder shall be binding only with respect to the individual series, and
shall be discharged only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Trust will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank,
of (i) the names and signatures of the Authorized Persons and (ii) the names of
the Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
4
Secretary of the Trust, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank
will be entitled to rely and act upon any Officers' Certificate given to it by
the Trust which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As custodian for the Trust, the Bank will open and
maintain a separate account or accounts in the name of the Trust or in the name
of the Bank, as Custodian of the Trust, and will deposit to an interest bearing
account of the Trust all of the cash of the Trust, except for cash held by a
subcustodian appointed pursuant to Section 13.2 or Section 13.3 hereof,
including borrowed funds, delivered to the Bank, subject only to draft or order
by the Bank acting pursuant to the terms of this Agreement. Upon receipt by the
Bank of Proper Instructions (which may be continuing instructions) or in the
case of payments for redemptions and repurchases of outstanding shares of
common stock of the Trust, notification from the Trust's transfer agent as
provided in Section 7, requesting such payment, designating the payee or the
account or accounts to which the Bank will release funds for deposit, and
stating that it is for a purpose permitted under the terms of this Section 5,
specifying the applicable subsection, the Bank will make payments of cash held
for the accounts of the Trust, insofar as funds are available for that purpose,
only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Trust, against contemporaneous receipt of such securities by the Bank
registered in the name of the Trust or in the name of, or properly endorsed and
in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the
account of the Bank pursuant to the provisions of Section 6 below, each payment
will be made at the purchase price shown on a broker's confirmation (or
transaction report in the case of Book Entry Paper) of purchase of the
5
securities received by the Bank before such payment is made, as confirmed in
the Proper Instructions received by the Bank before such payment is made.
5.2 Withdrawals. In such amount as may be necessary for the withdrawal of
beneficial interests in the Trust in accordance with Section 7 of this
Agreement.
5.3 Distributions and Expenses of Trust. For the payment on the account
of the Trust of dividends or other distributions to investors as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Trust.
5.4 Payment in Respect of Securities. For payments in connection with the
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Trust held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Trust, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Trust for the
purpose of collateralizing the obligation to return to the Trust certificates
borrowed from the Trust representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
6
for spot and future delivery which may be entered into by the Bank on behalf of
the Trust upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Trust
deals or for their failure to comply with the terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of the
Trust, or other obligations of the Trust incurred for proper Trust purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Trust, or
specifying the amount of the obligation for which payment is to be made,
setting forth the purpose for which such obligation was incurred and declaring
such purpose to be a proper corporate purpose.
5.9 Termination: upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Section 13.2 or Section 13.3 hereof, the Bank as custodian, will
receive and hold pursuant to the provisions hereof, in a separate account or
accounts and physically segregated at all times from those of other persons,
any and all Portfolio Securities which may now or hereafter be delivered to it
7
by or for the account of the Trust. All such Portfolio Securities will be held
or disposed of by the Bank for, and subject at all times to, the instructions
of the Trust pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not physically held
by the Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officers' Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by
such laws or regulations or under the laws of any state. The Bank will use its
best efforts to the end that the specific Portfolio Securities held by it
hereunder will be at all times indentifiable.
The Trust will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Trust.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will
vote or exercise any election with regard to any of the Portfolio Securities
held hereunder, except in accordance with Proper Instructions or an Officers'
Certificate. The Bank will execute and deliver, or cause to be executed and
delivered, to the portfolio manager for the Trust all notices, proxies and
proxy soliciting materials with respect to such Securities, such proxies to be
executed by the registered holder of such Securities (if registered otherwise
than in the name of the Trust), but without indicating the manner in which such
proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Trust
assets in the Book-Entry System, and (ii) for any subsequent changes to such
8
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Trust's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Trust. Where securities
are transferred to the Trust's account with the Bank, the Bank shall also, by
book entry or otherwise, identify as belonging to the Trust a quantity of
securities in the fungible bulk of securities (i) registered in the name of the
Bank or its nominee, or (ii) shown on the Bank's account on the books of the
Federal Reserve Bank;
(c) The Bank (or its agent) shall pay for securities purchased for the
account of the Trust or shall pay cash collateral against the return of
Portfolio Securities loaned by the Trust upon
(i) receipt of advice from the Book-Entry System that such securities
have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent)
to reflect such payment and transfer for the account of the Trust.
9
The Bank (or its agent) shall transfer securities sold or loaned for
the account of the Trust upon
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the delivery
of Portfolio Securities loaned by the Trust has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or its agent)
to reflect such transfer and payment for the account of the Trust. Copies of
all advises from the Book-Entry System of transfers of securities for the
account of the Trust shall identify the Trust, be maintained for the Trust by
the Bank and shall be provided to the Trust at its request. The Bank shall send
the Trust a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any
transfers to or from the account of the Trust;
(d) The Bank will promptly provide the Trust with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting controls and procedures for safeguarding securities deposited in the
Book-Entry System; and
(e) The Bank shall be liable to the Trust for any loss or damage to the
Trust resulting from use of the Book-Entry System by reason of any
**negligence, willful misfeasance or bad faith of the Bank or any of its agents
or of any of its or their employees or from any reckless disregard by the Bank
or any such agent of its duty to use its best efforts to enforce such rights as
it may have against the Book-Entry System; at the election of the Trust, it
shall be entitled to be subrogated for the Bank in any claim against the Book-
Entry System or any other person which the Bank or its agent may have as a
10
consequence of any such loss or damage if and to the extent that the Trust has
not been made whole for any loss or damage;
6.4 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement
and has not delivered an Officer's Certificate to the Bank indicating that the
Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Portfolio Securities including stock
dividends, rights and other items of like nature, and to receive and remit to
the Bank on behalf of the Trust all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of any
nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Trust
and the Trust shall pay cash collateral against the return of Portfolio
Securities loaned by the Trust only upon delivery of the Securities to or for
the account of the Trust; and upon any sale of Portfolio Securities, delivery
of the Securities will be made only against payment thereof or, in the event
Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Trust; and
11
(d) The Bank shall be liable to the Trust for any loss or damage to the
Trust resulting from use of a Depository by reason of any ** negligence,
willful misfeasance or bad faith of the Bank or its employees or from any
reckless disregard by the Bank of its duty to use its best efforts to enforce
such rights as it may have against a Depository. In this connection, the Bank
shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificate Portfolio
Security deposited with it in the event such Security is lost, destroyed,
wrongfully taken or otherwise not available to be returned to the Bank upon its
request;
(ii) Any proxy materials or other corporate communications received
by a Depository with respect to Portfolio Securities deposited with such
Depository are forwarded immediately to the Bank for prompt transmittal to the
Trust;
(iii) Such Depository immediately forwards to the Bank confirmation
of any purchase or sale of Portfolio Securities and of the appropriate book
entry made by such Depository to the Trust's account;
(iv) Such Depository prepares and delivers to the Bank such records
with respect to the performance of the Bank's obligations and duties hereunder
as may be necessary for the Trust to comply with the recordkeeping requirements
of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the Trust all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Trust may reasonably request
in order to verify the Portfolio Securities held by such Depository.
12
6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Trust has purchased such Issuer's Book-entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the
Trust, commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining its Book-entry Paper
System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Trust in an
account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Trust's purchase of
Book-entry Paper through the Bank will identify, by book-entry, Commercial
Paper belonging to the Trust which is included in the Book-entry Paper System
and shall at all times during the regular business hours of the Bank be open
for inspection by duly authorized officers, employees or agents of the Trust;
(c) the Bank shall pay for Book-Entry Paper purchased for the account
of the Trust upon contemporaneous (i) receipt of advice from the Issuer that
such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Trust;
(d) the Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Trust, and (ii) the making of
13
an entry on the records of the Bank to reflect such payment for the account of
the Trust;
(e) the Bank shall transmit to the Trust a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Trust on
the next business day following the transaction; and
(f) the Bank will send to the Trust such reports on its system of
internal accounting control with respect to the Book-Entry Paper System as the
Trust may reasonably request from time to time.
.
6.6 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and the Trust has not delivered an Officer's Certificate to the
Bank indicating that the Board has withdrawn its approval, the Bank shall enter
into such immobilization program with such bank acting as a subcustodian
hereunder.
6.7 Reserved
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-
the-Counter.
1. The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Trust regarding escrow or
other arrangements in accordance with the provisions of any agreement entered
14
into upon receipt of Proper Instructions between the Bank, any broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (the "NASD"), and if necessary the Trust, relating to
the compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
2. Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Trust has deposited or is
maintaining adequate margin, if required, with any broker in connection with
any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Trust. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Trust, the propriety of any such
purchase or sale, or the adequacy of any collateral delivered to a broker in
connection with an option or deposited to or withdrawn from a Segregated
Account (as defined in subsection 6.9 below). Nevertheless the Bank shall, on a
best efforts basis: (i) periodically check or notify the Trust that the amount
of such collateral held by a broker or held in a Segregated Account is
sufficient to protect such broker of the Trust against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Trust
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Trust.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and futures contracts
("Futures") purchased or sold by the Trust in accordance with the provisions of
any agreement among the Trust, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market,
15
or any similar organization or organizations, regarding account deposits in
connection with transactions by the Trust.
2. The responsibilities and liabilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in
subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and Futures and puts and
calls thereon instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Trust.
(a) in accordance with the provisions of any agreement among the
Trust, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Trust;
(b) for the purpose of segregating cash or securities in connection
with options purchased or written by the Trust or commodity futures purchased
or written by the Trust;
(c) for the deposit of liquid assets, such as cash, U.S. Government
securities or other high grade debt obligations, having a market value (marked
to market on a daily basis) at all times equal to not less than the aggregate
purchase price due on the settlement dates of all the Trust's then outstanding
16
forward commitment or "when-issued" agreements relating to the purchase of
Portfolio Securities and all the Trust's then outstanding commitments under
reverse repurchase agreements entered into with broker-dealer firms;
(d) for the purpose of compliance by the Trust with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating to the
maintenance of Segregated Accounts by registered investment companies;
(e) for other proper corporate purposes, but only, in the case of this
clause (e), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board, or of the Executive Committee signed by an
officer of the Trust and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such Segregated Account and declaring
such purposes to be proper corporate purposes.;
(f) Assets may be withdrawn from the Segregated Account pursuant to
Proper Instructions only
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a) or (b) above, in accordance with
the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (c) or (d) above,
for sale or delivery to meet the Trust's obligations under outstanding firm
commitment or when issued agreements for the purchase of Portfolio Securities
and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
17
(iv) to the extent that the Trust's outstanding forward commitment or
when-issued agreements for the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or the Trust's obligations
thereunder are met from assets of the Trust other than those in the Segregated
Account;
(v) for delivery upon settlement of a forward commitment agreement
for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (e) above, in
accordance with the purposes of such account as set forth in Proper
Instructions.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
of Proper Instructions relating to the purchase by the Trust of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Trust appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Trust and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect
of other Portfolio Securities of the Trust.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver or
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
18
for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account of the Trust,
against contemporaneous receipt by the Bank of payment therefor in full, each
such payment to be in the amount of the sale price shown in a broker's
confirmation of sale of the Portfolio Securities received by the Bank before
such payment is made, as confirmed in the Proper Instructions received by the
Bank before such payment is made;
(b) i) in exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise,
ii) upon exercise of subscription, purchase or sale or other similar
rights represented by such Portfolio Securities,
iii) or for the purpose of tendering shares in the event of a tender
offer therefor;
provided however that in the event of an offer of exchange, tender offer, or
other exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank
(or its agent or subcustodian hereunder) has actual possession of such Security
at least two business days prior to the date of tender, but the Bank will
nevertheless use its best efforts to so tender in a timely manner;
(c) upon conversion of Portfolio Securities pursuant to their terms
into other securities;
19
(d) for the purpose of withdrawing in kind beneficial interests in of
the Trust upon authorization from the Trust;
(e) in the case of option contracts owned by the Trust, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio Securities
held by the Bank in order to collateralize loans made to the Trust by any bank,
including the Bank; provided, however, that such Portfolio Securities will be
released only upon payment to the Bank for the account of the Trust of the
moneys borrowed, except that in cases where additional collateral is required
to secure a borrowing already made, and such fact is made to appear in the
Proper Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Trust from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market
value of such security, as set forth in the Proper Instructions received by the
Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Trust to a
bank or broker dealer, but only against receipt in accordance with street
20
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Trust and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Trust;
(j) for other authorized transactions of the Trust or for other proper
corporate purposes; provided that before making such transfer, the Bank will
also receive a certified copy of resolutions of the Board or the executive
committee of the Board, signed by an authorized officer of the Trust (other
than the officer certifying such resolution) and certified by its Secretary or
Assistant Secretary, specifying the Portfolio Securities to be delivered,
setting forth the transaction in or purpose for which such delivery is to be
made, declaring such transaction to be an authorized transaction of the Trust
or such purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b), (c),
(e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Withdrawals. In the case of payment of assets of the Trust held by the
Bank in connection with withdrawal of beneficial interests in the Trust, the
Bank will rely on notification by the Trust's transfer agent of receipt of a
request for withdrawal before such payment is made. Payment shall be made in
accordance with the Articles and By-laws of the Trust, from assets available
for said purpose.
21
8. Merger, Dissolution, etc. of Trust. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Trust into or the consolidation of the Trust with another investment company,
the sale by the Trust of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Trust and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Trust
set forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Trust or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Trust all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Trust and hold for the account of the Trust all income, dividends, interest and
other payments or distribution of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Trust which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Trust;
9.3 Receive and hold for the account of the Trust all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
22
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder;
9.4 Execute as agent on behalf of the Trust all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Trust's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with
Portfolio Securities delivered to it or by it under this Agreement as may be
required under the provisions of the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it
upon payment for the account of the Trust; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
timely collect any funds which may to its knowledge become collectible arising
from Portfolio Securities, including dividends, interest and other income, and
to transmit to the Trust notice actually received by it, or of which it becomes
aware, of any call for redemption, offer of exchange, right of subscription,
reorganization or other proceedings affecting such Securities. If Portfolio
Securities upon which such income is payable are in default or payment is
refused after due demand or presentation, the Bank will notify the Trust in
writing of any default or refusal to pay within two business days from the day
on which it receives knowledge of such default or refusal. In addition, the
23
Bank will send the Trust a written report once each month showing any income on
any Portfolio Security held by it which is more than ten days overdue on the
date of such report and which has not previously been reported.
11. Maintenance of Records. The Bank will maintain records with respect to
transactions for which the Bank is responsible pursuant to the terms and
conditions of this Agreement, and in compliance with the applicable rules and
regulations of the 1940 Act and will furnish the Trust daily with a statement
of condition of the Trust. The Bank will furnish to the Trust at the end of
every month, and at the close of each quarter of the Trust's fiscal year, a
list of the Portfolio Securities and the aggregate amount of cash held by it
for the Trust. The books and records of the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Trust and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
12. Trust Evaluation. The Bank shall compute and, unless otherwise directed
by the Board, determine as of the close of regular trading on the New York
Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by
the Board the net asset value of the Trust, such determination to be made in
accordance with the provisions of the Articles and By-laws of the Trust and
Prospectus and Statement of Additional Information relating to the Trust, as
they may from time to time be amended, and any applicable resolutions of the
Board at the time in force and applicable; and promptly to notify the Trust, or
such other persons as the Trust may request of the results of such computation
and determination. In computing the net asset value hereunder, the Bank may
rely in good faith upon information furnished to it by any Authorized Person in
24
respect of (i) the manner of accrual of the liabilities of the Trust and in
respect of liabilities of the Trust not appearing on its books of account kept
by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security
for which no price quotations are available, and (v) the method of computation
of the net asset value, and the Bank shall not be responsible for any loss
occasioned by such reliance or for any good faith reliance on any quotations
received from a source pursuant to (iii) above.
In addition, the Bank shall determine daily the net asset value of each
investor's interest in the Trust and shall allocate daily on a book basis and
annually or as mutually agreed on a tax basis among the investors in the Trust
on a pro rata basis all incremental investment activity.
13. Concerning the Bank.
13.1 Performance of Duties and Standard of Care.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and reasonably
act upon the reasonable advice of independent counsel of its own selection,
which may be counsel for the Trust, and will be without liability for any
action taken or thing done or omitted to be done in accordance with this
Agreement in good faith in conformity with such advice. In the performance of
its duties hereunder, the Bank will be protected and not be liable, and will be
indemnified and held harmless for any action taken or omitted to be taken by it
in good faith reliance upon the terms of this Agreement, any Officers'
Certificate, Proper Instructions, resolution of the Board, telegram, notice,
request, certificate or other instrument reasonably believed by the Bank to be
genuine and for any other loss to the Trust except in the case of its **
negligence, willful misfeasance or bad faith in the performance of its duties
25
or reckless disregard of its obligations and duties hereunder, except that as
to those duties contemplated under Sections 11 and 12 which relate to fund
accounting, the Bank will be held to a standard of gross negligence, willful
misfeasance or bad faith in the performance of its duties or reckless disregard
of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased by
or for the Trust, the legality of the purchases thereof or the propriety of the
price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the
Trust or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Trust
or the sufficiency of the amount to be received therefor;
(d) the legality of the withdrawal of any beneficial interests in the
Trust or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Trust or the
legality of the distribution of any Portfolio Securities as payment in kind of
such dividend; and
(f) any property or moneys of the Trust unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
26
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Trust are such as may properly be held by the Trust under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of God,
earthquakes, fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion, fission or
radiation, the interruption, loss or malfunction of utilities, transportation,
or computers (hardware or software) and computer facilities, the unavailability
of energy sources and other similar happenings or events except as results from
the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from the
provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
The Bank agrees to maintain adequate back-up facilites and disaster recovery
programs in an effort to minimize the disruption of service caused by any of
the conditions noted above.
13.2 Agents and Subcustodians with Respect to Property of the Trust Held
in the United States. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
27
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
At the request of the Trust and upon receipt of Proper Instructions, the
Bank may employ certain subcustodians other than those with whom the Bank
normally has a relationship, provided that any such subcustodian meets at least
the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act
as a custodian of the Trust's assets with respect to property of the Trust held
in the United States. The Bank shall have no liability to the Trust or any
other person by reason of any act or omission of such subcustodian and the
Trust shall indemnify the Bank and hold it harmless from and against any and
all actions, suits and claims, arising directly or indirectly out of the
performance of such subcustodian. Upon request of the Bank, the Trust shall
assume the entire defense of any action, suit, or claim subject to the
foregoing indemnity. The Trust shall pay all fees and expenses of such
subcustodian.
13.3 Reserved
13.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Trust held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Trust.
13.5. Fees and Expenses of Bank. The Trust will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Trust will pay to the Bank
28
such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time, the initial fee scheule being
attached hereto. The Bank will also be entitled to reimbursement by the Trust
for all reasonable expenses incurred in conjunction with termination of this
Agreement by the Trust.
13.6 Advances by Bank. The Bank may, in its sole discretion, advance funds
on behalf of the Trust to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such
payments by the Trust. Should such a payment or payments, with advanced funds,
result in an overdraft (due to insufficiencies of the Trust's account with the
Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness, a loan made by the Bank to the Trust payable on demand
and bearing interest at the current rate charged by the Bank for such loans
unless the Trust shall provide the Bank with agreed upon compensating balances.
The Trust agrees that the Bank shall have a continuing lien and security
interest to the extent of any overdraft or indebtedness, in and to any property
at any time held by it for the Trust's benefit or in which the Trust has an
interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf), but only
in amounts within the limitations as set forth in the Trust's prospectuses.
The Trust authorizes the Bank, in its sole discretion, at any time to charge
any overdraft or indebtedness, together with interest due thereon against any
balance of account standing to the credit of the Trust on the Bank's books, but
only after the Bank has invoiced the Trust and not received payment within a
reasonable time. Further, the Bank may not take possession of portfolio
securities without first discussing the issue with the portfolio manager.
14. Termination.
29
14.1 This Agreement may be terminated at any time** without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may
be postponed to a date not more than ninety days from the date of delivery of
such notice (i) by the Bank in order to prepare for the transfer by the Bank of
all of the assets of the Trust held hereunder, and (ii) by the Trust in order
to give the Trust an opportunity to make suitable arrangements for a successor
custodian. At any time after the termination of this Agreement, the Trust will,
at its request, have access to the records of the Bank relating to the
performance of its duties as custodian.
14.2 In the event of the termination of this Agreement, the
Bank will immediately upon receipt or transmittal, as the case may be,
of notice of termination, commence and prosecute diligently to completion the
transfer of all cash and the delivery of all Portfolio Securities duly
endorsed and all records maintained under Section 11 to the successor
custodian when appointed by the Trust. The obligation of the Bank to
deliver and transfer over the assets of the Trust held by it directly to
such successor custodian will commence as soon as such successor is appointed
and will continue until completed as aforesaid. If the Trust does not select a
successor custodian within ninety (90) days from the date of delivery of notice
of termination the Bank may, subject to the provisions of subsection (14.3),
deliver the Portfolio Securities and cash of the Trust held by the Bank to a
bank or trust company of its own selection which meets the requirements of
Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and
undivided profits aggregating not less than $2,000,000, to be held as the
property of the Trust under terms similar to those on which they were held by
the Bank, whereupon such bank or trust company so selected by the Bank will
become the successor custodian of such assets of the Trust with the same effect
as though selected by the Board.
30
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Trust may furnish the Bank with an order of the
Trust advising that a successor custodian cannot be found willing and able to
act upon reasonable and customary terms and that there has been submitted to
the investors of the Trust the question of whether the Trust will be liquidated
or will function without a custodian for the assets of the Trust held by the
Bank. In that event the Bank will deliver the Portfolio Securities and cash of
the Trust held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Trust's Secretary and an opinion of
counsel to the Trust in form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of a
governmental agency. The parties further agree that a breach of this provision
would irreparably damage the other party and accordingly agree that each of
them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Trust to:
Federated Services Company
31
Federated Investors Tower
Pittsburgh, PA 15222-3779
Attn: Doug Hein
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Carol Lowd
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Trust,
such alteration or amendment will be authorized and approved by its Board. The
parties may, however, enter into letters of agreement and interpretation
regarding provions of the contract, which letters are intended to be used for
purposes of interpretation and which do not need to be approved by the Board.
18. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Trust
without the written consent of the Bank or by the Bank without the written
consent of the Trust, authorized and approved by its Board; and provided
further that termination proceedings pursuant to Section 14 hereof will not be
deemed to be an assignment within the meaning of this provision.
32
19. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
21. Limitation of Liability. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of the Trust and notice is hereby given
that this Agreement has been executed on behalf of the Trust by an officer of
the Trust as an officer and not individually and the obligations of the Trust
arising out of this Agreement are not binding upon any of the trustees,
officers or investors of the Trust individually but are binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
FEDERATED INVESTMENT PORTFOLIOS
/s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
33
INVESTORS BANK &
TRUST COMPANY
/s/ Kevin J. Sheehan
By:
Name: Kevin J. Sheehan
Title: President
LIST OF PORTFOLIOS
Federated Investment Portfolios - Bond Index Portfolio ( a Hub)
FEES
Domestic Custody: Annual Asset Based Charge
34
$0 - $100 million 3 basis points
$100 - $300 million 2 basis points
greater than $300 million 1 basis point
Annual Portfolio Accounting and NAV Calculation: $35,000 per Hub; $9,000 per
Spoke
Transaction Fees:
Fed Book Entry $11
DTC $12
Other Book Entry $16
Time Deposit $16
Physical $38
Physical Maturity $12
Paydown $5
Wires
Incoming $6
Outgoing $8
Out-of-Pocket Expenses: Include pricing services, postage, forms, telephone
deliver, third party audit, equipment and other expenses related to the funds
Exhibit No. 1 on Form N-1a
AMENDED AND RESTATED
DECLARATION OF TRUST
FEDERATED INVESTMENT PORTFOLIOS
(EFFECTIVE AS OF MARCH 1, 1996)
FEDERATED INVESTMENT PORTFOLIOS
DECLARATION OF TRUST
TABLE OF CONTENTS
Page
ARTICLE I. NAMES AND DEFINITIONS ................ 1
Section 1. Name .............................. 1
Section 2. Definitions ....................... 1
ARTICLE II. PURPOSE OF TRUST ..................... 3
ARTICLE III.INTERESTS ............................ 3
Section 1. Beneficial Interest................ 3
Section 2. Ownership of Interests ............ 3
Section 3. Investment in the Trust............ 3
Section 4. No Pre-emptive Rights;
Action by Investors................ 4
Section 5. Establishment and Designation
of Series.......................... 4
ARTICLE IV. THE TRUSTEES ........................ 6
Section 1. Management of the Trust ........... 6
Section 2. Election of Trustees by Investors . 6
Section 3. Term of Office of Trustees ........ 6
Section 4. Termination of Service and
Appointment of Trustees ........... 7
Section 5. Number of Trustees ................ 7
Section 6. Effect of Death, Resignation, etc. of a Trustee 7
Section 7. Ownership of Assets ............... 7
ARTICLE V. POWERS OF THE TRUSTEES .............. 8
Section 1. Powers............................. 8
Section 2. Principal Transactions ............ 10
Section 3. Investments by Trustees and Officers 11
Section 4. Parties to Contract................ 11
ARTICLE VI. TRUSTEES' EXPENSES AND COMPENSATION 11
Section 1. Trustee Reimbursement.............. 11
Section 2. Trustee Compensation .............. 12
ARTICLE VII.INVESTMENT ADVISER, ADMINISTRATIVE
SERVICES, PLACEMENT AGENT, AND
TRANSFER AGENT ...................... 12
Section 1. Investment Adviser ................ 12
Section 2. Administrative Services ........... 13
Section 3. Placement Agent.................... 13
Section 4. Transfer Agent .................... 13
ARTICLE VIII. INVESTORS' VOTING POWERS
AND MEETINGS ........................ 13
Section 1. Voting Powers ..................... 13
Section 2. Meetings........................... 14
Section 3. Quorum and Required Vote .......... 14
Section 4. Action by Written Consent ......... 15
Section 5. Additional Provisions ............. 15
ARTICLE IX. CUSTODIAN ........................... 15
ARTICLE X. INCREASES AND REDEMPTIONS
OF INTERESTS ........................ 15
ARTICLE XI. DETERMINATION OF BOOK CAPITAL ACCOUNT
BALANCES AND DISTRIBUTIONS .......... 16
Section 1. Book Capital Account Balances ..... 16
Section 2. Allocations and Distributions to
Investors ......................... 16
Section 3. Power to Modify Foregoing Procedures 17
ARTICLE XII.INDEMNIFICATION ..................... 17
Section 1. Indemnification of Investors ...... 17
Section 2. Limitation of Personal Liability and
Indemnification of Trustees, Officers,
Employees or Agents of the Trust .. 17
ARTICLE XIII. MISCELLANEOUS...................... 18
Section 1. Trustee Action Binding, Expert Advice,
No Bond or Surety ................. 18
Section 2. Establishment of Record Dates ..... 18
Section 3. Termination of Trust .............. 19
Section 4. Offices of the Trust, Filing of Copies,
Headings, Counterparts ............ 20
Section 5. Applicable Law .................... 20
Section 6. Amendments -- General ............. 21
Section 7. Amendments -- Series............... 21
Section 8. Use of Name ....................... 22
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FEDERATED INVESTMENT PORTFOLIOS
Dated as of September 29, 1995
THIS DECLARATION OF TRUST made as of September 29, 1995, by the
undersigned, and by the holders of beneficial interest to be issued hereunder
as hereinafter provided, is hereby amended as of March 1, 1996.
WHEREAS, the Trustees desire to establish a trust fund for the investment
and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This Trust shall be known as FEDERATED INVESTMENT
PORTFOLIOS, and the Trustees may conduct the business of the Trust under that
name or any other name as they may determine from time to time.
Section 2. Definitions. Wherever used herein, unless otherwise required
by the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," and "Investment Adviser" shall have the
meanings given them in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to the Massachusetts Business Trust established
by this Declaration of Trust, as amended from time to time,
inclusive of each and every Series established hereunder;
(c) "Series" refers to a series of Interests established and designated
under or in accordance with the provisions of Article III;
(d) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or
in any successor statutory provision;
(e) "Investor" means a record owner of Interests of any Series;
(f) "Trustees" refer to the individual Trustees in their capacity as
Trustees hereunder of the Trust and their successor or successors
for the time being in office as such Trustees;
(g) "Interest" means the beneficial interest of an Investor in the
assets of any Series, including all rights, powers and privileges
accorded to Investors by this Declaration of Trust, which interest
may be expressed as a percentage, determined by calculating for a
particular Series, at such time and on such basis as the Trustees of
the Trust shall from time to time determine, the ratio of each
Investor's Book Capital Account balance to the total of all
Investors' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Investors
whose combined Book Capital Account balances represent such
specified percentage or fraction of the combined Book Capital
Account balances of all, or a specified group of, Investors;
(h) "Book Capital Account" shall mean, for any Investor at any time, the
Book Capital Account of the Investor at such time with respect to
the Investor's beneficial interest in the assets of any Series,
determined in accordance with the method established by the Trustees
pursuant to Article XI, Section 1 hereof. The Trust shall maintain
separate records of Book Capital Accounts for each such Series;
(i) "Majority Interests Vote" shall mean the vote, at a meeting of
Investors of one or more Series as the context may require, of (A)
67% or more of the Interests present or represented at such meeting
if Investors of more than 50% of all Interests in such one or more
Series are present or represented by proxy, or (B) more than 50% of
all Interests in such one or more Series, whichever is less;
(j) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, (including any exemptions granted
thereunder) as amended from time to time; and
(k) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to operate as an investment company, and
provide investors a continuous source of managed investments by investing
primarily in securities, derivative securities, and also in debt instruments,
commodities, commodity contracts and options thereon, and other property.
ARTICLE III
INTERESTS
Section 1. Beneficial Interest. The beneficial interest in the Trust
shall at all times be divided into non-transferable Interests, without par
value. Subject to the provisions of Section 5 of this Article III, each
Interest shall have voting rights as provided in Article VIII hereof, and
holders of the Interests of any Series shall be entitled to receive
allocations of unrealized gains and losses, taxable income and tax loss, and
profit and loss, when and as declared with respect thereto in the manner
provided in Article XI, Section 2 hereof. Each Interest of a Series shall
represent a proportionate interest in the assets and liabilities and the
income and the expenses of the Series with each other Interest of the same
Series, none having priority or preference over another.
Section 2. Ownership of Interests. The ownership of Interests shall be
recorded in the books of the Trust or a transfer agent which books shall be
maintained separately for the Interests of each Series. The Interests of each
Investor may not be transferred by such Investor, except as provided in
Article X with regard to redemptions of Interests, or except as part of a
merger or similar plan of reorganization adopted by the Trustees that
qualifies under Section 368 of the Internal Revenue Code, as amended from time
to time. The record books of the Trust or any transfer agent, as the case may
be, shall be conclusive as to who are the Investors of each Series and as to
the proportionate Interests of Investors of each Series held from time to time
by each.
Section 3. Investment in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms as they may from
time to time authorize; provided, however, that Investors shall be limited to
any regulated investment company, segregated asset account, foreign investment
company, common trust fund, group trust or other investment arrangement,
whether organized within or outside the United States, other than an
individual, S corporation, partnership or grantor trust beneficially owned by
any individual, S corporation or partnership. After the date of the initial
contribution of capital (which shall occur prior to or with the initial
private offering of Interests), the number of Interests to represent the
initial contribution shall be considered as outstanding and the amount
received by the Trustees on account of the contribution shall be treated as an
asset of the Trust to be allocated among any Series in the manner described in
Section 5(a) of this Article. Subsequent to such initial contribution of
capital, Interests (including Interests which may have been redeemed or
repurchased by the Trust) may be issued or sold through a capital contribution
as provided in Article X.
Section 4. No Pre-emptive Right; Action by Investor. Investors shall
have no pre-emptive or other right to subscribe to any increase in Interests
or other securities issued by the Trust. No action may be brought by an
Investor on behalf of the Trust unless a prior demand regarding such matter
has been made on the Trustees of the Trust.
Section 5. Establishment and Designation of Series. Without limiting
the authority of the Trustees set forth in Article XIII, Section 7, inter
alia, to establish and designate any additional Series or to modify the rights
and preferences of any existing Series, the initial Series shall be, and is
established and designated as, Bond Index Portfolio.
Interests of any Series established in this Section 5 shall have the
following relative rights and preferences:
(a) Assets belonging to Series. All consideration received by the Trust
for the issue or sale of Interests of a particular Series, together
with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
Series for all purposes, subject only to the rights of creditors,
and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds, in whatever form the same may be,
are herein referred to as "assets belonging to" that Series. No
Series shall have any right to or interest with respect to the
assets belonging to any Series and no Investor shall have any right
or interest with respect to the assets belonging to any Series in
which it does not hold an Interest. In the event that there are any
assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or
more of the Series established and designated from time to time in
such manner and on such basis as they, in their sole discretion,
deem fair and equitable, and any General Assets so allocated to a
particular Series shall belong to that Series. Each such allocation
by the Trustees shall be conclusive and binding upon the Investors
of all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust
in respect of that Series and all expenses, costs, charges, and
reserves attributable to that Series, and any general liabilities of
the Trust which are not readily identifiable as belonging to any
particular Series shall be allocated and charged by the Trustees to
and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities belonging to" that Series.
Investors in a Series shall be jointly and severally liable for the
liabilities of that Series and no other. No Series shall be liable
for or charged with the liabilities belonging to any other Series,
and no Investor shall be subject to any liabilities belonging to any
Series in which it does not hold an Interest. Each allocation of
liabilities belonging to a Series by the Trustees shall be
conclusive and binding upon the Investors of all Series for all
purposes.
(c) Allocations, Distributions, Redemptions, Repurchases and
Indemnification. Notwithstanding any other provisions of this
Declaration of Trust, including, without limitation, Article XI, no
allocation or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any Series)
with respect to, nor any redemption or repurchase of the Interests
of any Series shall be effected by the Trust other than from the
assets belonging to such Series, nor except as specifically provided
in Section 1 of Article XII hereof, shall any Investor of any
particular Series otherwise have any right or claim against the
assets belonging to any other Series except to the extent that such
Investor has such a right or claim hereunder as an Investor of such
other Series.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration of Trust, including, without limitation, Section 1 of
Article VIII, only Investors of a particular Series shall be
entitled to a proportionate vote of their respective Interests as
recorded on the books of the Trust or a transfer agent on any
matters affecting such Series. Except with respect to matters as to
which any particular Series is adversely affected materially
differently or as otherwise required by applicable law, all of the
Interests of each Series shall, on matters as to which such Series
is entitled to vote, vote with other Series so entitled as a single
class. Notwithstanding the foregoing, with respect to matters which
would otherwise be voted on by two or more Series as a single class,
the Trustees may, in their sole discretion, submit such matters to
the Investors of any or all such Series, separately. On each matter
submitted to a vote of the Investors, an Investor may apportion its
vote with respect to a proposal in the same proportion as its
shareholders voted with respect to that proposal.
(e) Elimination of Series. The Trustees shall have the authority,
without the approval of Investors of any Series, unless otherwise
required by applicable law, to amend this Declaration of Trust to
abolish that Series and to rescind the establishment and designation
thereof.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility. The Trustees who
shall serve as Trustees are as follows: John F. Donahue, J. Christopher
Donahue, Thomas G. Bigley, Jr. , John T. Conroy, Jr., William J. Copeland,
James E. Dowd, Lawrence D. Ellis, M.D., Edward L. Flaherty, Peter E. Madden,
Gregor F. Meyer, John E. Murray, Jr., Wesley W. Posvar, and Marjorie P.
Smuts.
Section 2. Election of Trustees by Investors. Unless otherwise required
by the 1940 Act or any court or regulatory body of competent jurisdiction, or
unless the Trustees determine otherwise, a Trustee shall be elected by the
Trustees, and Investors shall have no right to elect Trustees.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust, and until its termination as hereinafter
provided; except (a) that any Trustee may resign his office at any time by
written instrument signed by him and delivered to the other Trustees, which
shall take effect upon such delivery or upon such later date as is specified
therein; (b) that any Trustee may be removed at any time by written instrument
signed by at least two-thirds of the number of Trustees prior to such removal,
specifying the date when such removal shall become effective; (c) that any
Trustee who requests in writing to be retired or who has become mentally or
physically incapacitated may be retired by written instrument signed by a
majority of the other Trustees, specifying the date of his retirement; and (d)
a Trustee may be removed at any special meeting of Investors of the Trust by a
vote of two-thirds of the outstanding Interests. Any removals shall be
effective as to the Trust and each Series hereunder.
Section 4. Termination of Service and Appointment of Trustees. In case
of the death, resignation, retirement, removal or mental or physical
incapacity of any of the Trustees, or in case a vacancy shall, by reason of an
increase in number, or for any other reason, exist, the remaining Trustees
shall fill such vacancy by appointing such other person as they in their
discretion shall see fit. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after
the effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted this Trust,
the trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. Any appointment authorized by this Section 4 is
subject to the provisions of Section 16(a) of the 1940 Act.
Section 5. Number of Trustees. The number of Trustees, not less than
three (3) nor more than twenty (20) serving hereunder at any time, shall be
determined by the Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally
incapacitated, the other Trustees shall have all the powers hereunder and the
certificate signed by a majority of the other Trustees of such vacancy,
absence or incapacity, shall be conclusive, provided, however, that no vacancy
which reduces the number of Trustees below three (3) shall remain unfilled for
a period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee. The death,
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one or more of them, shall not operate to annul the Trust or
to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Section 7. Ownership of Assets. The assets belonging to each Series
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustee. All of the assets belonging to each Series or owned by the Trust
shall at all times be considered as vested in the Trustees. No Investor shall
be deemed to have a severable ownership interest in any individual asset
belonging to any Series or owned by the Trust or any right of partition or
possession thereof, but each Investor shall have a proportionate undivided
beneficial interest in a Series.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Investors. The
Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust or a
Series. The Trustees shall not be bound or limited by present or future laws
or customs in regard to trust investments, but shall have full authority and
power to make any and all investments which they, in their uncontrolled
discretion, shall deem proper to accomplish the purpose of this Trust.
Without limiting the foregoing, the Trustees shall have the following specific
powers and authority, subject to any applicable limitation in the 1940 Act or
in this Declaration of Trust or in the By-Laws of the Trust:
(a) To buy, and invest funds in their hands in securities and other
property, including, but not limited to, common stocks, preferred
stocks, bonds, debentures, warrants and rights to purchase
securities, options, certificates of beneficial interest, money
market instruments, notes or other evidences of indebtedness issued
by any corporation, trust or association, domestic or foreign, or
issued or guaranteed by the United States of America or any agency
or instrumentality thereof, by the government of any foreign
country, by any State of the United States, or by any political
subdivision or agency or instrumentality of any State or foreign
country, or "when-issued" or "delayed-delivery" contracts for any
such securities, or any repurchase agreement or reverse repurchase
agreement, or debt instruments, commodities, commodity contracts and
options thereon, or to retain assets belonging to each and every
Series in cash, and from time to time to change the investments of
the assets belonging to each Series;
(b) To adopt By-Laws of the Trust not inconsistent with the Declaration
of Trust providing for the conduct of the business of the Trust and
to amend and repeal them to the extent that they do not reserve that
right to the Investors;
(c) To elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider appropriate;
(d) To appoint or otherwise engage a bank or other entity permitted by
the 1940 Act, as custodian of any assets belonging to any Series
subject to any conditions set forth in this Declaration of Trust or
in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend disbursing
agents, Investor servicing agents, Investment Advisers (including
any sub-investment advisers), placement agents, administrative
service agents, and such other agents as the Trustees may from time
to time appoint or otherwise engage;
(f) To provide for the placement of any Interests of any Series either
through a private placement agent in the manner hereinafter provided
for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a committee
or committees composed of Trustees, including without limitation, an
Executive Committee, or to any officers of the Trust and to any
agent or custodian;
(i) To sell or exchange any or all of the assets belonging to one or
more Series, subject to the provisions of Article XIII, Section 3(b)
hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons, including the
Investment Adviser of the Trust as the Trustees shall deem proper,
granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem
proper;
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other property;
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to
the usual business practice of Massachusetts business trusts or
investment companies;
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security
of which belongs to any Series; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any
security which belongs to any Series;
(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets belonging to any Series to pay, or to
satisfy, any debts, claims or expenses incurred in connection
therewith, including those of litigation, upon any evidence that the
Trustees may deem sufficient (such powers shall include, without
limitation, any actions, suits, proceedings, disputes, claims,
demands and things relating to the Trust wherein any of the Trustees
may be named individually and the subject matter of which arises by
reason of business for or on behalf of the Trust);
(o) To make distributions of income and of capital gains to Investors;
(p) To borrow money;
(q) From time to time to issue and sell the Interests of any Series
either for cash or for property whenever and in such amounts as the
Trustees may deem desirable, but subject to the limitation set forth
in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee, or agent of the Trust, or is or was serving at the request
of the Trust as a trustee, director, officer, agent, or employee of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such;
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property
rights relating to any or all of the assets belonging to any Series;
The Trustees shall have all of the powers set forth in this Section 1
with respect to all assets and liabilities of each Series.
Section 2. Principal Transactions. The Trustees shall not cause the
Trust on behalf of any Series to buy any securities (other than Interests)
from or sell any securities (other than Interests) to, or lend any assets
belonging to any Series to any Trustee or officer or employee of the Trust or
any firm of which any such Trustee or officer is a member acting as principal
unless permitted by the 1940 Act, but the Trust may employ any such other
party or any such person or firm or company in which any such person is an
interested person in any capacity not prohibited by the 1940 Act.
Section 3. Investments by Trustees and Officers. No Trustee, officer,
employee, or other agent of the Trust may acquire or own Interests of any
Series.
Section 4. Parties to Contract. The Trustees may enter into any
contract of the character described in Article VII or in Article IX hereof or
any other capacity not prohibited by the 1940 Act with any corporation, firm,
partnership, trust, or association, although one or more of the Trustees,
officers, employees, or agents of the Trust or their affiliates may be an
officer, director, trustee, partner, or interested person of such other party
to the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall any
person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust or any Series under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, in the absence of actual fraud. The same person
(including a firm, corporation, partnership, trust, or association) may be the
other party to contracts entered into pursuant to Article VII or Article IX or
any other capacity not prohibited by the 1940 Act, and any individual may be
financially interested or otherwise an interested person of persons who are
parties to any or all of the contracts mentioned in this Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall be reimbursed from
the assets belonging to each particular Series for all of such Trustees'
expenses as such expenses are allocated to and among any one or more of the
Series pursuant to Article III, Section 5(b), including, without limitation,
expenses of organizing the Trust or any Series and continuing its or their
existence; fees and expenses of Trustees and officers of the Trust; fees for
investment advisory services, administrative services, and private placement
services provided for in Article VII, Sections 1, 2, and 3; fees and expenses
of preparing Registration Statements under the 1940 Act and any amendments
thereto; expenses of registering and qualifying the Trust and any Series and
the Interests of any Series under federal and state laws and regulations, if
any; interest expenses, taxes, fees, and commissions of every kind; expenses
of issue, purchases, repurchases and redemptions of Interests; charges and
expenses of custodians, transfer agents, dividend disbursing agents, Investor
servicing agents and registrars; auditing, accounting, and legal expenses;
reports to Investors and governmental officers and commissions; expenses of
meetings of Investors and proxy solicitations therefor; insurance expenses;
association membership dues and nonrecurring items as may arise, including all
losses and liabilities by them incurred in administering the Trust and any
Series, including expenses incurred in connection with litigation,
proceedings, and claims and the obligations of the Trust under Article XII
hereof and the By-Laws to indemnify its Trustees, officers, employees, and
agents, and any contract obligation to indemnify the placement agent of the
Trust under Section 3 of Article VII; and for the payment of such expenses,
disbursements, losses, and liabilities, the Trustees shall have a lien on the
assets belonging to each Series prior to any rights or interests of the
Investors of any Series. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
Section 2. Trustee Compensation. The Trustees shall be entitled to
compensation from the Trust from the assets belonging to any Series for their
respective services as Trustees, to be determined from time to time by vote of
the Trustees, and the Trustees shall also determine the compensation of all
officers, employees, consultants, and agents whom they may elect or appoint.
The Trust may pay out of the assets belonging to any Series any Trustee or any
corporation, firm, partnership, trust, or other entity of which a Trustee is
an interested person for services rendered in any capacity not prohibited by
the 1940 Act, and such payments shall not be deemed compensation for services
as a Trustee under the first sentence of this Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PLACEMENT AGENT AND TRANSFER AGENT
Section 1. Investment Adviser. Subject to a Majority Interests Vote by
the relevant Series to the extent such vote is required by law, the Trustees
may in their discretion from time to time enter into an investment advisory
contract whereby the other party to such contract shall undertake to furnish
the Trustees investment advisory services for such Series upon such terms and
conditions and for such compensation as the Trustees may in their discretion
determine. Subject to a Majority Interests Vote by the relevant Series to the
extent such vote is required by law, the Investment Adviser may enter into a
sub-investment advisory contract to receive investment advice and/or
statistical and factual information from the sub-investment adviser for such
Series upon such terms and conditions and for such compensation as the
Trustees, in their discretion, may agree. Notwithstanding any provisions of
this Declaration of Trust, the Trustees may authorize the Investment Adviser
(including any sub-investment adviser) or any person furnishing administrative
personnel and services as set forth in Article VII, Section 2 (subject to such
general or specific instructions as the Trustees may from time to time adopt)
to effect purchases, sales, or exchanges of portfolio securities belonging to
a Series on behalf of the Trustees or may authorize any officer, employee, or
Trustee to effect such purchases, sales, or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action by
the Trustees). Any such purchases, sales, and exchanges shall be deemed to
have been authorized by the Trustees. The Trustees may also authorize the
Investment Adviser to determine what firms shall be employed to effect
transactions in securities for the account of a Series and to determine what
firms shall participate in any such transactions or shall share in commissions
or fees charged in connection with such transactions.
Section 2. Administrative Services. The Trustees may in their
discretion from time to time contract for administrative personnel and
services whereby the other party shall agree to provide the Trustees
administrative personnel and services to operate the Trust or a Series on a
daily basis, on such terms and conditions as the Trustees may in their
discretion determine. Such services may be provided by one or more entities.
Section 3. Placement Agent. The Trustees may in their discretion from
time to time enter into an exclusive or nonexclusive contract or contracts
providing for the sale of the Interests of a Series, whereby a Series may
either agree to sell the Interests to the other party to the contract or
appoint such other party its sales agent for such shares. In either case, the
contract shall be on such terms and conditions (including indemnification of
the placement agent allowable under applicable law and regulation) as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Article VII; and such contract may also provide for the
repurchase or sale of Interests of a Series by such other party as agent of
the Trust.
Section 4. Transfer Agent. The Trustees may in their discretion from
time to time enter into transfer agency and Investor services contracts
whereby the other party shall undertake to furnish transfer agency and
Investor services. The contracts shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the By-Laws. Such services may
be provided by one or more entities.
ARTICLE VIII
INVESTORS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. Subject to the provisions set forth in
Article III, Section 5(d), the Investors shall have power to vote: (i) for the
election of Trustees as provided in Article IV, Section 2; (ii) for the
removal of Trustees as provided in Article IV, Section 3(d); (iii) with
respect to any Investment Adviser (including any sub-investment adviser) as
provided in Article VII, Section 1; (iv) with respect to the amendment of this
Declaration of Trust as provided in Article XIII, Section 7; and (v) with
respect to such additional matters relating to the Trust as may be required by
law, by this Declaration of Trust, or the By-Laws of the Trust or any
regulation of the Trust or the Securities and Exchange Commission or any
State, or as the Trustees may consider desirable. There shall be no
cumulative voting in the election of Trustees. On each matter submitted to a
vote of the Investors, each Investor shall be entitled to a vote proportionate
to its Interest as recorded on the books of the Trust or with a transfer
agent. Interests may be voted in person or by proxy. A proxy purporting to be
executed by or on behalf of any Investor shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. At all meetings of Investors, unless inspectors
of election have been appointed, all questions relating to the qualification
of votes and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. Unless otherwise specified
in the proxy, the proxy shall apply to the entire Interest of each Investor in
the Trust (or each Series). Any proxy may be in written form, telephonic or
electronic form, including facsimile, and all such forms shall be valid when
in conformance with procedures established and implemented by the officers of
the Trust. On each matter submitted to a vote of the Investors, an Investor
may apportion its vote with respect to a proposal in the same proportion as
its own shareholders voted with respect to such proposal. Until Interests of
a Series are issued, the Trustees may exercise all rights of Investors of such
Series with respect to matters affecting such Series, and may take any action
with respect to the Trust or such Series required or permitted by law, this
Declaration of Trust or any By-Laws of the Trust to be taken by Investors.
Section 2. Meetings. An Investors' meeting shall be held as specified
in Section 2 of Article IV at the principal office of the Trust or such other
place as the Trustees may designate. Special meetings of the Investors may be
called by the Trustees or the Chief Executive Officer of the Trust and shall
be called by the Trustees upon the written request of Investors owning at
least one-tenth of the outstanding Interests of all Series entitled to vote.
Investors shall be entitled to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, the presence in person or by proxy of the holders of (a) one-half of the
Interests of the Trust on all matters requiring a Majority Interests Vote, as
defined in the 1940 Act, or (b) one-third of the Interests of the Trust on all
other matters permitted by law, in each case, entitled to vote shall
constitute a quorum at any meeting of the Investors, except with respect to
any matter which by law requires the separate approval of one or more Series,
in which case the presence in person or by proxy of the holders of one-half or
one-third, as set forth above, of the Interests of each Series entitled to
vote separately on the matter shall constitute a quorum. When any one or more
Series is entitled to vote as a single Series, more than one-half, or one-
third, as appropriate, of the Interests of each such Series entitled to vote
shall constitute a quorum at an Investors' meeting of that Series. If a
quorum shall not be present for the purpose of any vote that may properly come
before the meeting, the Interests present in person or by proxy and entitled
to vote at such meeting on such matter may, by plurality vote, adjourn the
meeting from time to time to such place and time without further notice than
by announcement to be given at the meeting until a quorum entitled to vote on
such matter shall be present, whereupon any such matter may be voted upon at
the meeting as though held when originally convened. Subject to any
applicable requirement of law or of this Declaration of Trust or the By-Laws,
a plurality of the votes cast shall elect a Trustee, and all other matters
shall be decided by a majority of the votes cast and entitled to vote thereon.
Section 4. Action by Written Consent. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Investors may be taken
without a meeting if Investors holding a majority of the Interests entitled to
vote on the matter (or such larger proportion thereof as shall be required by
applicable law or by any express provision of this Declaration of Trust or the
By-Laws) consents to the action in writing. Such consents shall be treated
for all purposes as a vote taken at a meeting of Investors.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Investors' votes and meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial and accounting services to the Trust or any
Series. The contracts shall be on the terms and conditions as the Trustees
may in their discretion determine not inconsistent with the provisions of this
Declaration of Trust or of the By-Laws. Such services may be provided by one
or more entities, including one or more sub-custodians.
ARTICLE X
INCREASES AND REDEMPTIONS OF INTERESTS
Subject to applicable law, to the provisions of this Declaration of Trust
and to such restrictions as may from time to time be adopted by the Trustees,
each Investor may vary its Interest in any Series at any time by increasing
(through a capital contribution) or decreasing (through a capital withdrawal)
or by a redemption of its Interest. An increase in the Interest of an
Investor in a Series shall be reflected as an increase in the Book Capital
Account balance of that Investor in that Series and a decrease in the Interest
of an Investor in a Series or the Redemption of the Interest of that Investor
shall be reflected as a decrease in the Book Capital Account balance of that
Investor in that Series. The Trust shall, upon appropriate and adequate
notice from any Investor, increase, decrease, or redeem such Investor's
Interest for an amount determined by the application of a formula adopted for
such purpose by resolution of the Trustees; provided that (a) the amount
received by the Investor upon any such decrease or redemption shall not exceed
the decrease in the Investor's Book Capital Account balance effected by such
decrease or redemption of its Interest, and (b) if so authorized by the
Trustees, the Trust may, at any time and from time to time, charge fees for
effecting any such decrease or redemption, at such rates as the Trustees may
establish, and may, at any time and from time to time, suspend such right of
decrease or redemption. The procedures for effecting decreases or redemptions
shall be as determined by the Trustees from time to time. An Investor that
has redeemed its entire Interest in any Series may not purchase an Interest in
such Series until the later of 60 calendar days after the date of such
redemption or the first day of the fiscal year next succeeding the fiscal year
in which the redemption occurred.
ARTICLE XI
DETERMINATION OF BOOK CAPITAL ACCOUNT
BALANCES AND DISTRIBUTIONS
Section 1. Book Capital Account Balances. The Book Capital Account
balance of Investors with respect to a particular Series shall be determined
on such days and at such time or times as the Trustees may determine. The
Trustees shall adopt resolutions setting forth the method of determining the
Book Capital Account balance of each Investor. The power and duty to make
calculations pursuant to such resolutions may be delegated by the Trustees to
the Investment Adviser or administrator, custodian, or such other person as
the Trustees may determine. Upon the redemption of an Interest, the Investor
in that Interest shall be entitled to receive the balance of its Book Capital
Account. An Investor may not transfer its Book Capital Account balance.
Section 2. Allocations and Distributions to Investors. The Trustees
shall, in compliance with the Internal Revenue Code, the 1940 Act, and
generally accepted accounting principles, establish the procedures by which
the Trust shall make with respect to each Series: (i) the allocation of
unrealized gains and losses, taxable income and tax loss, and profit and loss,
or any item or items thereof, to each Investor, (ii) the payment of
distributions, if any to Investors, and (iii) upon liquidation, the final
distribution of items of taxable income and expense. Such procedures shall be
set forth in writing and be furnished to the Trust's accountants. The
Trustees may amend the procedures adopted pursuant to this Section 2 of
Article XI from time to time. The Trustees may retain from the net profits of
each Series such amount as they may deem necessary to pay the liabilities and
expenses of that Series.
Section 3. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article XI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income and net assets of the Trust and of each Series, the allocation of
income of the Trust and of each Series, the Book Capital Account balance of
each Investor, or the payment of distributions to the Investors as they deem
necessary or desirable to enable the Trust or a Series to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission
or with the Internal Revenue Code.
ARTICLE XII
INDEMNIFICATION
Section 1. Indemnification of Investors. Each Investor of any Series
shall be liable for any debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any kind, against or with respect
to the Trust or any Series arising out of any action taken or omitted for or
on behalf of the Trust or such Series.
Each Investor or former Investor of any Series (or their corporate or
other general successor) shall be entitled to be held harmless from and
indemnified against to the full extent of such liability and the costs of any
litigation or other proceedings in which such liability shall have been
determined, including, without limitation, the fees and disbursements of
counsel if, contrary to the provisions hereof, such Investor or former
Investor of such Series shall be held to be liable. Such indemnification
shall come exclusively from the assets of the relevant Series.
The Trust shall, upon request by an Investor or former Investor, assume
the defense of any claim made against any Investor for any act or obligation
of the Trust or any Series and satisfy any judgment thereon.
Section 2. Limitation of Personal Liability and Indemnification
of Trustees, Officers, Employees, or Agents of the Trust. No Trustee,
officer, employee, or agent of the Trust shall have the power to bind any
other Trustee, officer, employee, or agent of the Trust personally. The
Trustees, officers, employees, or agents of the Trust in incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for or
in connection with the Trust, are, and each shall be deemed to be, acting as
Trustee, officer, employee or agent of the Trust and not in his or her own
individual capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or officer, as the case may
be, and for nothing else.
Each person who is or was a Trustee, officer, employee, or agent of the
Trust shall be entitled to indemnification out of the assets of the Trust (or
of any Series) to the extent provided in, and subject to the provisions of,
the By-Laws, provided that no indemnification shall be granted in
contravention of the 1940 Act.
ARTICLE XIII
MISCELLANEOUS
Section 1. Trustee Action Binding, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall
be binding upon everyone interested. Subject to the provisions of Article
XII, the Trustees shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and subject
to the provisions of Article XII, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if
a bond is required.
Section 2. Establishment of Record Dates. The Trustees may close the
Interest transfer books of the Trust maintained with respect to any Series for
a period not exceeding ninety (90) days preceding the date of any meeting of
Investors of the Trust or any Series, or the date for the payment of any
allocation or the making of any distribution to Investors, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Interests of any Series shall go into effect or the last day on which the
consent or dissent of Investors of any Series may be effectively expressed for
any purpose; or in lieu of closing the Interests transfer books as aforesaid,
the Trustees may fix in advance a date, not exceeding ninety (90) days
preceding the date of any meeting of Investors of the Trust or any Series, or
the date for the payment of any allocation or the making of any distribution
to Investors of any Series, or the date for the allotment of rights, or the
date when any change or conversion or exchange of Interests of any Series
shall go into effect, or the last day on which the consent or dissent of
Investors of any Series may be effectively expressed for any purpose, as a
record date for the determination of the Investors entitled to notice of, and,
to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such allocation or distribution, or to any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of Interests, or to exercise the right to give such
consent or dissent, and in such case such Investors and only such Investors as
shall be Investors of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting, or to receive payment of such
allocation or distribution, or to receive such allotment or rights, or to
change, convert or exchange Interests of any Series, or to exercise such
rights, as the case may be, notwithstanding, after such date fixed aforesaid,
any transfer of any Interests on the books of the Trust maintained with
respect to any Series. Nothing in the foregoing sentence shall be construed
as precluding the Trustees from setting different record dates for different
Series.
Section 3. Termination of Trust.
(a) This Trust shall continue for a period of fifty (50) years from
September 29, 1995, but subject to the provisions of paragraphs (b),
(c) and (d) of this Section 3. At the date of termination of the
Trust pursuant to this paragraph (a) of Section 3, the Investors may
elect to continue the existence of the Trust for such period of time
as they may agree in writing. If the existence of the Trust is not
continued, the Trustees, upon making provision for the payment of
all outstanding obligations, taxes, and other liabilities, accrued
or contingent, belonging to each Series, shall distribute the
remaining assets belonging to each Series ratably among the holders
of the outstanding Interests of each Series. In termination of the
Trust, the Trustees may, as they deem appropriate, sell and convert
into money any or all of the assets of each Series prior to
distribution.
(b) The Trustees may, by majority action, with the approval of a
Majority Interests Vote of each Series entitled to vote as
determined by the Trustees under Section 5(d) of Article III, sell
and convey the assets of the Trust or any Series to another trust or
corporation. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, belonging to each Series, the Trustees shall distribute
the remaining assets belonging to each Series ratably among the
holders of the outstanding Interests of that Series. The Trustees
shall make a good faith determination that a conveyance of a part of
the assets of a Series is in the best interest of Investors of the
relevant Series.
(c) The Trustees may at any time sell and convert into money all
the assets of the Trust or any Series without Investor approval,
unless otherwise required by applicable law. Upon making provision
for the payment of all outstanding obligations, taxes, and other
liabilities, accrued or contingent, belonging to each Series, the
Trustees shall distribute the remaining assets belonging to each
Series ratably among the holders of the outstanding Interests of
that Series.
(d) Any Series of the Trust shall be dissolved and terminated: (i) by
the affirmative vote of the Investors of not less than two-thirds of
the Interests in the Series at any meeting of the Investors or by an
instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to in writing by the Investors of not
less than two-thirds of such Interests; or (ii) upon the bankruptcy
or withdrawal of any Investor of an Interest in the Series, other
than the withdrawal of any Investor that is a registered broker-
dealer, the dissolution and termination of such Series being
effective 120 days after the event. If a Series is dissolved and
terminated by either of the aforesaid actions, the remaining
Investors of Interests in such Series may, be majority vote of
Interests, agree to continue the business of the Series pursuant to
the terms and conditions of this Declaration of Trust,
notwithstanding such dissolution.
(e) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b), (c) or (d),
the Trust or the applicable Series shall terminate and the Trustees
shall be discharged of any and all further liabilities and duties
hereunder or with respect thereto and the right, title, and interest
of all parties shall be canceled and discharged.
(f) The Trust may be dissolved by majority action of the Trustees upon
the dissolution and termination of the last remaining Series of the
Trust.
Section 4. Offices of the Trust, Filing of Copies,
Headings, Counterparts.
The Trust shall maintain a usual place of business in Massachusetts, which,
initially, shall be c/o Donnelly, Conroy & Gelhaar, One Post Office Square,
Boston, Massachusetts 02109-2105, and shall continue to maintain an office at
such address unless changed by the Trustees to another location in
Massachusetts. The Trust may maintain other offices as the Trustees may from
time to time determine. The original or a copy of this instrument and of each
declaration of trust supplemental hereto shall be kept at the office of the
Trust where it may be inspected by any Investor. A copy of this instrument
and of each supplemental declaration of trust shall be filed by the Trustees
with the Massachusetts Secretary of State and the Boston City Clerk, as well
as any other governmental office where such filing may from time to time be
required. Headings are placed herein for convenience of reference only and in
case of any conflict, the text of this instrument, rather than the headings
shall control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 5. Applicable Law. The Trust set forth in this instrument is
created under and is to be governed by and construed and administered
according to the laws of The Commonwealth of Massachusetts.
Section 6. Amendments -- General. All rights granted to the Investors
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided. The provisions
of this Declaration of Trust (whether or not related to the rights of
Investors) may be amended at any time, so long as such amendment does not
adversely affect the rights of any Investor with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument
in writing signed by a majority of the then Trustees (or by an officer of the
Trust pursuant to the vote of a majority of such Trustees). Any amendment to
this Declaration of Trust that adversely affects the rights of Investors may
be adopted at any time by an instrument signed in writing by a majority of the
then Trustees (or by any officer of the Trust pursuant to the vote of a
majority of such Trustees) when authorized to do so by the vote of the
Investors holding a majority of the Interests entitled to vote. Subject to
the foregoing, any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument
and of a certificate (which may be a part of such instrument) executed by a
Trustee or officer to the effect that such amendment has been duly adopted.
Copies of the amendment to this Declaration of Trust shall be filed as
specified in Section 4 of this Article XIII. A restated Declaration of Trust,
integrating into a single instrument all of the provisions of the Declaration
of Trust which are then in effect and operative, may be executed from time to
time by a majority of the Trustees and shall be effective upon filing as
specified in Section 4.
Section 7. Amendments -- Series. The establishment and designation of
any Series in addition to those established and designated in Section 5 of
Article III hereof shall be effective upon the execution by a majority of the
then Trustees, without the need for Investor approval, of an amendment to this
Declaration of Trust, taking the form of a complete restatement or otherwise,
setting forth such establishment and designation and the relative rights and
preferences of any such Series, or as otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Declaration of the
Trust may be amended without the need for Investor approval to:
(a) create one or more Series (in addition to any Series already
existing or otherwise) with such rights and preferences and such
eligibility requirements for investment therein as the Trustees
shall determine and reclassify any or all outstanding Interests as
Interest of particular Series in accordance with such eligibility
requirements;
(b) combine two or more Series into a single Series on such terms
and conditions as the Trustees shall determine;
(c) change or eliminate any eligibility requirements for investment
in Interests of any Series, including without limitation the power
to provide for the issue of Interests of any Series in connection
with any merger or consolidation of the Trust with another trust or
company or any acquisition by the Trust of part or all of the assets
of another trust or company;
(d) change the designation of any Series;
(e) change the method of allocating unrealized gains and losses,
taxable income and tax loss, and profit and loss among the various
Series;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
Series; and
(g) specifically allocate assets to any or all Series or create one
or more additional Series which are preferred over all other Series
in respect of assets specifically allocated thereto or any
allocations made by the Trust with respect to any item of income or
expense, however determined.
Section 8. Use of Name. The Trust acknowledges that Federated Investors
has reserved the right to grant the non-exclusive use of the name "Federated"
or any derivative thereof to any other investment company, investment company
portfolio, Investment Adviser, distributor, or other business enterprise, and
to withdraw from the Trust or one or more Series any right to the use of the
name "Federated."
The undersigned Assistant Secretary of Federated Investment Portfolios
hereby certifies that the above stated Amendment is a true and correct
Amendment to the Declaration of Trust, as adopted by the Board of Trustees on
the 29th day of February, 1996.
WITNESS the due execution hereof this 1st day of March, 1996.
/s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on March 1, 1996, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in for the County of
Allegheny, personally appeared S. Elliott Cohan, who acknowledged the
foregoing to be his act.
Witness my hand and notarial seal the day and year above written.
/s/ Jody L. Petras
Notary Public
Exhibit 5(i) on Form N-1A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of December 1, 1995, by and between FEDERATED
INVESTMENT PORTFOLIOS, a Massachusetts business trust (the "Trust"),
registered as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
FEDERATED MANAGEMENT, a Delaware business trust registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Adviser").
In consideration of the promises and the mutual covenants herein
contained, the Trust and the Adviser agree as follows:
1. Appointment. The Trust appoints the Adviser to act as
investment adviser to the Trust with respect to the series of the Trust listed
on Exhibit A hereto (the "Series") for the period and on the terms set forth
in this Agreement. The Adviser accepts such appointment and agrees to provide
an investment program for the compensation provided by this Agreement. In
providing the services and assuming the obligations set forth herein, the
Adviser, may, at its own expense, employ one or more subadvisers; provided
that the Adviser understands and agrees that it shall remain fully responsible
for the performance of all the duties set forth in this Agreement and that it
shall supervise the activities of each subadviser. Any agreement between the
Adviser and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement.
2. Duties of the Adviser. Subject to the direction and control of
the Board of Trustees of the Trust, the Adviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a
macroeconomic and microeconomic level any pertinent research; statistical,
financial and economic data; and other information necessary or appropriate
for the performance of its duties under this Agreement;
(b) formulate and continuously review, supervise, and
administer an investment program for each Series;
(c) determine the securities to be purchased by the Series,
and continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting
rights, or other rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by
the Series if so requested by the Trustees of the Trust;
(f) render regular reports to the Trust's officers and the
Board of Trustees concerning the investment performance of the Trust, the
Adviser's discharge of its responsibilities under this Agreement, and any
other subject as the Trust's officers or Board of Trustees reasonably may
request; and
(g) assist the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. The activities of the Adviser
shall be subject at all times to the direction and control of the Board of
Trustees of the Trust and shall comply with: (a) the Declaration of Trust and
By-Laws of the Trust; (b) the Registration Statement of the Trust, as it may
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be amended from time to time, including the investment objectives and policies
set forth therein; (c) the Investment Company Act and the regulations
thereunder; (d) the Internal Revenue Code of 1986 and the regulations
thereunder applicable to regulated investment companies; (e) any other
applicable laws or regulations; and (f) such other limitations as the Board of
Trustees of the Trust may adopt.
4. Purchase and Sale of Securities. The Adviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the
Trust either directly with the issuer or with any broker and/or dealer who
deals in such securities.
(a) In placing orders with brokers and/or dealers, the Adviser
shall use its best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the broker
and/or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis.
Consistent with this obligation, the Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities and Exchange Act of 1934) to or for the benefit of the Trust and/or
other accounts over which the Adviser exercises investment discretion. The
Adviser is authorized to pay a broker who provides such brokerage and research
services a commission for effecting a securities transaction which is in
excess of the amount of commission another broker would have charged for
effecting that transaction, if the Adviser determines in good faith that such
commission was reasonable in relation to the value of brokerage and research
services provided by such broker. This determination may be viewed in terms
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of either that particular transaction or of the overall responsibilities of
the Adviser with respect to the accounts as to which it exercises investment
discretion.
(b) The Adviser may execute transactions through itself and
its affiliates on a securities exchange provided that the commissions paid by
the Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust,
in its discretion, may instruct the Adviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by
the Board of Trustees, if it determines that the use of such brokers and/or
dealers is in the best interest of the Trust.
(d) When the Adviser deems the purchase or sale of a security
to be in the best interest of the Trust as well as other customers, the
Adviser, to the extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions. The Adviser also may purchase or sell a
particular security for one or more customers in different amounts.
Allocations of the securities purchased or sold in either manner, as well as
the expenses incurred in the transactions, will be made by the Adviser in a
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manner that is equitable and consistent with applicable law and regulations
and with its fiduciary obligations to the Trust and to such other customers.
5. Expenses.
(a) The Adviser shall furnish at its own expense all office
space, office facilities, equipment and personnel necessary or appropriate to
the performance of its duties under this Agreement. The Adviser also shall
pay the salaries of all personnel of the Trust or the Adviser performing
services related to the Adviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its
expenses and liabilities, including compensation of its independent Trustees;
taxes and governmental fees; interest charges; fees and expenses of the
Trust's independent auditors and legal counsel; trade association membership
dues; fees and expenses of any custodian (including safekeeping of funds and
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of the Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; any expenses relating to the
issuance, registration and qualification of shares of each Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Adviser. In consideration of the services
to be rendered by the Adviser under this Agreement, the Trust shall pay the
Adviser a fee accrued daily and paid monthly from the Series at an annual rate
equal to that specified in Exhibit A to this Agreement for the Series' average
daily net assets. The fee for any period in which the Adviser serves as
-5-
investment adviser pursuant to this Agreement for less than one full month
shall be paid for that portion of the month accrued. For purposes of
calculating fees, the value of the net assets of the Series of the Trust shall
be computed in the manner specified in its Registration Statement on Form N-
1A.
7. Services to Others. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser is free to render services to
others and to engage in other activities, provided, however, that those
services and activities do not adversely affect the Adviser's ability to
perform its obligations under this Agreement.
8. Books, Records, and Information. The Adviser shall provide the
Trust with all records concerning the Adviser's activities that the Trust is
required by law to maintain. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2 under the
Investment Company Act which are prepared or maintained by the Adviser on
behalf of the Trust are the property of the Trust and will be surrendered
promptly to the Trust on request. The Trust also shall comply with all
reasonable requests for information by the Trust's officers or Board of
Trustees, including information required for the Trust's filings with the
Securities and Exchange Commission and state securities commissions.
9. Limitations on Liability.
(a) The Adviser hereby is notified expressly of the terms of
investor liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and their assets, and
the Adviser shall not seek satisfaction of any such obligation from any
Trustee or investor of the Series.
-6-
(b) The Adviser shall give the Trust the benefit of its best
judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser, the
Adviser shall not be liable to the Trust, to any investor of the Series or to
the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be
sustained in the purchase, holding or sale of any security.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to the Series on the
date the Series commences investment operations, and, unless terminated sooner
as provided herein, shall continue until the second anniversary of the
execution of this Agreement. Thereafter, unless terminated sooner as provided
herein, this Agreement shall continue in effect as to each Series for
successive annual periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Board of Trustees
of the Trust who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting
on such continuance, and either: (i) the vote of a majority of the
outstanding voting securities of such Series; or (ii) the vote of a majority
of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any
one or more Series, without the payment of any penalty, either by: (i) the
Trust, by action of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Series, on 60 days' written notice to the
Adviser; or (ii) the Adviser, on 90 days' written notice to the Trust. This
Agreement shall terminate immediately in the event of its assignment.
-7-
(c) This Agreement may be amended only if such amendment is
approved by the vote of a majority of the outstanding voting securities of the
Series or Trust or by vote of a majority of the Board of Trustees of the Trust
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically
approved at least annually," "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as such
terms have in the Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania without
giving effect to the choice of law provisions thereof, to the extent that such
laws are consistent with provisions of the Investment Company Act and the
regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for
the convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should
any part of this Agreement be held or made invalid by a court decision,
statute, regulation, or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law. The parties hereto acknowledge that Federated Investors and
its subsidiary, Federated Management, have reserved the right to grant the
non-exclusive use of the name "Federated" or any derivative thereof to any
other investment company, investment company portfolio, investment adviser,
-8-
distributor or other business enterprise, and to withdraw from the Trust and
one or more of the Series the use of the name "Federated."
IN WITNESS WHEREOF, the Trust and the Adviser have caused this
Agreement to be executed and delivered in their names and on their behalf by
the undersigned, duly authorized officers, all as of the day and year first
above written.
Attest: FEDERATED INVESTMENT PORTFOLIOS
/s/ S. Elliott Cohan By: /s/ John W.
McGonigle
Name: John W. McGonigle
Title: Executive Vice President
Attest: FEDERATED MANAGEMENT
/s/ Joseph M. Huber By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER
-9-
INVESTMENT ADVISORY AGREEMENT
Annual Fee (as a percentage of
Series Names the average daily net assets of a series)
Bond Index Portfolio 0.25%
Exhibit 5(ii) on Form N-1A
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of December 1, 1995, by and between Federated
Management, a Delaware business trust (the "Adviser"), and United States Trust
Company of New York, a New York trust company (the "Subadviser").
In consideration of the promises and the mutual covenants herein
contained, the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by Federated
Investment Portfolios, a Massachusetts business trust (the "Trust"), to act as
investment adviser to the Trust with respect to the series of the Trust listed
on Exhibit A hereto (the "Series"). In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Adviser, attached
hereto as Exhibit B (the "Advisory Agreement"), the Adviser appoints the
Subadviser to act as subadviser with respect to the Series for the period and
on the terms set forth in this Agreement. The Subadviser accepts such
appointment and agrees to provide an investment program for the compensation
provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control
of the Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a
macroeconomic and microeconomic level any pertinent research; statistical,
financial and economic data; and other information necessary or appropriate
for the performance of its duties under this Agreement;
(b) formulate and continuously review, supervise, and
administer an investment program for each Series;
(c) determine the securities to be purchased by each Series,
and continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting
rights, or other rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by
each Series if so requested by the Trustees of the Trust;
(f) render regular reports to the Trust's officers and the
Board of Trustees concerning the investment performance of the Trust, the
Subadviser's discharge of its responsibilities under this Agreement, and any
other subject as the Trust's officers or Board of Trustees reasonably may
request; and
(g) assist the Adviser and the Trust's officers in connection
with the operation of the Trust and perform any further acts that may be
necessary to effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of
this Agreement, the Adviser shall retain all rights and ultimate
responsibilities to supervise, and, in its discretion, conduct investment
advisory activities relating to the Trust. The activities of the Subadviser
shall be subject at all times to the direction and control of the Board of
Trustees of the Trust and the Adviser and shall comply with: (a) the
Declaration of Trust and By-Laws of the Trust; (b) the Registration Statement
of the Trust, as it may be amended from time to time, including the investment
objectives and policies set forth therein; (c) the Investment Company Act and
the regulations thereunder; (d) the Internal Revenue Code of 1986 and the
-2-
regulations thereunder applicable to regulated investment companies; (e) any
other applicable laws or regulations; and (f) such other limitations as the
Adviser or the Board of Trustees of the Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its
own expense, place orders for the purchase, sale or loan of securities by the
Trust either directly with the issuer or with any broker and/or dealer who
deals in such securities.
(a) In placing orders with brokers and/or dealers, the
Subadviser shall use its best efforts to obtain the best net price and the
most favorable execution of its orders, after taking into account all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker and/or dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. Consistent with this
obligation, the Subadviser may, to the extent permitted by law, purchase and
sell portfolio securities to and from brokers who provide brokerage and
research services (within the meaning of Section 28(e) of the Securities and
Exchange Act of 1934) to or for the benefit of the Trust and/or other accounts
over which the Subadviser or the Adviser exercises investment discretion. The
Subadviser is authorized to pay a broker who provides such brokerage and
research services a commission for effecting a securities transaction which is
in excess of the amount of commission another broker would have charged for
effecting that transaction, if the Subadviser determines in good faith that
such commission was reasonable in relation to the value of brokerage and
research services provided by such broker. This determination may be viewed
in terms of either that particular transaction or of the overall
responsibilities of the Subadviser with respect to the accounts as to which it
exercises investment discretion.
-3-
(b) The Subadviser may execute transactions through itself and
its affiliates on a securities exchange provided that the commissions paid by
the Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and
the Adviser periodically shall review the commissions paid by the Trust and
determine whether those commission were reasonable in relation to the
brokerage and research services received. In addition, the Board of Trustees
of the Trust, in its discretion, may instruct the Subadviser to effect all or
a portion of its securities transactions with one or more brokers and/or
dealers selected by the Board of Trustees, if it determines that the use of
such brokers and/or dealers is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a
security to be in the best interest of the Trust as well as other customers,
the Subadviser, to the extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions. The Subadviser also may purchase or sell a
particular security for one or more customers in different amounts.
Allocations of the securities purchased or sold in either manner, as well as
the expenses incurred in the transactions, will be made by the Subadviser in a
manner that is equitable and consistent with applicable law and regulations
and with its fiduciary obligations to the Trust and to such other customers.
5. Expenses.
-4-
(a) The Subadviser shall furnish at its own expense all office
space, office facilities, equipment and personnel necessary or appropriate to
the performance of its duties under this Agreement. The Subadviser also shall
pay the salaries of all personnel performing services related to the
Subadviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its
expenses and liabilities, including compensation of its independent Trustees;
taxes and governmental fees; interest charges; fees and expenses of the
Trust's independent auditors and legal counsel; trade association membership
dues; fees and expenses of any custodian (including safekeeping of funds and
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar
and dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; any expenses relating to the
issuance, registration and qualification of shares of each Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Subadviser. In consideration of the
services to be rendered by the Subadviser under this Agreement, the Adviser
shall pay the Subadviser a fee accrued daily and paid monthly at an annual
rate equal to that specified in Exhibit A to this Agreement for that Series'
average daily net assets. The fee for any period in which the Subadviser
serves as investment adviser pursuant to this Agreement for less than one full
month shall be paid for that portion of the month accrued. For purposes of
calculating fees, the value of the net assets of each Series of the Trust
-5-
shall be computed in the manner specified in its Registration Statement on
Form N-1A.
7. Services to Others. The services of the Subadviser to the
Adviser and the Trust are not to be deemed exclusive, and the Subadviser is
free to render services to others and to engage in other activities; provided,
however, that those services and activities do not adversely affect the
Subadviser's ability to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide
the Adviser and the Trust with all records concerning the Subadviser's
activities that the Trust is required by law to maintain. Any records
required to be maintained and preserved pursuant to the provisions of Rule
31a-1 and Rule 31a-2 under the Investment Company Act which are prepared or
maintained by the Subadviser on behalf of the Trust are the property of the
Trust and will be surrendered promptly to the Trust on request.
The Subadviser also shall comply with all reasonable requests
for information by the Adviser or the Trust's officers or Board of Trustees,
including information required for the Trust's filings with the Securities and
Exchange Commission and state securities commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the terms
of investor liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and their assets, and
the Subadviser shall not seek satisfaction of any such obligation from any
Trustee or investor of the Series.
-6-
(b) The Subadviser shall give the Adviser and the Trust the
benefit of its best judgment and efforts in rendering services under this
Agreement. In the absence of willful malfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Subadviser, the Subadviser shall not be liable to the Trust, to any investor
of the Series or to the Adviser for any act or omission in the course of, or
connected with, rendering services under this Agreement or for any losses that
may be sustained in the purchase, holding or sale of any security. The
Adviser agrees that the Subadviser shall not be liable for, and shall be
indemnified and held harmless by the Adviser for, any losses, liabilities, or
expenses that the Subadviser may incur due to errors of judgment, mistakes,
acts or omission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the
date the Series commences investment operations, and, unless terminated sooner
as provided herein, shall continue until the second anniversary of the
execution of this Agreement. Thereafter, unless terminated sooner as provided
herein, this Agreement shall continue in effect as to each Series for
successive annual periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Board of Trustees
of the Trust who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting
on such continuance, and either: (i) the vote of a majority of the
outstanding voting securities of such Series; or (ii) the vote of a majority
of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any
one or more Series, without the payment of any penalty, either by: (i) the
Trust, by action of the Board of Trustees or by vote of a majority of the
-7-
outstanding voting securities of such Series, on 60 days' written notice to
the Subadviser; (ii) the Adviser, on 60 days' written notice to the
Subadviser; or (iii) the Subadviser, on 90 days' written notice to the Adviser
and the Trust. This Agreement shall terminate immediately in the event of its
assignment.
(c) This Agreement may be amended only if such amendment is
approved by the vote of a majority of the outstanding voting securities of the
Series or the Trust or by vote of a majority of the Board of Trustees of the
Trust who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically
approved at least annually," "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as such
terms have in the Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts without giving effect to
the choice of law provisions thereof, to the extent that such laws are
consistent with provisions of the Investment Company Act and the regulations
thereunder.
12. Miscellaneous. The captions in this Agreement are included for
the convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should
any part of this Agreement be held or made invalid by a court decision,
statute, regulation, or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
-8-
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by
the undersigned, duly authorized officers, all as of the day and year first
above written.
Attest: FEDERATED MANAGEMENT
/s/ Joseph M. Huber By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
Attest: UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Francis J. Hearn, Jr. By: /s/ Brian F. Schmidt
Name: Brian F. Schmidt
Title: Vice President
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER
-9-
INVESTMENT SUBADVISORY AGREEMENT
Annual Fee (as a percentage of
Series Names the average daily net assets of a series)
Bond Index Portfolio 0.12%
Exhibit B
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of December 1, 1995, by and between FEDERATED
INVESTMENT PORTFOLIOS, a Massachusetts business trust (the "Trust"),
registered as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
FEDERATED MANAGEMENT, a Delaware business trust registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Adviser").
In consideration of the promises and the mutual covenants herein
contained, the Trust and the Adviser agree as follows:
1. Appointment. The Trust appoints the Adviser to act as
investment adviser to the Trust with respect to the series of the Trust listed
on Exhibit A hereto (the "Series") for the period and on the terms set forth
in this Agreement. The Adviser accepts such appointment and agrees to provide
an investment program for the compensation provided by this Agreement. In
providing the services and assuming the obligations set forth herein, the
Adviser, may, at its own expense, employ one or more subadvisers; provided
-10-
that the Adviser understands and agrees that it shall remain fully responsible
for the performance of all the duties set forth in this Agreement and that it
shall supervise the activities of each subadviser. Any agreement between the
Adviser and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement.
2. Duties of the Adviser. Subject to the direction and control of
the Board of Trustees of the Trust, the Adviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a
macroeconomic and microeconomic level any pertinent research; statistical,
financial and economic data; and other information necessary or appropriate
for the performance of its duties under this Agreement;
(b) formulate and continuously review, supervise, and
administer an investment program for each Series;
(c) determine the securities to be purchased by the Series,
and continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting
rights, or other rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by
the Series if so requested by the Trustees of the Trust;
(f) render regular reports to the Trust's officers and the
Board of Trustees concerning the investment performance of the Trust, the
Adviser's discharge of its responsibilities under this Agreement, and any
-11-
other subject as the Trust's officers or Board of Trustees reasonably may
request; and
(g) assist the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. The activities of the Adviser
shall be subject at all times to the direction and control of the Board of
Trustees of the Trust and shall comply with: (a) the Declaration of Trust and
By-Laws of the Trust; (b) the Registration Statement of the Trust, as it may
be amended from time to time, including the investment objectives and policies
set forth therein; (c) the Investment Company Act and the regulations
thereunder; (d) the Internal Revenue Code of 1986 and the regulations
thereunder applicable to regulated investment companies; (e) any other
applicable laws or regulations; and (f) such other limitations as the Board of
Trustees of the Trust may adopt.
4. Purchase and Sale of Securities. The Adviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the
Trust either directly with the issuer or with any broker and/or dealer who
deals in such securities.
(a) In placing orders with brokers and/or dealers, the Adviser
shall use its best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the broker
and/or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis.
-12-
Consistent with this obligation, the Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities and Exchange Act of 1934) to or for the benefit of the Trust and/or
other accounts over which the Adviser exercises investment discretion. The
Adviser is authorized to pay a broker who provides such brokerage and research
services a commission for effecting a securities transaction which is in
excess of the amount of commission another broker would have charged for
effecting that transaction, if the Adviser determines in good faith that such
commission was reasonable in relation to the value of brokerage and research
services provided by such broker. This determination may be viewed in terms
of either that particular transaction or of the overall responsibilities of
the Adviser with respect to the accounts as to which it exercises investment
discretion.
(b) The Adviser may execute transactions through itself and
its affiliates on a securities exchange provided that the commissions paid by
the Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust,
in its discretion, may instruct the Adviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by
-13-
the Board of Trustees, if it determines that the use of such brokers and/or
dealers is in the best interest of the Trust.
(d) When the Adviser deems the purchase or sale of a security
to be in the best interest of the Trust as well as other customers, the
Adviser, to the extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions. The Adviser also may purchase or sell a
particular security for one or more customers in different amounts.
Allocations of the securities purchased or sold in either manner, as well as
the expenses incurred in the transactions, will be made by the Adviser in a
manner that is equitable and consistent with applicable law and regulations
and with its fiduciary obligations to the Trust and to such other customers.
5. Expenses.
(a) The Adviser shall furnish at its own expense all office
space, office facilities, equipment and personnel necessary or appropriate to
the performance of its duties under this Agreement. The Adviser also shall
pay the salaries of all personnel of the Trust or the Adviser performing
services related to the Adviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its
expenses and liabilities, including compensation of its independent Trustees;
taxes and governmental fees; interest charges; fees and expenses of the
Trust's independent auditors and legal counsel; trade association membership
dues; fees and expenses of any custodian (including safekeeping of funds and
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of the Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; any expenses relating to the
-14-
issuance, registration and qualification of shares of each Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Adviser. In consideration of the services
to be rendered by the Adviser under this Agreement, the Trust shall pay the
Adviser a fee accrued daily and paid monthly from the Series at an annual rate
equal to that specified in Exhibit A to this Agreement for the Series' average
daily net assets. The fee for any period in which the Adviser serves as
investment adviser pursuant to this Agreement for less than one full month
shall be paid for that portion of the month accrued. For purposes of
calculating fees, the value of the net assets of the Series of the Trust shall
be computed in the manner specified in its Registration Statement on Form N-
1A.
7. Services to Others. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser is free to render services to
others and to engage in other activities, provided, however, that those
services and activities do not adversely affect the Adviser's ability to
perform its obligations under this Agreement.
8. Books, Records, and Information. The Adviser shall provide the
Trust with all records concerning the Adviser's activities that the Trust is
required by law to maintain. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2 under the
Investment Company Act which are prepared or maintained by the Adviser on
behalf of the Trust are the property of the Trust and will be surrendered
promptly to the Trust on request. The Trust also shall comply with all
reasonable requests for information by the Trust's officers or Board of
-15-
Trustees, including information required for the Trust's filings with the
Securities and Exchange Commission and state securities commissions.
9. Limitations on Liability.
(a) The Adviser hereby is notified expressly of the terms of
investor liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and their assets, and
the Adviser shall not seek satisfaction of any such obligation from any
Trustee or investor of the Series.
(b) The Adviser shall give the Trust the benefit of its best
judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser, the
Adviser shall not be liable to the Trust, to any investor of the Series or to
the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be
sustained in the purchase, holding or sale of any security.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to the Series on the
date the Series commences investment operations, and, unless terminated sooner
as provided herein, shall continue until the second anniversary of the
execution of this Agreement. Thereafter, unless terminated sooner as provided
herein, this Agreement shall continue in effect as to each Series for
successive annual periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Board of Trustees
of the Trust who are not parties to this Agreement or interested persons of
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any such party, cast in person at a meeting called for the purpose of voting
on such continuance, and either: (i) the vote of a majority of the
outstanding voting securities of such Series; or (ii) the vote of a majority
of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any
one or more Series, without the payment of any penalty, either by: (i) the
Trust, by action of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Series, on 60 days' written notice to the
Adviser; or (ii) the Adviser, on 90 days' written notice to the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is
approved by the vote of a majority of the outstanding voting securities of the
Series or Trust or by vote of a majority of the Board of Trustees of the Trust
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically
approved at least annually," "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as such
terms have in the Investment Company Act and the regulation thereunder.
11. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania without giving effect to the
choice of law provisions thereof, to the extent that such laws are consistent
with provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for
the convenience of reference only and in no way define or delimit any of the
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provisions hereof or otherwise affect their construction or effect. Should
any part of this Agreement be held or made invalid by a court decision,
statute, regulation, or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law. The parties hereto acknowledge that Federated Investors and
its subsidiary, Federated Management, have reserved the right to grant the
non-exclusive use of the name "Federated" or any derivative thereof to any
other investment company, investment company portfolio, investment adviser,
distributor or other business enterprise, and to withdraw from the Trust and
one or more of the Series the use of the name "Federated."
IN WITNESS WHEREOF, the Trust and the Adviser have caused this
Agreement to be executed and delivered in their names and on their behalf by
the undersigned, duly authorized officers, all as of the day and year first
above written.
Attest: FEDERATED INVESTMENT PORTFOLIOS
/s/ S. Elliott Cohan By: /s/ John W.
McGonigle
Name: John W. McGonigle
Title: Executive Vice President
Attest: FEDERATED MANAGEMENT
/s/ Joseph M. Huber By: /s/ J. Christopher Donahue
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Name: J. Christopher Donahue
Title: President
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER
INVESTMENT SUBADVISORY AGREEMENT
Annual Fee (as a percentage of
Series Names the average daily net assets of a series)
Bond Index Portfolio 0.25%
Exhibit 9(i) under Form N-1A
HubFA/Adm/csp
AGREEMENT
FOR
FUND ACCOUNTING,
ADMINISTRATIVE SERVICES
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of , 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania Corporation, having its principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, on behalf of
itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued beneficial partnership interests
("Interest(s)");
WHEREAS, the Fund is a Hub in a Hub and Spoke investment structure; and
WHEREAS the Investment Company may desire to appoint the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
if so indicated on Exhibit 1, and the Company desires to accept such
appointment; and
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WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
if so indicated on Exhibit 1, and the Company desires to accept such
appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services, and the
Company desires to accept such appointment; and
WHEREAS, from time to time the Investment Company may desire and may
instruct the Company to subcontract for the performance of certain of its
duties and responsibilities hereunder to another agent (the "Agent").
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING SERVICES.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company as its fund accountant to
provide certain fund accounting services to the Funds for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services set forth in Article 2 of this Agreement in
return for the compensation set forth in Article 3 of this Agreement.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees ("Board"), the Company will assist the Investment Company with regard
to fund accounting for the Investment Company, and/or the Funds, and in
connection therewith undertakes to perform the following specific services:
A. value each Interest in each Fund using, with respect to portfolio
securities: primarily, market quotations, including the use of matrix
pricing, supplied by the independent pricing services selected by the
Company in consultation with the adviser (which includes any sub-
advisers), or sources selected by the adviser, and reviewed by the
Board; secondarily, if a designated pricing service does not provide a
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price for a security which the Company believes should be readily
available by market quotation, the Company may obtain a price by calling
brokers designated by the investment adviser of the Fund holding the
security, or if the adviser does not supply the names of such brokers,
the Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is readily
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act, estimates
may be used where necessary or appropriate. The Company's obligations
with regard to the prices received from outside pricing services and
designated brokers or other outside sources, is to exercise reasonable
care in the supervision of the pricing agent. The Company is not the
guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing each
Interest or calculating the value of the net assets of such Interests of
such Fund when the calculations are based upon such prices. All of the
above sources of prices used as described are deemed by the Company to
be authorized sources of security prices. The Company provides daily to
the adviser the securities prices used in calculating the value of the
net assets of the Fund, for its use in preparing exception reports for
those prices on which the adviser has comment. Further, upon receipt of
the exception reports generated by the adviser, the Company diligently
pursues communication regarding exception reports with the designated
pricing agents.
B. calculate the net income of the Fund, if any;
C. calculate realized capital gains or losses of the Fund, if any,
resulting from the sale or disposition of its portfolio securities;
D. determine the value of each Interest in the Fund on a book and tax
basis, at the time and in the manner from time to time determined by the
Board and as set forth in the Fund's offering document;
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E. maintain the general ledger and other accounts, books and financial
records of the Fund, as required under the applicable provisions of the
Internal Revenue Code and Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Investment Company are the
property of the Investment Company and further agrees to surrender
promptly to the Investment Company such records upon the Investment
Company's request;
G. at the request of the Investment Company, prepare various reports or
other financial documents, in accordance with generally accepted
accounting principles, as required by federal, state and other
applicable laws and regulations; and
H. such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
One, shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company. Out-of-
pocket disbursements shall include, but shall not be limited to, the
items agreed upon between the parties from time to time.
B. The Fund, and not the Company, shall bear the cost of: custodial
expenses; membership dues in the Investment Company Institute or any
similar organization; investment advisory expenses; costs of printing
and mailing offering documents, reports and notices; administrative
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expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees of
Trustees of the Investment Company; independent auditors expenses; legal
and audit department expenses billed to the Company for work performed
related to the Investment Company or the Funds; law firm expenses;
organizational expenses; or other expenses not specified in this Article
3 which may be properly payable by the Funds.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Fund and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund to the end of the initial month shall be prorated
according to the proportion that such period bears to the full month
period. Upon any termination of this Agreement before the end of any
month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of
Interests shall be computed at the time and in the manner specified in
the Fund's offering document.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate itself with such person or persons as the
Company may believe to be particularly suited to assist it in performing
Fund Accounting Services under this Section One. Such person or persons
may be affiliates of the Company, third-party service providers, or they
may be officers and employees who are employed by both the Company and
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the Investment Company; provided, however, that the Company shall be as
fully responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company, and no
obligation shall be incurred on behalf of the Funds in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT
The Investment Company hereby appoints the Company as Administrator for the
period and on the terms and conditions set forth in this Agreement. The
Company accepts such appointment and agrees to furnish the services set forth
in Article 5 of this Agreement in return for the compensation set forth in
Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board,
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. Purchases
(1) The Company shall receive from the owners of Interests
("Investors") or their administrators orders for the initial
purchase of and subsequent investments in Interests ("Purchases").
The Company shall instruct the custodian of the Fund (the
"Custodian") through appropriate documentation to accept prompt
payment from the custodian of the Investor. The Company shall
instruct the Custodian on a daily basis of the total amount of
orders and payments expected to be delivered.
B. Full or Fractional Sale of Interests
(1) The Company shall receive from Investors or their administrators
orders regarding the full or fractional sale of Interests and, if
such requests comply with the procedures as may be described in the
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Fund's offering document or set forth in Proper Instructions,
deliver the appropriate instructions therefor to the Custodian.
(2) At the appropriate time, Company will instruct the Custodian
through appropriate documentation to pay, or cause to be paid, the
proceeds from a full or fractional sale of Interests to the
Investor's custodian bank in the manner instructed by the Investor,
pursuant to procedures described in the then-current offering
document of the Fund. The Company shall reconcile the orders and
the amounts actually distributed by the Custodian on a daily basis
with the Custodian and with the Investor or its designated agent.
(3) If any request for the full or fractional sale of an Interest does
not comply with the procedures for such a sale approved by the
Fund, the Company shall promptly notify the Investor of such fact,
together with the reason therefor, and shall effect such sale at
the value applicable to the date and time of receipt of the
documents necessary to comply with said procedures.
C. Recordkeeping
(1) The Company shall record Purchases and provide such records to the
Fund on a regular basis or upon reasonable request.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder and in the form and manner as agreed to by the
Fund to include a record for the Investor of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Historical information regarding the Interests, including the
date and value for all transactions;
(c) Any correspondence relating to the current maintenance of the
Interests.
(3) The Company shall preserve any such records required to be
maintained pursuant to Rule 31a-2 under the 1940 Act and Rule 31a-1
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under the 1940 Act for the periods prescribed in said rules as
specifically noted below. Such record retention shall be at the
expense of the Company, and such records may be inspected by the
Fund at reasonable times. The Company may, at its option at any
time, and shall forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files, records and
documents created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in performance
of its services or for its protection. If not so turned over to
the Fund, such records and documents will be retained by the
Company for six years from the year of creation, during the first
two of which such documents will be in readily accessible form. At
the end of the six year period, such records and documents will
either be turned over to the Fund or destroyed in accordance with
Proper Instructions.
D. Transaction Register
The Company shall furnish to the Fund periodically a copy of the
transaction register and such other information as may be agreed
upon from time to time.
E. Other Duties
In addition to, and not in lieu of the services set forth above, the
Company shall:
(1) prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter
(which has already been prepared and filed), the By-laws and
minutes of meetings of the Board and Investors;
(2) prepare and file with the Securities and Exchange Commission
the registration statements for the Fund and all amendments
thereto, reports to regulatory authorities and Investors,
offering documents, proxy and/or information statements, and
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such other documents all as may be necessary to enable the
Investment Company to make a private offering of its shares;
(3) prepare, negotiate, and administer contracts on behalf of the
Investment Company with, among others, the Investment
Company's, investment advisers or placement agents, subject
to any applicable restrictions of the Board or the 1940 Act.
(4) prepare and file Funds' tax returns;
(5) coordinate the layout and printing of publicly disseminated
offering documents and reports;
(6) perform internal audit examinations in accordance with a
charter to be adopted by the Company and the Investment
Company;
(7) assist with the design, development, and operation of the
Investment Company and the Funds;
(8) provide individuals reasonably acceptable to the Board for
nomination, appointment, or election as officers of the
Investment Company and the Funds, who will be responsible for
the management of certain of the Investment Company's and the
Fund's affairs as determined by the Board;
(9) consult with the Fund and its Board on matters concerning the
Fund and its affairs.
(10) maintain all identification and of record information for
Investors; communicate to the Investors financial reports,
Form K-1, other required tax reports and offering documents of
the Fund.
(11) answer correspondence from the Investors relating to the
duties described above and such other correspondence as may
from time to time be addressed to the Company;
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Fund under this Section Two, shall
hereafter be referred to as "Administrative Services."
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ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the
Investment Company. Where applicable, such records shall be maintained by the
Company for the periods and in the places required by Rule 31a-2 under the
1940 Act. The books and records pertaining to the Investment Company which
are in the possession of the Company shall be the property of the Fund. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company `s
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any other
laws, rules and regulations of government authorities having jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Fund, including the compensation of the
Company employees who serve as or officers of the Fund. The Fund shall be
responsible for all other expenses incurred by the Company on behalf of the
Fund, including without limitation postage and courier expenses, printing
expenses, travel expenses, registration fees, filing fees, fees of outside
counsel and independent auditors or other professional services,
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organizational expenses, insurance premiums, fees payable to persons who are
not the Company employees, trade association dues, and other expenses properly
payable by the Funds and/or Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
portfolio of the Investment Company's shares as specified below.
The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the Company.
The Company will maintain detailed information about the compensation and out-
of-pocket expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUND
.050 % $0-1 Billion
.045 % $1-2 Billion
.040 % $2-3 Billion
.025 % $3-4 Billion
.010 % $4-5 Billion
.005 % $5+ Billion
(Average Daily Net Asset break-points are on a per Hub Fund basis.)
However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$60,000 per Fund. The minimum fee set forth above in this Article 9 may
increase annually upon each March 1 anniversary of this Agreement over the
minimum fee during the prior 12 months, as calculated under this agreement, in
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an amount equal to the increase in Pennsylvania Consumer Price Index (not to
exceed 6% annually) as last reported by the U.S. Bureau of Labor Statistics
for the twelve months immediately preceding such anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Company in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it
of its obligations and duties under this Agreement. The Company shall
be entitled to rely on and may act upon advice of counsel (who may be
counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Any
person, even though also an officer, director, trustee, partner,
employee or agent of the Company, who may be or become an officer,
director, trustee, partner, employee or agent of the Investment Company,
shall be deemed, when rendering services to the Investment Company or
acting on any business of the Investment Company (other than services or
business in connection with the duties of the Company hereunder) to be
rendering such services to or acting solely for the Investment Company
and not as an officer, director, trustee, partner, employee or agent or
one under the control or direction of the Company even though paid by
the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in performing
the Administrative Services in accordance with the above standards. In
order that the indemnification provisions contained in this Article 10
shall apply, however, it is understood that if in any case the
Investment Company may be asked to indemnify or save the Company
harmless, the Investment Company shall be fully and promptly advised of
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all pertinent facts concerning the situation in question, and it is
further understood that the Company will use all reasonable care to
identify and notify the Investment Company promptly concerning any
situation which presents or appears likely to present the probability of
such a claim for indemnification against the Investment Company. The
Investment Company shall have the option to defend the Company against
any claim which may be the subject of this indemnification. In the
event that the Investment Company so elects, it will so notify the
Company and thereupon the Investment Company shall take over complete
defense of the claim, and the Company shall in such situation initiate
no further legal or other expenses for which it shall seek
indemnification under this Article. The Company shall in no case
confess any claim or make any compromise in any case in which the
Investment Company will be asked to indemnify the Company except with
the Investment Company's written consent.
SECTION THREE: CUSTODY SERVICES PROCUREMENT.
ARTICLE 11. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a custodian
(the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 12. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has
been approved by the Board as being eligible for selection by the Company
as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a party
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to each such agreement. The Company may, as paying agent, be a party to
any agreement with any such Eligible Custodian;
C. establish procedures to continuously monitor the nature and the quality
of services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of the custodial services
provided by Eligible Custodians;
E. periodically provide to the Investment Company (i)written reports on the
activities and services of Eligible Custodians; (ii)the nature and amount
of disbursements made on account of each Fund with respect to each
custodial agreement; and (iii)such other information as the Board shall
reasonably request to enable it to fulfill its duties and obligations
under Sections 17(f) and 36(b) of the 1940 Act and other duties and
obligations thereof; and
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian.
The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Three, shall hereafter
be referred to as "Custody Services Procurement."
ARTICLE 13. FEES AND EXPENSES.
A. Annual Fee
For the performance by the Company of Custody Services Procurement
pursuant to Section Three of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Article 13A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
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with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
ARTICLE 14. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 15. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Investment Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Company, or the Fund, and the Company are
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satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
ARTICLE 16. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on
the part of the Investment Company subcontract for the performance of
such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
C. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an Agent
selected by the Investment Company, other than as described in B. above;
provided, however, that the Company shall in no way be responsible to the
Investment Company for the acts and omissions of the Agent.
ARTICLE 17. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents relating to it:
(1) a copy of its Charter and By-Laws and all amendments thereto;
(2) a copy of the resolution of its Board authorizing this Agreement;
(3) all documents relating to the Fund or Investor accounts; and
(4) a copy of its current offering document.
B. The Investment Company will also furnish from time to time the following
documents relating to it:
(1) a resolution of its Board authorizing the original offering of its
Interests;
Error! Reference source not found.Error! Reference source not found.
(2) a Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of
its Interests;
(3) a certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) certified copies of each vote of the Board authorizing persons to
give Proper Instructions;
(5) such other documents or opinions which the Company may, in its
discretion, deem necessary or appropriate in the proper performance
of its duties; and
(6) revisions to the offering document for each Fund.
ARTICLE 18. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) it is duly qualified to carry on its business in the Commonwealth
of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize it
to enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and
(7) it has obtained all required approvals from all government or
regulatory authorities necessary to enter into this arrangement and
to provide the services contemplated herein.
B. Representations and Warranties of the Investment Company
Error! Reference source not found.Error! Reference source not found.
The Investment Company represents and warrants to the Company that:
(1) it is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) it is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) all corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform
its obligations under this Agreement; and
(4) it is an open-end investment company registered under the 1940 Act.
ARTICLE 19. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to sections One and Three, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this
Agreement. The Company shall be entitled to rely on and may act upon
advice of Fund counsel on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable federal or
state laws or regulations, and is in good faith and without negligence.
B. Indemnification by the Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) the acts or omissions of any Custodian, adviser, sub-adviser or
other party contracted by or approved by the Investment Company;
(2) the reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form
which
Error! Reference source not found.Error! Reference source not found.
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, or its
Investors regarding account information, the purchase, sale,
redemption or transfer of Interests;
(b) are received by the Company from independent pricing services
or sources for use in valuing the Interests of the Fund;
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by such Fund for use in the performance of
services under this Agreement; or
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) the reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment Company
or the Fund; or
(4) the offer or sale of Interests in violation of any requirement
under the federal securities laws or regulations; or in violation
of any stop order or other determination or ruling by any federal
agency respect to the offer or sale of such Interest.
Provided, however, that the Company shall not be protected by this
Article 19.B. from liability for any act or omission resulting from
the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties of failure to meet the standard of
care set forth in 19.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions for matters relating to the Investment
Company or Fund, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Company under this Agreement, and the Company and its agents or
Error! Reference source not found.Error! Reference source not found.
subcontractors shall not be liable and shall be indemnified by the
Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal laws or regulations.
D. Notification
In order that the indemnification provisions contained in this Article
19 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
to participate with the party seeking indemnification in the defense of
such claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior
written consent.
ARTICLE 20. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for
18 month terms. The Agreement can be terminated by either party upon 18
months notice to be effective as of the end of such 18 month period. In the
event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right
to terminate the Agreement upon 60 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard of
its duties within 60 days. The termination date for all original or after-
added Investment companies which are, or become, a party to this Agreement.
shall be coterminous. Investment Companies that merge or dissolve during the
Term, shall cease to be a party on the effective date of such merger or
dissolution.
Error! Reference source not found.Error! Reference source not found.
Should the Investment Company exercise its right to terminate, all out-of-
pocket expenses associated with the movement of records and materials will be
borne by the Investment Company or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 10 and Article 19
shall survive the termination of this Agreement.
ARTICLE 21. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by a written agreement executed by both parties.
ARTICLE 22. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by all
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal regulations or
any provision of the organizational documents. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
ARTICLE 23. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
ARTICLE 24. NOTICES.
Except as otherwise specifically provided herein, notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
Error! Reference source not found.Error! Reference source not found.
ARTICLE 25. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
ARTICLE 26. LIMITATIONS OF LIABILITY OF DIRECTORS AND SHAREHOLDERS OF
THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Directors of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Directors nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Directors or Shareholders of the Company, but bind only the property of the
Company as provided in the Articles of Incorporation.
ARTICLE 27. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 28. SUCCESSOR AGENT.
If a successor agent shall be appointed by the Investment Company, the
Company shall upon termination of this Agreement deliver to such successor
agent at the office of the Company all properties of the Fund held by it
hereunder. If no such successor agent shall be appointed, the Company shall
at its office upon receipt of Proper Instructions deliver such properties in
accordance with such instructions.
With regard to Section One, in the event that no written order designating a
successor agent or Proper Instructions shall have been delivered to the
Company on or before the date when such termination shall become effective,
then the Company shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by the
Error! Reference source not found.Error! Reference source not found.
Company under this Agreement. Thereafter, such bank or trust company shall be
the successor of the Company under this Agreement.
ARTICLE 29. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Investment Company or the Fund as a
result of work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility of
performance.
ARTICLE 30. ASSIGNMENT; SUCCESSORS.
Either party may assign all of or a substantial portion of its business to a
successor, or to a party controlling, controlled by, or under common control
with such party. Nothing in this Article 30 shall prevent the Company from
delegating its responsibilities to another entity to the extent provided
herein.
ARTICLE 31. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 32. LIMITATIONS OF LIABILITY OF TRUSTEES AND INVESTORS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding upon
the Trustees, the Fund or Investors, but bind only the appropriate property of
the Investment Company, as provided in the Declaration of Trust.
Error! Reference source not found.Error! Reference source not found.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: FEDERATED INVESTMENT PORTFOLIOS
By:
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
By:
Thomas J. Ward James J. Dolan
Secretary President
Error! Reference source not found.Error! Reference source not found.
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY SERVICES
Portfolios Sections:
Classes
Federated Investment Portfolios
Bond Index Portfolio
1,2,3,4
Exhibit 9(iii) on Form N-1A
Federated Investment Portfolios
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
December 1, 1995
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ladies and Gentlemen:
Re: EXCLUSIVE PLACEMENT AGENT AGREEMENT
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Federated Investment Portfolios (the "Trust"), an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), organized as a
business trust under the laws of the Commonwealth of Massachusetts, has agreed
that Federated Securities Corp., a Pennsylvania corporation ("FSC"), shall be
the exclusive placement agent (the "Exclusive Placement Agent") of beneficial
interests ("Trust Interests") of each series of the Trust.
1. Services as Exclusive Placement Agent.
1.1 FSC will act as Exclusive Placement Agent of the Trust
Interests. In acting as Exclusive Placement Agent under this Exclusive
Federated Securities Corp.
December 1, 1995
Page 2
Placement Agent Agreement, neither FSC nor its employees or any agents thereof
shall make any offer or sale of Trust Interests in a manner which would
require the Trust Interests to be registered under the Securities Act of 1933,
as amended (the "1933 Act").
1.2 All activities by FSC and its agents and employees as Exclusive
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Trust's Board of Trustees.
1.4 The Trust shall furnish from time to time for use in connection
with the sale of Trust Interests such information with respect to the Trust
and Trust Interests as FSC may reasonably request. The Trust shall also
furnish FSC upon request with: (a) unaudited semiannual statements of the
Trust's books and accounts prepared by the Trust, and (b) from time to time
such additional information regarding the Trust's financial or regulatory
condition as FSC may reasonably request.
1.5 The Trust represents to FSC that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of such
statute and the rules and regulations of the Commission thereunder. As used
in this Agreement the term "registration statement" shall mean any
registration statement filed with the Commission, as modified by any
amendments thereto that at any time shall have been filed with the Commission
Federated Securities Corp.
December 1, 1995
Page 3
by or on behalf of the Trust. The Trust represents and warrants to FSC that
any registration statement will contain all statements required to be stated
therein in conformity with both such statute and the rules and regulations of
the Commission; that all statements of fact contained in any registration
statement will be true and correct in all material respects at the time of
filing of such registration statement or amendment thereto; and that no
registration statement will include an 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 not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future developments
may, in the opinion of the Trust's counsel, be necessary or advisable. If the
Trust shall not propose such amendment and/or supplement within fifteen days
after receipt by the Trust of a written request from FSC to do so, FSC may, at
its option, terminate this Agreement. The Trust shall not file any amendment
to any registration statement without giving FSC reasonable notice thereof in
advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being in
all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold FSC, its several
officers and directors, and any person who controls FSC within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities and Exchange Act of
1934 (the "1934 Act") (for purposes of this paragraph 1.6, collectively, the
"Covered Persons") free and harmless from and against any and all claims,
demand, liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which any Covered Person may incur under the 1933 Act,
the 1934 Act, or otherwise, arising out of or based on any untrue statement of
Federated Securities Corp.
December 1, 1995
Page 4
a material fact contained in any registration statement, private placement
memorandum or other offering material ("Offering Material") or arising out of
or based on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering Material
not misleading; provided, however, that the Trust's agreement to indemnify
Covered Persons shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any financial and other statements as are furnished
in writing to the Trust by FSC in its capacity as Exclusive Placement Agent
for use in the answers to any items of any registration statement or in any
statements made in any Offering Material, or arising out of or based on any
omission or alleged omission to state a material fact in connection with the
giving of such information required to be stated in such answers or necessary
to make the answers not misleading; and further provided that the Trust's
agreement to indemnify FSC and the Trust's representation and warranties
hereinbefore set forth in paragraph 1.5 shall not be deemed to cover any
liability to the Trust or its investors to which a Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of a Covered
Person's reckless disregard of its obligations and duties under this
Agreement. The Trust should be notified of any action brought against a
Covered Person, such notification to be given by letter or by telegram
addressed to the Trust, Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, Attention: Secretary, with a copy to Matthew G.
Maloney, Esq., Dickstein, Shapiro & Morin, L.L.P., 2101 L Street, N.W.,
Washington, DC 20037, promptly after the summons or other first legal process
shall have been duly and completely served upon such Covered Person. The
failure to so notify the Trust of any such action shall not relieve the Trust
from any liability except to the extent the Trust shall have been prejudiced
by such failure, or from any liability that the Trust may have to the Covered
Person against whom such action is brought by reason of any such untrue
Federated Securities Corp.
December 1, 1995
Page 5
statement or omission, otherwise than on account of the Trust's indemnity
agreement contained in this paragraph. The Trust will be entitled to assume
the defense of any suit brought to enforce any such claim, demand or
liability, but in such case such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by FSC, which approval shall not be
unreasonably withheld. In the event the Trust elects to assume the defense in
any such suit and retain counsel of good standing approved by FSC, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Trust does not
elect to assume the defense of any such suit, or in case FSC reasonably does
not approve of counsel chosen by the Trust, the Trust will reimburse the
Covered Person named as defendant in such suit, for the fees and expenses of
any counsel retained by FSC or the Covered Persons. The Trust's
indemnification agreement contained in this paragraph and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Covered Persons, and shall survive the delivery of any Trust Interests. This
agreement of indemnity will inure exclusively to Covered Persons and their
successors. The Trust agrees to notify FSC promptly of the commencement of
any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Trust Interests.
1.7 FSC agrees to indemnify, defend and hold the Trust, its several
officers and trustees, and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (for
purposes of this paragraph 1.7, collectively, the "Covered Persons") free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the costs of investigating or defending such claims,
demands, liabilities and any counsel fees incurred in connection therewith)
that Covered Persons may incur under the 1933 Act, the 1934 Act, common law,
Federated Securities Corp.
December 1, 1995
Page 6
or otherwise, but only to the extent that such liability or expense incurred
by a Covered Person resulting from such claims or demands shall arise out of
or be based on (i) any untrue statement of a material fact contained in
information furnished in writing by FSC in its capacity as Exclusive Placement
Agent to the Trust for use in the answers to any of the items of any
registration statement or in any statements in any other Offering Material, or
(ii) any omission to state a material fact in connection with such information
furnished in writing by FSC to the Trust required to be stated in such answers
or necessary to make such information not misleading. FSC shall be notified
of any action brought against a Covered Person, such notification to be given
by letter or telegram addressed to FSC at Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, PA 15222-3779, Attention: Secretary, promptly
after the summons or other first legal process shall have been duly and
completely served upon such Covered Person. FSC shall have the right of first
control of the defense of the action with counsel of its own choosing
satisfactory to the Trust if such action is based solely on such alleged
misstatement or omission on FSC's part, and in any other event each Covered
Person shall have the right to participate in the defense or preparation of
the defense of any such action. The failure to so notify FSC of any such
action shall not relieve FSC (i) from any liability except to the extent the
Trust shall have been prejudiced by such failure, or (ii) from any liability
that FSC may have to Covered Persons by reason of any such untrue or alleged
untrue statement, or omission or alleged omission, otherwise than on account
of FSC's indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either FSC or the Trust
under any of the provisions of this Agreement and no orders for the purchase
or sale of Trust Interests hereunder shall be accepted by the Trust if and so
long as the effectiveness of the registration statement or any necessary
amendments thereto shall be suspended under any of the provisions of the 1940
Federated Securities Corp.
December 1, 1995
Page 7
Act; provided, however, that nothing contained in this paragraph shall in any
way restrict or have an application to or bearing on the Trust's obligation to
redeem Trust Interests from any investor in accordance with the provisions of
the Trust's registration statement or Declaration of Trust, as amended from
time to time. The Trust shall notify FSC promptly of the suspension of the
registration statement or any necessary amendments thereto, such notification
to be given by letter or telegram addressed to FSC at Federated Investors
Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779, Attention: Secretary.
1.9 The Trust agrees to advise FSC as soon as reasonably practical
by a notice in writing delivered to FSC or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statements
of a material fact made in the registration statement then in effect or that
requires the making of a change in such registration statement in order to
make the statements therein not misleading; and
(d) of all action of the Commission with respect to any amendment
to any registration statement that may from time to time be filed with the
Commission.
Federated Securities Corp.
December 1, 1995
Page 8
For purposes of this paragraph 1.9, informal requests by or acts of
the Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.10 FSC agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust and
its prior, present or potential investors and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably withheld and may not be
withheld where FSC may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
1.11 In addition to FSC's duties as Exclusive Placement Agent, the
Trust understands that FSC may, in its discretion, perform additional
functions in connection with transactions in Trust Interests.
The processing of Trust Interest transactions may include, but is
not limited to, compilation of all transactions from FSC's various offices;
creation of a transaction tape and timely delivery of it to the Trust's
transfer agent for processing; reconciliation of all transactions delivered to
the Trust's transfer agent; and the recording and reporting of these
transactions executed by the Trust's transfer agent in customer statements;
rendering of periodic customer statements; and the reporting of IRS Form 1099
information at year end if required.
Federated Securities Corp.
December 1, 1995
Page 9
FSC may also provide other investor services, such as communicating
with Trust investors and other functions in administering customer accounts
for Trust investors.
FSC understands that these services may result in cost savings to
the Trust or to the Trust's investment manager and neither the Trust nor the
Trust's investment manager will compensate FSC for all or a portion of the
costs incurred in performing functions in connection with transactions in
Trust Interests. Nothing herein is intended, nor shall be construed, as
requiring FSC to perform any of the foregoing functions.
1.12 Except as set forth in paragraph 1.6 of this Agreement, the
Trust shall not be liable to FSC or any Covered Persons as defined in
paragraph 1.6 for any error of judgment or mistake of law or for any loss
suffered by FSC in connection with the matters to which this Agreement
relates, except a loss resulting from the willful misfeasance, bad faith or
gross negligence on the part of the Trust in the performance of its duties or
from reckless disregard by the Trust of its obligations and duties under this
Agreement.
1.13 Except as set forth in paragraph 1.7 of this Agreement, FSC
shall not be liable to the Trust or any Covered Persons as defined in
paragraph 1.7 for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which this Agreement
relates, except a loss resulting from the willful misfeasance, bad faith or
gross negligence on the part of FSC in the performance of its duties or from
reckless disregard by FSC of its obligations and duties under this Agreement.
2. Term.
Federated Securities Corp.
December 1, 1995
Page 10
This Agreement shall become effective on the date first above
written and, unless sooner terminated as provided herein, shall continue until
December 1, 1997 and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trust's Board of Trustees or (ii) by a vote of a majority
(as defined in the 1940 Act) of the Trust's outstanding voting securities,
provided that in either event the continuance is also approved by the majority
of the Trust's Trustees who are not interested persons (as defined in the 1940
Act) of the Trust and who have no direct or indirect financial interest in
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty, on not
less than 60 days' notice, by the Board, by a vote of a majority (as defined
in the 1940 Act) of the Trust's outstanding voting securities, or by FSC.
This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act and the rules thereunder).
3. Representations and Warranties.
FSC and the Trust each hereby represents and warrants to the other
that it has all requisite authority to enter into, execute, deliver and
perform its obligations under this Agreement and that, with respect to it,
this Agreement is legal, valid and binding, and enforceable in accordance with
its terms.
4. Concerning Applicable Provisions of Law, etc.
This Agreement shall be subject to all applicable provisions of law,
including the applicable provisions of the 1940 Act and to the extent that any
provisions herein contained conflict with any such applicable provisions of
law, the latter shall control.
Federated Securities Corp.
December 1, 1995
Page 11
The laws of the Commonwealth of Pennsylvania shall, except to the
extent that any applicable provisions of Federal law shall be controlling,
govern the construction, validity and effect of this Agreement, without
reference to principles of conflicts of law.
The undersigned officer of the Trust has executed this Agreement not
individually, but as President under the Trust's Declaration of Trust, dated
as of September 29, 1995. Pursuant to the Declaration of Trust the
obligations of this Agreement are not binding upon any of the Trustees or
investors of the Trust individually, but bind only the trust estate.
If the contract set forth herein is acceptable to you, please so indicate
by executing the enclosed copy of this Agreement and returning the same to the
undersigned, whereupon this Agreement shall constitute a binding contract
between the parties hereto effective at the closing of business on the date
hereof.
Yours very truly,
FEDERATED INVESTMENT PORTFOLIOS
By:/s/ J. Christopher Donahue
President
Accepted:
Federated Securities Corp.
December 1, 1995
Page 12
FEDERATED SECURITIES CORP.
Exhibit 2(ii) on Form N-1A
FEDERATED INVESTMENT PORTFOLIOS
BY-LAWS
AS AMENDED AND RESTATED
(EFFECTIVE MARCH 1, 1996)
FEDERATED INVESTMENT PORTFOLIOS
BY-LAWS
TABLE OF CONTENTS
PAGE
ARTICLE I OFFICERS AND THEIR ELECTION.................... 1
Section 1..........................................Officers. 1
Section 2..............................Election of Officers. 1
Section 3...........Resignations and Removals and Vacancies. 1
ARTICLE II ........POWERS AND DUTIES OF TRUSTEES AND OFFICERS 1
Section 1..........................................Trustees. 1
Section 2.............Chairman of the Trustees ("Chairman"). 1
Section 3.........................................President. 1
Section 4....................................Vice President. 2
Section 5.........................................Secretary. 2
Section 6.........................................Treasurer. 2
Section 7..........................Assistant Vice President. 2
Section 8....Assistant Secretaries and Assistant Treasurers. 2
Section 9..........................................Salaries. 2
ARTICLE III POWERS AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES 3
Section 1....................Executive and Other Committees. 3
Section 2..................Vacancies in Executive Committee. 3
Section 3.........Executive Committee to Report to Trustees. 3
Section 4..................Procedure of Executive Committee. 3
Section 5.....................Powers of Executive Committee. 3
Section 6......................................Compensation. 3
Section 7. Action by Unanimous Consent of the Board of Trustees,
Executive Committee or Other Committee......... 3
ARTICLE IV INVESTORS' MEETINGS............................ 4
Section 1..................................Special Meetings. 4
Section 2...........................................Notices. 4
Section 3..................................Place of Meeting. 4
Section 4.......................Action by Unanimous Consent. 4
Section 5...........................................Proxies. 4
ARTICLE V TRUSTEES' MEETINGS............................. 4
Section 1.............Number and Qualifications of Trustees. 4
Section 2..................................Special Meetings. 4
Section 3..................................Regular Meetings. 5
Section 4...................................Quorum and Vote. 5
Section 5...........................................Notices. 5
Section 6..................................Place of Meeting. 5
Section 7.........Teleconference Meetings Action by Consent. 5
Section 8....................................Special Action. 5
Section 9..........................Compensation of Trustees. 5
ARTICLE VI SHARES OF INTEREST............................. 5
Section 1...............................Beneficial Interest. 5
Section 2..................Non-Transferability of Interests. 6
Section 3.................Equitable Interest Not Recognized. 6
Section 4........Transfer Agent and Registrar: Regulations. 6
ARTICLE VII INSPECTION OF BOOKS............................ 6
ARTICLE VIII AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.. 6
Section 1...................................Agreements, Etc. 6
Section 2...............................Checks, Drafts, Etc. 6
Section 3.Endorsements, Assignments and Transfer of Securities. 6
Section 4.............................Evidence of Authority. 7
ARTICLE IX INDEMNIFICATION OF TRUSTEES AND OFFICERS....... 7
Section 1...........................................General. 7
Section 2................................Compromise Payment. 7
Section 3........Indemnification Not Exclusive; Definitions. 8
ARTICLE X SEAL............................................ 8
ARTICLE XI FISCAL YEAR..................................... 8
ARTICLE XII AMENDMENTS...................................... 8
ARTICLE XIII WAIVERS OF NOTICE............................... 9
ARTICLE XIV REPORT TO INVESTORS............................. 9
ARTICLE XV BOOKS AND RECORDS............................... 9
ARTICLE XVI TERMS........................................... 9
FEDERATED INVESTMENT PORTFOLIOS
BY-LAWS
{PRIVATE }ARTICLE I{TC \L 1 "ARTICLE I"}
OFFICERS AND THEIR ELECTION
{PRIVATE }SECTION 1. OFFICERS.{TC \L 2 "SECTION 1. OFFICERS."}
The officers of the Trust shall be elected by the Board of Trustees, and shall
be a President, one or more Vice Presidents, a Treasurer, a Secretary and such
other officers as the Trustees may from time to time elect. The Board of
Trustees, in its discretion, may also elect a Chairman of the Board of
Trustees (who must be a Trustee). It shall not be necessary, and is
prohibited, for any Trustee or other officer to be a holder of Interests in
any Series of the Trust.
{PRIVATE }SECTION 2. ELECTION OF OFFICERS.{TC \L 2 "SECTION 2.
ELECTION OF OFFICERS."} The President, Vice President(s), Treasurer and
Secretary shall be elected annually by the Trustees, and serve until a
successor is so elected and qualified, or until earlier resignation or
removal. The Chairman of the Trustees, if there is one, shall be elected
annually by and from the Trustees, and serve until a successor is so elected
and qualified, or until earlier resignation or removal.
Two or more offices may be held by a single person except the offices of
President and Secretary. The officers shall hold office until their
successors are elected and qualified.
{PRIVATE }SECTION 3. RESIGNATIONS AND REMOVALS AND VACANCIES.{TC \L
2 "SECTION 3. RESIGNATIONS AND REMOVALS AND VACANCIES."} Any officer of the
Trust may resign by filing a written resignation with the President (or
Chairman, if there is one) of the Trustees or with the Trustees or with the
Secretary, which shall take effect on being so filed or at such time as may be
therein specified. The Trustees may remove any officer, with or without
cause, by a majority vote of all of the Trustees. The Trustees may fill any
vacancy created in any office whether by resignation, removal or otherwise,
subject to the limitations of the Investment Company Act of 1940.
{PRIVATE }ARTICLE II{TC \L 1 "ARTICLE II"}
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
{PRIVATE }SECTION 1. TRUSTEES.{TC \L 2 "SECTION 1. TRUSTEES."}
The business and affairs of the Trust shall be managed by the Trustees, and
they shall have all powers necessary and desirable to carry out that
responsibility.
{PRIVATE }SECTION 2. CHAIRMAN OF THE TRUSTEES ("CHAIRMAN").{TC \L 2
"SECTION 2. CHAIRMAN OF THE TRUSTEES (\"CHAIRMAN\")."} The Chairman, if
there be a Chairman, shall preside at the meetings of Investors and of the
Board of Trustees. He shall have general supervision over the business of the
Trust and policies of the Trust. He shall employ and define the duties of all
employees of the Trust, shall have power to discharge any such employees,
shall exercise general supervision over the affairs of the Trust and shall
perform such other duties as may be assigned to him from time to time by the
Trustees. The Chairman shall appoint a Trustee or officer to preside at such
meetings in his absence.
{PRIVATE }SECTION 3. PRESIDENT.{TC \L 2 "SECTION 3. PRESIDENT."}
The President shall be the chief executive officer of the Trust. The
President, in the absence of the Chairman, or if there is no Chairman, shall
perform all duties and may exercise any of the powers of the Chairman subject
to the control of the Trustees. He shall counsel and advise the Chairman and
shall perform such other duties as may be assigned to him from time to time by
the Trustees, the Chairman or the Executive Committee. The President shall
have the power to appoint one or more Assistant Secretaries or other junior
officers, subject to ratification of such appointments by the Board. The
President shall have the power to sign, in the name of and on behalf of the
Trust, powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities or other property owned by the Trust,
and may, in the name of and on behalf of the Trust, take all such action as
the President may deem advisable in entering into agreements to purchase
securities or other property in the ordinary course of business, and to sign
representation letters in the course of buying securities or other property.
{PRIVATE }SECTION 4. VICE PRESIDENT.{TC \L 2 "SECTION 4. VICE
PRESIDENT."} The Vice President (or if more than one, the senior Vice
President) in the absence of the President shall perform all duties and may
exercise any of the powers of the President subject to the control of the
Trustees. Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Trustees, the Chairman, the
President, or the Executive Committee. Each Vice President shall be
authorized to sign documents on behalf of the Trust. The Vice President shall
have the power to sign, in the name of and on behalf of the Trust and subject
to Article VIII, Section 1, powers of attorney, proxies, waivers of notice of
meeting, consents and other instruments relating to securities or other
property owned by the Trust, and may, in the name of and on behalf of the
Trust, take all such action as the Vice President may deem advisable in
entering into agreements to purchase securities or other property in the
ordinary course of business, and to sign representation letters in the course
of buying securities or other property.
{PRIVATE }SECTION 5. SECRETARY.{TC \L 2 "SECTION 5. SECRETARY."}
The Secretary shall keep or cause to be kept in books provided for that
purpose the Minutes of the Meetings of Investors and of the Trustees; shall
see that all Notices are duly given in accordance with the provisions of these
By-Laws and as required by law; shall be custodian of the records and of the
Seal of the Trust (if there be a Seal) and see that the Seal is affixed to all
documents, the execution of which on behalf of the Trust under its Seal is
duly authorized; shall keep directly or through a transfer agent a register of
the post office address of each Investor of each Series of the Trust, and make
all proper changes in such register, retaining and filing the Secretary's
authority for such entries; shall see that the books, reports, statements,
certificates and all other documents and records required by law are properly
kept and filed; and in general shall perform all duties incident to the Office
of Secretary and such other duties as may from time to time be assigned to the
Secretary by the Trustees, Chairman, the President, or the Executive
Committee.
{PRIVATE }SECTION 6. TREASURER.{TC \L 2 "SECTION 6. TREASURER."}
The Treasurer shall be the principal financial and accounting officer of the
Trust responsible for the preparation and maintenance of the financial books
and records of the Trust. The Treasurer shall deliver all funds and
securities belonging to any Series to such custodian or sub-custodian as may
be employed by the Trust for any Series. The Treasurer shall perform such
duties additional to the foregoing as the Trustees, Chairman, the President or
the Executive Committee may from time to time designate.
{PRIVATE }SECTION 7. ASSISTANT VICE PRESIDENT.{TC \L 2 "SECTION 7.
ASSISTANT VICE PRESIDENT."} The Assistant Vice President or Vice
Presidents of the Trust shall have such authority and perform such duties as
may be assigned to them by the Trustees, the Executive Committee, the
President, or the Chairman.
{PRIVATE }SECTION 8. ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS.{TC \L 2 "SECTION 8. ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS."} The Assistant Secretary or Secretaries and the Assistant
Treasurer or Treasurers shall perform the duties of the Secretary and of the
Treasurer, respectively, in the absence of those Officers and shall have such
further powers and perform such other duties as may be assigned to them
respectively by the Trustees or the Executive Committee, the President, or the
Chairman.
{PRIVATE }SECTION 9. SALARIES.{TC \L 2 "SECTION 9. SALARIES."}
The salaries of the Officers shall be fixed from time to time by the Trustees.
No officer shall be prevented from receiving such salary by reason of the
fact that the officer is also a Trustee.
{PRIVATE }ARTICLE III{TC \L 1 "ARTICLE III"}
POWERS AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES
{PRIVATE } SECTION 1. EXECUTIVE AND OTHER COMMITTEES.{TC \L 2 "
SECTION 1. EXECUTIVE AND OTHER COMMITTEES."} The Trustees may elect
from their own number an Executive Committee to consist of not less than two
members. The Executive Committee shall be elected by a resolution passed by a
vote of at least a majority of the Trustees then in office. The Trustees may
also elect from their own number other committees from time to time, the
number composing such committees and the powers conferred upon the same to be
determined by vote of the Trustees. Any committee may make rules for the
conduct of its business.
{PRIVATE }SECTION 2. VACANCIES IN EXECUTIVE COMMITTEE.{TC \L 2
"SECTION 2. VACANCIES IN EXECUTIVE COMMITTEE."} Vacancies occurring in the
Executive Committee from any cause shall be filled by the Trustees by a
resolution passed by the vote of at least a majority of the Trustees then in
office.
{PRIVATE }SECTION 3. EXECUTIVE COMMITTEE TO REPORT TO TRUSTEES.{TC
\L 2 "SECTION 3. EXECUTIVE COMMITTEE TO REPORT TO TRUSTEES."} All action
by the Executive Committee shall be reported to the Trustees at their meeting
next succeeding such action.
{PRIVATE }SECTION 4. PROCEDURE OF EXECUTIVE COMMITTEE.{TC \L 2
"SECTION 4. PROCEDURE OF EXECUTIVE COMMITTEE."} The Executive Committee
shall fix its own rules of procedure not inconsistent with these By-Laws or
with any directions of the Trustees. It shall meet at such times and places
and upon such notice as shall be provided by such rules or by resolution of
the Trustees. The presence of a majority shall constitute a quorum for the
transaction of business, and in every case an affirmative vote of a majority
of all the members of the Committee present shall be necessary for the taking
of any action.
{PRIVATE }SECTION 5. POWERS OF EXECUTIVE COMMITTEE.{TC \L 2 "SECTION
5. POWERS OF EXECUTIVE COMMITTEE."} During the intervals between the
Meetings of the Trustees, the Executive Committee, except as limited by the
By-Laws of the Trust or by specific directions of the Trustees, shall possess
and may exercise all the powers of the Trustees in the management and
direction of the business and conduct of the affairs of the Trust in such
manner as the Executive Committee shall deem to be in the best interests of
the Trust, and shall have power to authorize the Seal of the Trust (if there
is one) to be affixed to all instruments and documents requiring same.
Notwithstanding the foregoing, the Executive Committee shall not have the
power to elect or remove Trustees, increase or decrease the number of
Trustees, elect or remove any Officer, declare allocations among Investors,
issue Interests or recommend to Investors any action requiring Investor
approval.
{PRIVATE }SECTION 6. COMPENSATION.{TC \L 2 "SECTION 6.
COMPENSATION."} The members of any duly appointed committee shall
receive such compensation and/or fees as from time to time may be fixed by the
Trustees.
{PRIVATE }SECTION 7. ACTION BY UNANIMOUS CONSENT OF THE BOARD OF
TRUSTEES, EXECUTIVE COMMITTEE OR OTHER COMMITTEE.{TC \L 2 "SECTION 7.
ACTION BY UNANIMOUS CONSENT OF THE BOARD OF TRUSTEES, EXECUTIVE COMMITTEE
OR OTHER COMMITTEE."} Subject to Article V, Section 2 of these By-Laws, any
action required or permitted to be taken at any meeting of the Trustees,
Executive Committee or any other duly appointed Committee may be taken without
a meeting if consents in writing setting forth such action are signed by all
members of the Board or such committee and such consents are filed with the
records of the Trust. In the event of the death, removal, resignation or
incapacity of any Board or committee member prior to that Trustee signing such
consent, the remaining Board or committee members may re-constitute themselves
as the entire Board or committee until such time as the vacancy is filled in
order to fulfill the requirement that such consents be signed by all members
of the Board or committee.
{PRIVATE }ARTICLE IV{TC \L 1 "ARTICLE IV"}
INVESTORS' MEETINGS
{PRIVATE }SECTION 1. SPECIAL MEETINGS.{TC \L 2 "SECTION 1. SPECIAL
MEETINGS."} A special meeting of the Investors of the Trust or of a
particular Series shall be called by the Secretary whenever ordered by the
Trustees, the Chairman or requested in writing by the holder or holders of at
least one-tenth of the outstanding Interests of the Trust or of the relevant
Series, entitled to vote. If the Secretary, when so ordered or requested,
refuses or neglects for more than two days to call such special meeting, the
Trustees, Chairman or the Investors so requesting may, in the name of the
Secretary, call the meeting by giving notice thereof in the manner required
when notice is given by the Secretary.
{PRIVATE }SECTION 2. NOTICES.{TC \L 2 "SECTION 2. NOTICES."} Except
as above provided, notices of any special meeting of the Investors of the
Trust or a particular Series, shall be given by the Secretary by delivering or
mailing, postage prepaid, to each Investor entitled to vote at said meeting, a
written or printed notification of such meeting, at least seven business days
before the meeting, to such address as may be registered with the Trust by the
Investor. No notice of any meeting to Investors need be given to an Investor
if a written waiver of notice, executed before or after the meeting by such
Investor or their attorney that is duly authorized, is filed with the records
of the meeting. Notice may be waived as provided in Article XIII of these By-
Laws.
{PRIVATE }SECTION 3. PLACE OF MEETING.{TC \L 2 "SECTION 3. PLACE OF
MEETING."} Meetings of the Investors of the Trust or a particular Series,
shall be held at the principal place of business of the Trust in Pittsburgh,
Pennsylvania, or at such place within or without The Commonwealth of
Massachusetts as fixed from time to time by resolution of the Trustees.
{PRIVATE }SECTION 4. ACTION BY UNANIMOUS CONSENT.{TC \L 2 "SECTION
4. ACTION BY UNANIMOUS CONSENT."} Any action required or permitted to be
taken at any meeting of Investors may be taken without a meeting, if a consent
in writing, setting forth such action, is signed by a majority of the
Investors entitled to vote on the subject matter thereof, and such consent is
filed with the records of the Trust.
{PRIVATE }SECTION 5. PROXIES.{TC \L 2 "SECTION 5. PROXIES."} Any
investor entitled to vote at any meeting of Investors may vote, by their duly
authorized representative, either in person, by telephone, by electronic means
including facsimile, or by proxy. Every written proxy shall be subscribed by
the Investor or his duly authorized attorney and dated, but need not be
sealed, witnessed or acknowledged. All proxies shall be filed with and
verified by the Secretary or an Assistant Secretary of the Trust or the person
acting as Secretary of the Meeting.
{PRIVATE }ARTICLE V{TC \L 1 "ARTICLE V"}
TRUSTEES' MEETINGS
{PRIVATE }SECTION 1. NUMBER AND QUALIFICATIONS OF TRUSTEES.{TC \L 2
"SECTION 1. NUMBER AND QUALIFICATIONS OF TRUSTEES."} The number of
Trustees can be changed from time to time by a majority of the Trustees to not
less than three nor more than twenty. The term of office of a Trustee shall
not be affected by any decrease in the number of Trustees made by the Trustees
pursuant to the foregoing authorization. Each Trustee shall hold office for
the life of the Trust, or as otherwise provided in the Declaration of Trust.
{PRIVATE }SECTION 2. SPECIAL MEETINGS.{TC \L 2 "SECTION 2. SPECIAL
MEETINGS."} Special meetings of the Trustees shall be called by the Secretary
at the written request of the Chairman, the President, or any Trustee, and if
the Secretary when so requested refuses or fails for more than twenty-four
hours to call such meeting, the Chairman, the President, or such Trustee may
in the name of the Secretary call such meeting by giving due notice in the
manner required when notice is given by the Secretary.
{PRIVATE }SECTION 3. REGULAR MEETINGS.{TC \L 2 "SECTION 3. REGULAR
MEETINGS."} Regular meetings of the Trustees may be held without call or
notice at such places and at such times as the Trustees may from time to time
determine, provided that any Trustee who is absent when such determination is
made shall be given notice of the determination.
{PRIVATE }SECTION 4. QUORUM AND VOTE.{TC \L 2 "SECTION 4. QUORUM
AND VOTE."} A majority of the Trustees shall constitute a quorum for the
transaction of business. The act of a majority of the Trustees present at any
meeting at which a quorum is present shall be the act of the Trustees unless a
greater proportion is required by the Declaration of Trust or these By-Laws or
applicable law. In the absence of a quorum, a majority of the Trustees
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting need not be given.
{PRIVATE }SECTION 5. NOTICES.{TC \L 2 "SECTION 5. NOTICES."} The
Secretary or any Assistant Secretary shall give, at least two days before the
meeting, notice of each meeting of the Board of Trustees, whether Annual,
Regular or Special, to each member of the Board by mail, telegram, telephone
or electronic facsimile to his last known address. It shall not be necessary
to state the purpose or business to be transacted in the notice of any meeting
unless otherwise required by law. Personal attendance at any meeting by a
Trustee other than to protest the validity of said meeting shall constitute a
waiver of the foregoing requirement of notice. In addition, notice of a
meeting need not be given if a written waiver of notice executed by such
Trustee before or after the meeting is filed with the records of the meeting.
{PRIVATE }SECTION 6. PLACE OF MEETING.{TC \L 2 "SECTION 6. PLACE OF
MEETING."} Meetings of the Trustees shall be held at the principal place of
business of the Trust in Pittsburgh, Pennsylvania, or at such place within or
without The Commonwealth of Massachusetts as fixed from time to time by
resolution of the Trustees, or as the person or persons requesting said
meeting to be called may designate, but any meeting may adjourn to any other
place.
{PRIVATE }SECTION 7. TELECONFERENCE MEETINGS ACTION BY CONSENT.{TC
\L 2 "SECTION 7. TELECONFERENCE MEETINGS ACTION BY CONSENT."} Except as
otherwise provided herein or from time to time in the 1940 Act or in the
Declaration of Trust, any action to be taken by the Trustees may be taken by a
majority of the Trustees within or without The Commonwealth of Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can communicate with each other simultaneously, and participation by
such means shall constitute presence in person at a meeting. Any action by
the Trustees may be taken without a meeting if a written consent thereto is
signed by all the Trustees and filed with the records of the Trustees'
meetings. Such consent shall be treated as a vote of the Trustees for all
purposes.Written consents may be executed in counterparts, which when taken
together, constitute a validly executed consent of the Trustees.
{PRIVATE }SECTION 8. SPECIAL ACTION.{TC \L 2 "SECTION 8. SPECIAL
ACTION."} When all the Trustees shall be present at any meeting, however
called, or whenever held, or shall assent to the holding of the meeting
without notice, or after the meeting shall sign a written assent thereto on
the record of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
{PRIVATE }SECTION 9. COMPENSATION OF TRUSTEES.{TC \L 2 "SECTION 9.
COMPENSATION OF TRUSTEES."} The Trustees may receive a stated salary for
their services as Trustees, and by resolution of Trustees a fixed fee and
expenses of attendance may be allowed for attendance at each Meeting. Nothing
herein contained shall be construed to preclude any Trustee from serving the
Trust in any other capacity, as an officer, agent or otherwise, and receiving
compensation therefor.
{PRIVATE }ARTICLE VI{TC \L 1 "ARTICLE VI"}
SHARES OF INTEREST
{PRIVATE }SECTION 1. BENEFICIAL INTEREST.{TC \L 2 "SECTION 1.
BENEFICIAL INTEREST."} The beneficial interest in the Trust shall at all
times be divided into Interest representing proportionate interest in the
assets and liabilities and the income and expenses of each Series of the
Trust. The Trust does not issue certificates representing the Interests of
each Investor.
{PRIVATE }SECTION 2. NON-TRANSFERABILITY OF INTERESTS.{TC \L 2
"SECTION 2. NON-TRANSFERABILITY OF INTERESTS."} The Interest of each
Series of the Trust shall not be transferable, except as provided in the
Declaration of Trust with regard to redemptions of Interests in the Trust and
except as part of a merger or similar plan of reorganization adopted by the
Trustees that qualifies under Section 368 of the Internal Revenue Code, as
amended from time to time.
{PRIVATE }SECTION 3. EQUITABLE INTEREST NOT RECOGNIZED.{TC \L 2
"SECTION 3. EQUITABLE INTEREST NOT RECOGNIZED."} The Trust shall be
entitled to treat the Investor of record of any Interest of a Series as the
absolute owner thereof and shall not be bound to recognize any equitable or
other claim or interest in such Interest of a Series on the part of any other
person except as may be otherwise expressly provided by law.
{PRIVATE }SECTION 4. TRANSFER AGENT AND REGISTRAR: REGULATIONS.{TC
\L 2 "SECTION 4. TRANSFER AGENT AND REGISTRAR\: REGULATIONS."} The
Trustees shall have power and authority to make all such rules and regulations
as they may deem expedient concerning the issuance, transfer and registration
of Interest and may appoint a Transfer Agent and/or Registrar of of Interests
of each Series.
{PRIVATE }ARTICLE VII{TC \L 1 "ARTICLE VII"}
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust maintained on behalf of each
Series or any of them shall be open to the inspection of the Investors of any
Series; and no Investor shall have any right of inspecting any account or book
or document of the Trust except that, to the extent such account or book or
document relates to the Series in which it is an Investor or the Trust
generally, such Investor shall have such right of inspection as conferred by
laws or authorized by the Trustees or by resolution of the Investor of the
relevant Series.
{PRIVATE }ARTICLE VIII{TC \L 1 "ARTICLE VIII"}
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
{PRIVATE }SECTION 1. AGREEMENTS, ETC.{TC \L 2 "SECTION 1.
AGREEMENTS, ETC."} The Trustees or the Executive Committee may authorize
any Officer or Agent of the Trust to enter into any Agreement or execute and
deliver any instrument in the name of the Trust on behalf of any Series, and
such authority may be general or confined to specific instances; and, unless
so authorized by the Trustees or by the Executive Committee or by the
Declaration of Trust or these By-Laws, no Officer, Agent or Employee shall
have any power or authority to bind the Trust by any Agreement or engagement
or to pledge its credit or to render it liable pecuniarily for any purpose or
for any amount.
{PRIVATE }SECTION 2. CHECKS, DRAFTS, ETC.{TC \L 2 "SECTION 2.
CHECKS, DRAFTS, ETC."} All checks, drafts, or orders for the payment of
money, notes and other evidences of indebtedness shall be signed by such
Officers, Employees, or Agents, as shall from time to time be designated by
the Trustees or the Executive Committee, or as may be specified in or pursuant
to the agreement between the Trust on behalf of any Series and the custodian
appointed, pursuant to the provisions of the Declaration of Trust.
{PRIVATE }SECTION 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF
SECURITIES.{TC \L 2 "SECTION 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF
SECURITIES."} All endorsements, assignments, stock powers, other instruments
of transfer or directions for the transfer of portfolio securities or other
property, whether or not registered in nominee form, shall be made by such
Officers, Employees, or Agents as may be authorized by the Trustees or the
Executive Committee.
{PRIVATE }SECTION 4. EVIDENCE OF AUTHORITY.{TC \L 2 "SECTION 4.
EVIDENCE OF AUTHORITY."} Anyone dealing with the Trust shall be fully
justified in relying on a copy of a resolution of the Trustees or of any
committee thereof empowered to act in the premises which is certified as true
by the Secretary or an Assistant Secretary under the seal of the Trust, if
any.
{PRIVATE }ARTICLE IX{TC \L 1 "ARTICLE IX"}
INDEMNIFICATION OF TRUSTEES AND OFFICERS
{PRIVATE }SECTION 1. GENERAL.{TC \L 2 "SECTION 1. GENERAL."} The
Trust shall indemnify each of its Trustees and officers (including persons who
serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other proceeding, whether civil,
criminal, administrative, or investigative, and any appeal therefrom, before
any court or administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with which such
person may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person, except that no Covered
Person shall be indemnified against any liability to the Trust or its
Investors to which such Covered Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such Covered Person to repay amounts so paid
to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article, provided that (a) such Covered
Person shall provide security for his undertaking, (b) the Trust shall be
insured against losses arising by reason of such Covered Person's failure to
fulfill his undertaking or (c) a majority of the nonparty Trustees who are not
interested persons of the Trust (provided that a majority of such Trustees
then in office act on the matter), or independent legal counsel in a written
opinion, shall determine, based on a review of readily available facts (but
not a full trial-type inquiry), that there is reason to believe such Covered
Person ultimately will be entitled to indemnification.
{PRIVATE }SECTION 2. COMPROMISE PAYMENT.{TC \L 2 "SECTION 2.
COMPROMISE PAYMENT."} As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication in a decision on the merits by a court, or by any other body
before which the proceeding was brought, that such Covered Person is liable to
the Trust or its Investors by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office, indemnification shall be provided if (a) approved as
in the best interest of the Trust, after notice that it involves such
indemnification, by at least a majority of non-party Trustees who are not
interested persons of the Trust (provided that a majority of such Trustees
then in office act on the matter), upon a determination, based upon a review
of readily available facts (but not a full trial-type inquiry) that such
Covered Person is not liable to the Trust or its Investors by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office, or (b) there
has been obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (but not a full trial-type inquiry)
to the effect that such indemnification would not protect such Covered Person
against any liability to the Trust to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Any approval pursuant to this Section shall not prevent the recovery from
any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been liable to the
Trust or its Investors by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
{PRIVATE }SECTION 3. INDEMNIFICATION NOT EXCLUSIVE; DEFINITIONS.{TC
\L 2 "SECTION 3. INDEMNIFICATION NOT EXCLUSIVE; DEFINITIONS."} The right
of indemnification hereby provided shall not be exclusive of or affect any
other rights to which any such Covered Person may be entitled. As used in
this Article IX, the term "Covered Person" shall include such person's heirs,
executors and administrators. For purposes of this Article IX, the term "non-
party Trustee" is a Trustee against whom none of the actions, suits or other
proceedings in question or another action, suit or other proceeding on the
same or similar grounds is then or has been pending. Nothing contained in
this Article IX shall affect any rights to indemnification to which personnel
of the Trust, other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of such persons.
{PRIVATE }ARTICLE X{TC \L 1 "ARTICLE X"}
SEAL
The seal of the Trust, if there is one, shall consist either of a flat-
faced die with the word "Massachusetts," together with the name of the Trust
and the year of its organization cut or engraved thereon, or any other
indication that the Trust has a seal that has been approved by the Trustees,
but, unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the validity of,
any document, instrument or other paper executed and delivered by or on behalf
of the Trust.
{PRIVATE }ARTICLE XI{TC \L 1 "ARTICLE XI"}
FISCAL YEAR
The fiscal year of the Trust and each Series shall be as designated from
time to time by the Trustees.
{PRIVATE }ARTICLE XII{TC \L 1 "ARTICLE XII"}
AMENDMENTS
These By-Laws may be amended by a majority vote of all of the Trustees.
{PRIVATE }ARTICLE XIII{TC \L 1 "ARTICLE XIII"}
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of any statute of The Commonwealth of Massachusetts, or under the provisions
of the Declaration of Trust or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, or presence at a meeting to which such person
was entitled notice of, shall be deemed equivalent thereto. A notice shall be
deemed to have been given if telegraphed, cabled, or sent by wireless when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled, or sent by wireless.
Any notice shall be deemed to be given if mailed at the time when the same
shall be deposited in the mail.
{PRIVATE }ARTICLE XIV{TC \L 1 "ARTICLE XIV"}
REPORT TO INVESTORS
The Trustees, so long as required by applicable law, shall at least semi-
annually submit to the Investors of each Series a written financial report of
the transactions of that Series including financial statements which shall at
least annually be certified by independent public accountants.
{PRIVATE }ARTICLE XV{TC \L 1 "ARTICLE XV"}
BOOKS AND RECORDS
The books and records of the Trust and any Series, including the ledger
or ledgers representing Interests in the Trust or any Series, may be kept in
or outside The Commonwealth of Massachusetts at such office or agency of the
Trust as may from time to time be determined by the Secretary of the Trust, as
set forth in Article II, Section 5 of these By-Laws.
{PRIVATE }ARTICLE XVI{TC \L 1 "ARTICLE XVI"}
TERMS
Terms defined in the Declaration of Trust and not otherwise defined
herein are used herein with the meanings set forth or referred to in the
Declaration of Trust.
