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. 2 ................................ 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 & Oshinsky LLP
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. However, beneficial
interests in the series of the Registrant are not registered under the
Securities Act of 1933( 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 DATED SEPTEMBER 30, 1996
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'') is currently
offering 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.
As of September 30, 1996, Federated Research Corp. 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 Research
Corp., 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 structure master/feeder fund and a registered
service mark of Signature Financial Group, Inc., which is licensed to
Federated Services Company.
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-year 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 June 30, 1996, the following classes of fixed income securities
represented the stated proportions of the total market value of the
Aggregate Bond Index:
U.S. Treasury and government
agency securities 51.68%
Corporate bonds 17.45%
Mortgage- and asset-backed securities 30.87%
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 debt instruments 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. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
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 GNMA 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 FNMA 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 instrumentalities, 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-THROUGH 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. Accordingly, the Portfolio may pay more/less than the market value of
the securities on the settlement 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.
However, the Portfolio may dispose of a commitment prior to settlement if
the investment managers deem it appropriate to do so. In addition, the
Portfolio may enter into transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Portfolio
may realize short-term profits or losses upon the sale of such commitments.
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
variable 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. For
example, the loaned securities may not be available to the Portfolio on a
timely basis and the Portfolio may, therefore, lose the opportunity to sell
the securities at a desirable price.
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.
DERIVATIVE CONTRACTS AND SECURITIES. The term `derivative'' has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that `derive'' their value from
changes in the value of an underlying security, currency, commodity or
index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as `derivatives.''
The term has also been applied to securities `derived'' from the cash
flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the
response of certain derivative contracts and securities to market changes
may differ from traditional investments, such as stocks and bonds,
derivatives do not necessarily present greater market risks than
traditional investments. The Portfolio will only use derivative contracts
for the purposes disclosed in the applicable sections above. To the extent
that the Portfolio invests in securities that could be characterized as
derivatives, such as Mortgage Pass-Throughs and Collateralized Mortgage
Obligations it will only do so in a manner consistent with its investment
objective, policies and limitations.
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. For purposes of its
policies and limitations, the Portfolio considers certificates of deposit
and demand and time deposits issued by a U.S. branch of a domestic bank or
savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be `cash items.''
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 Research Corp.(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. As of September 30, 1996, Federated Management
was replaced as adviser to the Portfolio by Federated Research Corp. In all
other respects, the advisory arrangements are identical. Both advisers are
subsidiaries of Federated Investors, are registered investment advisers and
have common directors/trustees, officers and employees.
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 the Portfolio's average daily
net assets. The Adviser has agreed to waive all investment advisory fees
with respect to the Portfolio. 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 Research Corp., a Maryland Corporation
organized on May 23, 1958, 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 Research Corp. 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 management 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 institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Sub-Adviser. Federated Research Corp. 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 114 West 47th Street, New
York, New York. Subject to the general guidance and policies set by the
Trustees of the Trust, Federated Research Corp. 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 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, 1996, U.S.
Trust Company's Asset Management Group had approximately $50.3 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.
The Trust, the Adviser and the Sub-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 code
governing the Adviser: requires preclearance and periodic reporting of
personal securities transactions; prohibits personal transactions in
securities being purchased or sold, or being considered for purchase or
sale, by the Portfolio; prohibits purchasing securities in initial public
offerings; and prohibits taking profits on securities held for less than
sixty days. The code governing the Sub-Adviser: requires preclearance and
periodic reporting of personal securities transactions; prohibits personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Portfolio; and prohibits purchasing securities in
initial public offerings for 30 days. Violations of the codes are subject
to review by the Trustees, and could result in severe penalties.
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 transactions of the
Portfolio, subject to the general supervision of Federated Research Corp.
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 or any affiliate thereof, from sponsoring,
organizing, or controlling a registered, open-end investment company
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 an
investment company or from purchasing shares of such a company as agent for
and upon the order of their customers. The Portfolio's sub-adviser, U.S.
Trust Company believes, based on advice of its counsel, that it may perform
the sub-advisory services for the Portfolio contemplated by its advisory
agreement with the Portfolio without violating the Glass Steagall Act or
other applicable banking laws or regulations. Changes in either federal or
state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as the further judicial
or administrative decisions or interpretations of present or future
statutes and regulations, could prevent U.S. Trust Company from continuing
to perform all or a part of the above services. If this happens, changes in
the operation of the Portfolio may occur, and the Trustees would consider
alternative sub-advisers and other means of continuing available investment
services. It is not expected that investors would suffer any adverse
financial consequences as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to
state law.
(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. 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. 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) Prior to March 1, 1996, Federated Administrative Services was
designated as the subsidiary through which Federated Services Company
provided administrative services. Subsequently, Federated Administrative
Services, Inc. has been designated as the subsidiary to provide
administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Trust. Federated
Administrative Services, Inc. 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% on the first $1 billion
0.045% on the next $1 billion
0.040% on the next $1 billion
0.025% on the next $1 billion
0.010% on the next $1 billion
0.005% 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, through
Federated Administrative Services, Inc., 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 Administrative Services, Inc. to maintain records of investors in
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 September 1, 1996, Excelsior Institutional Trust's, Excelsior
Institutional Bond Index Fund owned approximately 63.14% of the beneficial
interests of the Portfolio and Federated Bond Index Fund owned
approximately 36.86% 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) The Trustees have established five other series, none of which are
being offered presently: Bond Portfolio, Connecticut Municipal Money Market
Portfolio, Florida Municipal Money Market Portfolio, Max-Cap Portfolio and
New Jersey Municipal Money Market Portfolio.
(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
(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 charge 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)See Item 8(a) above.
ITEM 9. PENDING LEGAL PROCEEDINGS
None.
PART B.
ITEM 10. COVER PAGE
This Part B, dated September 30, 1996, sets forth information which may be
of interest to investors but which is not necessarily included in Part A,
dated September 30, 1996, 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-22
Management of the Registrant B-28
Control Persons and Principal
Holders of Securities B-34
Investment Advisory and Other
Services B-35
Brokerage Allocation and Other
Practices B-37
Capital Stock and Other Securities B-40
Purchase, Redemption, and Pricing
of Securities being Offered B-42
Tax Status B-43
Underwriters B-44
Calculation of Performance Data B-44
Financial Statements B-44
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,
GNMA 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 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
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.
This is a fundamental investment policy which may not be changed without
investor approval. For purposes of its policies and limitations, the
Portfolio considers certificates of deposit and demand and time deposits
issued by a U.S. branch of a domestic bank or savings association having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be `cash items.''
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 debt securities 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, to be included in the overall 5% limit on investments in
warrants, may be warrants which are 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.
For the fiscal year ended May 31, 1996 and for the period from July 11,
1994 (date of initial public investment) to May 31, 1995, the Portfolio's
portfolio turnover rate was 43% and 67%, respectively. The portfolio
turnover rates presented herein include the operations of the Bond Market
Portfolio, a portfolio of the St. James Portfolios, for periods prior to
January 2, 1996. See Item 23 below. 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 Research Corp.,
Federated Management, Federated Securities Corp., Federated Services
Company, Federated Administrative Services and Federated Administrative
Services, Inc. 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, or Trustee 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
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; MED 3000 Group, Inc.; Trustee, University of
Pittsburgh; Director or Trustee of the Funds;.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Northgate
Village Development Corporation and Naples Property Management, Inc.;
Director or Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.
and Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
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.; Trustee, Federated Shareholder Services Company and
Federated Shareholder Services; Director, Federated Services Company and
Federated Administrative Services, Inc.; President or Executive Vice
President of the Funds; Director or Trustee 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 or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, 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
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee 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 or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy,
Technology and Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds;.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee 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.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
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 and Federated Administrative Services, Inc.;
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: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment 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: 2-5 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; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
(b) See response to 14(a).
(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 Trust
Trustee and 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $0 $115,760 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
William J. Copeland $0 $115,760 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
James E. Dowd $0 $115,760 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $0 $104,898 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $0 $115,760 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Peter E. Madden $0 $104,898 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Gregor F. Meyer $0 $104,898 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
John E. Murray, Jr. $0 $104,898 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Wesley W. Posvar $0 $104,898 for the Trust
Trustee and 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $0 $104,898 for the Trust
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 funds advised or administered by
Federated Investors, its subsidiaries or affiliates.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) As of September 1, 1996 the following investors of record owned 25% 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 63.14% of the Portfolio's
outstanding beneficial interests. Federated Bond Index Fund, a portfolio of
Federated Investment Trust, a registered, open-end investment company
organized under the laws of the Commonwealth of Massachusetts, located at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, owned
approximately 36.86% of the Portfolio's outstanding beneficial interests.
(b) See Item 15(a) above.
(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, and Item 23 below with respect to the
service providers of the Trust's predecessor.
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
and are effective on September 30, 1996. The terms of the contract under
which Federated Research Corp., as the current Adviser, and the Sub-Adviser
presently perform these services are identical to those previously
performed by Federated Management, as the former Adviser, and the Sub-
Adviser. 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.
For the period from January 2, 1996 to May 31, 1996, Federated Management
and the Sub-Adviser voluntarily waived all of their fees which amounted to
$17,632.
United States Trust Company of the Pacific Northwest (`U.S. Trust
Pacific') was the investment adviser and U.S. Trust Company of New York
(`Sub-Adviser'') was the sub-adviser of the ``Predecessor Portfolio'' (as
defined in Item 23 below). U.S. Trust Pacific and the Sub-Adviser
voluntarily agreed to waive all of their investment advisory fees and
reimburse certain operational expenses of the Predecessor Portfolio. The
investment advisory fee waivers and expense reimbursements totaled $23,111
and $55,998, respectively, for the period from June 1, 1995 to January 2,
1996, and $47,955 and $83,454, respectively, for the period from July 11,
1994 to May 31, 1995.
(c) 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.
(d) Prior to March 1, 1996, Federated Administrative Services was
designated as the subsidiary through which Federated Services Company
provided administrative services and also maintained the Trust's portfolio
accounting records. Subsequently, Federated Administrative Services, Inc.
has been designated as the subsidiary to provide such services. From time
to time, Federated Services Company, through its subsidiaries may waive all
or a portion of the administrative fee. For the period from January 2, 1996
to May 31, 1996, Federated Administrative Services earned and voluntarily
agreed to waive its entire fee of $24,754. Administrative and portfolio
accounting services were provided to the Predecessor Portfolio by Signature
Financial Services, Inc. (`Signature''). For the period from June 1, 1995
to January 2, 1996, and the period from July 11, 1994 (date of initial
public investment) to May 31, 1995, Signature earned administrative fees of
$33,589 and $54,279, respectively.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) As of June 5, 1996, State Street Bank and Trust Company, P.O. Box 8600,
Boston, Massachusetts 02266-8600, is custodian for the cash and securities
of Portfolio. Prior thereto, the Portfolio's custodian was Investors Bank &
Trust Company.
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 Administrative Services, Inc.
for maintaining the Trust's portfolio 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. For the
fiscal year ended May 31, 1996 and for the period from July 11, 1994 (date
of initial public investment) to May 31, 1995, the Portfolio paid no
brokerage commissions. The brokerage commissions presented above include
the operations of the Predecessor Portfolio for periods prior to January 2,
1996. See Item 23 below.
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) As of May 31, 1996, the Portfolio owned approximately $514,000 in debt
securities of Lehman Brothers, Inc., one of its regular brokers that
derives more than 15% of gross revenues from securities related activities.
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 loss will be realized if the withdrawal is in
liquidation of all of a part of the investor's interest in the Portfolio
and includes a disproportionate share of any unrealized receivables held by
the Portfolio, and (3) loss will be recognized if the distribution is in
liquidation of the investor's entire interest in the Portfolio 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 are incorporated by reference from the Annual
Report to Investors dated May 31, 1996 (File No. 811-07461). The
information contained in the Annual Report represents financial information
for Bond Market Portfolio, a portfolio of St. James Portfolios, for the
fiscal year ended May 31, 1995 (audited) and for the period from June 1,
1995 to January 2, 1996. Effective January 2, 1996 (the `Transaction
Date'), the Portfolio received all of the assets of Excelsior
Institutional Bond Index Fund, a series of Excelsior Institutional Trust,
which had invested all of its assets in Bond Market Portfolio (the
`Predecessor Portfolio''), a portfolio of the St. James Portfolios in
exchange for shares of beneficial interest in the Portfolio. These assets
represented substantially all of the Predecessor Portfolio's assets as of
the Transaction Date. The Predecessor Portfolio's 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 the Predecessor Portfolio, and the Portfolio has
succeeded to the financial history and performance of the Predecessor
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.
PART C. OTHER INFORMATION.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) The Financial Statements are incorporated by reference from
the Annual Report to Investors dated May 31, 1996 for Bond
Index Portfolio (811-07461) which contains the following:
Federated Bond Index Portfolio, a series of Federated
Investment Portfolios
Portfolio of Investments (as of May 31, 1996 (audited)).
Statements of Assets and Liabilities (for the fiscal year
ended May 31, 1996 (audited))
Statements of Operations (for the fiscal year ended May 31,
1996 (audited))
Statements of Changes in Net Assets (for the period from
July 11, 1994 to May 31, 1995 and for the fiscal year
ended
May 31, 1996 (audited))
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(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)
(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); (2)
(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; +
+ All exhibits have been filed electronically.
1. Response is incorporated by Reference to Registrant's Initial
Registration Statement on Form N-1A filed December 21, 1995. (File No.
811-07461).
2. Response is incorporated by Reference to Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A filed March 7,
1996 (File No. 811-07461).
(6) Not applicable;
(7) Not applicable;
(8) Conformed copy of the Custodian Agreement of the
Registrant; +
(9) (i)Conformed Copy of Fund Accounting, Administrative
Services and Custody Services Procurement; +
(ii)Conformed Copy of Assignment of Fund Accounting
Administrative Services and Custody Services
Procurement;+
(ii) Conformed Copy of the Placement Agent Contract of the
Registrant; (2)
(10) Not applicable;
(11) Not applicable;
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Not applicable;
(16) Not applicable;
(17) Not Applicable;
(18) Not Applicable;
(19) Conformed Copy of Power of Attorney; +
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
SEPTEMBER 1, 1996:
two.
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 two of the
Directors and three 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 is John W. McGonigle.
+ All exhibits have been filed electronically.
1. Response is incorporated by Reference to Registrant's Initial
Registration Statement on Form N-1A filed December 21, 1995. (File No.
811-07461).
2. Response is incorporated by Reference to Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A filed March 7,
1996 (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; Peter R. Anderson, Drew J.
Collins; Jonathan Conley; Mark E. Durbiano; J. Alan Minteer;
and Mary Jo Ochson, Senior Vice Presidents; J. Scott
Albrecht, Joseph M. Balestrino; Randall A. Bauer, David F.
Belton, David A. Briggs, Kenneth J. Cody; Deborah A.
Cunningham, Alexandre de Bethmann, Michael P. Donnelly, Linda
A. Dussel Kathleen M. Foody-Malus, Thomas M. Franks, James E.
Grefenstette, Stephen A. Keen, Mark S. Kopinski, Robert M.
Kowit, Jeff A. Kozemchak, Marian R. Marinack, Sandra L.
McInerney, Susan M. Nason, Robert J. Ostrowski, Charles A.
Ritter, Frank Semack; William F. Stotz; Tracy P. Stouffer,
Edward J. Tiedge, Christopher H. Wiles and Jolanta M.
Wysocka, Vice Presidents, Thomas R. Donahue, Treasurer, and
Stephen A. Keen, 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 incorporated 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 June 30, 1996, U.S. Trust
Company's Asset Management Group had approximately $50.3
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 Company Name Address Principal
Occupation
Trustee/Director Samuel C. Butler Cravath, Swaine &
Moore Partner in
Worldwide Plaza Cravath, Swaine &
825 Eighth Avenue Moore
New York, NY 10019
Trustee/Director Peter O. Crisp Venrock Associates
Room 560
30 Rockefeller General Partner
Plaza in Venrock
New York, NY 10019 Associates
Trustee/Director Antonia M.
Grumbach Patterson, Belknap,
Webb & Tyler
30 Rockefeller Partner in
Plaza Patterson,
New York, NY 10112 Belknap, Webb &
Tyler
Trustee/Director Marshall Schwarz United States Trust Chairman of the
Chairman of the Company of New Board & Chief
Board and Chief York Executive Officer
Executive Officer 114 West 47th of U.S. Trust
Street Corporation and
New York, NY 10036 United States
Trust Company of
New York
Trustee/Director Phillippe de
Montebello Director of the
Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY
10029-0198
Trustee/Director Paul W. Douglas
Retired
250 Park Avenue
Room 1900
New York, NY 10177
Trustee/Director Frederic C.
Hamilton Chairman of the
Hamilton Oil Corp. Board of Hamilton
1560 Broadway Oil Corp.
Suite 2000
Denver, CO 80202
Trustee/Director
John H. Stookey Chairman and
Hanson Industries President,
410 Park Avenue Quantum Chemical
New York, NY 10028 Corporation
Trustee/Director
Robert N. Wilson
Johnson & Johnson Vice Chairman of
One Johnson & the Board of
Johnson Plaza Johnson & Johnson
New Brunswick, NJ
08933
Trustee/Director Peter L. Malkin
Wein, Malkin & Chairman of Wein,
Bettex Malkin & Bettex
Lincoln Building
60 East 42nd Street
Trustee/Director New York, NY 10165
Richard F. Tucker
11 Over Rock Lane Retired
Westport, CT 06880
Trustee/Director Carroll L. Milbank, Tweed, Consulting
Wainright, Jr. Hadley & McCloy Partner of
One Chase Manhattan Milbank, Tweed,
Plaza Hadley & McCloy
New York, NY 10005
Trustee/Director, Frederick B. United States Trust
Vice Chairman, and Taylor Company of New York Vice Chairman and
Chief Investment 114 West 47th Chief Investment
Officer Street Officer of U.S.
New York, NY 10036 Trust Corporation
and United States
Trust Company of
New York
Trustee/Director
and President Jeffrey S. Maurer United States Trust President of U.S.
Company of New York Trust Corporation
114 West 47th and United States
Street Trust Company of
New York, NY 10036 New York
Trustee/Director
Daniel P. Davison Chairman,
Christie, Manson & Christie, Manson
Woods International & Woods
Inc. International,
502 Park Avenue Inc.
Trustee/Director New York, NY 10021
Orson D. Munn
Munn, Bernhard &
Associates, Chairman and
Inc. Director of Munn,
6 East 43rd Street Bernhard &
Trustee/Director 28th Floor Associates, Inc.
Philip L. Smith New York, NY 10017
P.O. Box 386 Corporate
Trustee/Director Ponte Verde Beach, Director and
Edwin D. FL 32004 Trustee
Etherington P.O. Box 100
Old Lyme, CT 06371
President
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 Federated
Services Company Investors Tower
Pittsburgh,
Pennsylvania
15222-3779
Federated Administrative Federated
Services, Inc. (Administrator Investors Tower and
Portfolio Accountant) Pittsburgh,
Pennsylvania
15222-3779
Federated Research Corp. 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
State Street Bank and P.O. Box 8600 Trust
Company(Custodian) Boston,
Massachusetts
02266-8600
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 24th day of September, 1996.
FEDERATED INVESTMENT PORTFOLIOS
BY: /s/ Victor R. Siclari
Victor R. Siclari, Assistant Secretary
Attorney in Fact for John F. Donahue
September 24, 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/ Victor R. Siclari
Victor R. Siclari Attorney In Fact September 24, 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
John W. McGonigle* Executive Vice President,
Secretary and 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
* By Power of Attorney
Exhibit 5(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 30, 1996, 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 RESEARCH CORP., a Maryland corporation having its
principal place of business in Pittsburgh, Pennsylvania (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
-2-
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.
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
-3-
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 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
-4-
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 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
-5-
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 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
-6-
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 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
-7-
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 ``pecifically
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
-8-
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 ``ederated.''
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 RESEARCH CORP.
/s/ Stephen A. Keen By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
-9-
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER
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) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of September 30, 1996, by and between Federated
Research Corp., a Maryland Corporation having its principal place of
business in Pittsburgh, Pennsylvania (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 Series 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
-2-
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 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
-3-
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.
(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
-4-
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.
(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
-5-
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 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.
-6-
(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.
(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
-7-
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 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 ``pecifically
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
-8-
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.
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 RESEARCH CORP.
/s/ Stephen A. Keen By: /s/ J. Christopher Donahue
Secretary Name: J. Christopher Donahue
Title: President
Attest: UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Francis J. Hearn, Jr. By: /s/ Brian F. Schmidt
-9-
Vice President Name: Brian F. Schmidt
Title: Vice 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 0.12%
Exhibit B
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 30, 1996, 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 ``nvestment Company
Act'), and FEDERATED RESEARCH CORP., a Maryland corporation having its
principal place of business in Pittsburgh, Pennsylvania (the `Adviser'').
-10-
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 ``eries'') 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
-11-
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 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.
-12-
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 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
-13-
by the Trust are ``easonable 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 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.
-14-
(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 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.
-15-
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.
(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
-16-
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.
(c) This Agreement may be amended only if such amendment is
approved by the vote of a majority of the outstanding voting securities of
-17-
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 ``ederated''
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.''
-18-
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 RESEARCH CORP.
/s/ Stephen A. Keen By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER
INVESTMENT ADVISORY AGREEMENT
-19-
Annual Fee (as a percentage of
Series Names the average daily net assets of a series)
Bond Index Portfolio 0.25%
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
CUSTODIAN CONTRACT
BETWEEN
FEDERATED INVESTMENT COMPANIES
AND
STATE STREET BANK AND TRUST COMPANY
AND
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by it......1
2. Duties of the Custodian With Respect to Property of the
Funds Held by the Custodian.............................2
2.1 Holding Securities....................................2
2.2 Delivery of Securities................................2
2.3 Registration of Securities............................5
2.4 Bank Accounts.........................................6
2.5 Payments for Shares...................................7
2.6 Availability of Federal Funds.........................7
2.7 Collection of Income..................................7
2.8 Payment of Fund Moneys................................8
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased..............................9
2.10 Payments for Repurchases or Redemptions of Shares
of a Fund ........................................9
2.11 Appointment of Agents................................10
2.12 Deposit of Fund Assets in Securities System..........10
2.13 Segregated Account...................................12
2.14 Joint Repurchase Agreements..........................13
2.15 Ownership Certificates for Tax Purposes..............13
2.16 Proxies..............................................13
2.17 Communications Relating to Fund Portfolio Securities.13
2.18 Proper Instructions..................................14
2.19 Actions Permitted Without Express Authority..........14
2.20 Evidence of Authority................................15
2.21 Notice to Trust by Custodian Regarding Cash Movement.15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income..........15
4. Records ..................................................16
5. Opinion of Funds' Independent Public Accountants/Auditors.16
6. Reports to Trust by Independent Public
Accountants/Auditors..................................17
7. Compensation of Custodian.................................17
8. Responsibility of Custodian...............................17
9. Effective Period, Termination and Amendment...............19
10. Successor Custodian.......................................20
11. Interpretive and Additional Provisions....................21
12. Massachusetts Law to Apply................................22
13. Notices ..................................................22
14. Counterparts..............................................22
15. Limitations of Liability..................................22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund")
of the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian", and FEDERATED SERVICES COMPANY, a Delaware business
trust company, having its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, hereinafter called
("Company").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets
of each of the Funds of the Trust. Except as otherwise expressly
provided herein, the securities and other assets of each of the Funds
shall be segregated from the assets of each of the other Funds and
from all other persons and entities. The Trust will deliver to the
Custodian all securities and cash owned by the Funds and all payments
of income, payments of principal or capital distributions received by
them with respect to all securities owned by the Funds from time to
time, and the cash consideration received by them for shares
("Shares") of beneficial interest/capital stock of the Funds as may be
issued or sold from time to time. The Custodian shall not be
responsible for any property of the Funds held or received by the
Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions,
provided that the Custodian shall have no more or less responsibility
or liability to the Trust or any of the Funds on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities,
together with a current inventory thereof, and shall conduct
periodic physical inspections of certificates representing stocks,
bonds and other securities held by it under this Contract in such
manner as the Custodian shall determine from time to time to be
advisable in order to verify the accuracy of such inventory. With
respect to securities held by any agent appointed pursuant to
Section 2.11 hereof, and with respect to securities held by any
sub-custodian appointed pursuant to Section 1 hereof, the
Custodian may rely upon certificates from such agent as to the
holdings of such agent and from such sub-custodian as to the
holdings of such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to the
Trust the results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a
Securities System account of the Custodian only upon receipt of
Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following
cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of a Fund or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
failure to act in accordance with the standard of reasonable
care or any higher standard of care imposed upon the Custodian
by any applicable law or regulation if such above-stated
standard of reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10) For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by
the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust,
transferred through a Securities System in accordance with
Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released for the
purpose;
(12) For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934, as amended, (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions for a Fund;
(13) For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian, 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, or any similar organization or organizations,
regarding account deposits in connection with transaction for
a Fund;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for a Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, in satisfaction of requests by holders
of Shares for repurchase or redemption; and
(15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Executive Committee of the Trust
on behalf of a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Securities held by the Custodian
(other than bearer securities) shall be registered in the name of
a particular Fund or in the name of any nominee of the Fund or of
any nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Trust has authorized in
writing the appointment of a nominee to be used in common with
other registered investment companies affiliated with the Fund, or
in the name or nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-custodian
appointed pursuant to Section 1. All securities accepted by the
Custodian on behalf of a Fund under the terms of this Contract
shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of each Fund, other than cash maintained in a joint
repurchase account with other affiliated funds pursuant to Section
2.14 of this Contract or by a particular Fund in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940 Act").
Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian
or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the
Fund and shall be withdrawable by the Custodian only in that
capacity. If requested by the Trust, the Custodian shall furnish
the Trust, not later than twenty (20) days after the last business
day of each month, an internal reconciliation of the closing
balance as of that day in all accounts described in this section
to the balance shown on the daily cash report for that day
rendered to the Trust.
2.5Payments for Shares. The Custodian shall make such arrangements
with the Transfer Agent of each Fund, as will enable the Custodian
to receive the cash consideration due to each Fund and will
deposit into each Fund's account such payments as are received
from the Transfer Agent. The Custodian will provide timely
notification to the Trust and the Transfer Agent of any receipt by
it of payments for Shares of the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time
to time by the Trust and the Custodian in the amount of checks,
clearing house funds, and other non-federal funds received in
payment for Shares of the Funds which are deposited into the
Funds' accounts.
2.7Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to each
Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. The
collection of income due the Funds on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have no duty
or responsibility in connection therewith, other than to
provide the Trust with such information or data as may be
necessary to assist the Trust in arranging for the timely
delivery to the Custodian of the income to which each Fund is
properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income
due on securities is not collected in due course and will
provide the Trust with monthly reports of the status of past
due income unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of each Fund in
the following cases only:
(1) Upon the purchase of securities, futures contracts or options
on futures contracts for the account of a Fund but only (a)
against the delivery of such securities, or evidence of title
to futures contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United States or
abroad which is qualified under the 1940 Act to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, (b) in the
case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12
hereof or (c) in the case of repurchase agreements entered
into between the Trust and any other party, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase for the account of
the Fund of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a
Fund, including but not limited to the following payments for
the account of the Fund: interest; taxes; management,
accounting, transfer agent and legal fees; and operating
expenses of the Fund, whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf
of a Fund signed by an officer of the Trust and certified by
its Secretary or an Assistant Secretary, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment
is to be made.
2.9Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written instructions from the Trust to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose of
repurchasing or redeeming Shares of a Fund, but subject to the
limitations of the Declaration of Trust/Articles of Incorporation
and any applicable votes of the Board of the Trust pursuant
thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders of
shares of such Fund who have delivered to the Transfer Agent a
request for redemption or repurchase of their shares including
without limitation through bank drafts, automated clearinghouse
facilities, or by other means. In connection with the redemption
or repurchase of Shares of the Funds, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming
shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the 1940 Act and
any applicable state law or regulation, to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as
the Custodian may from time to time direct; provided, however,
that the appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a
clearing agency registered with the Securities and Exchange
Commission ("SEC") under Section 17A of the Exchange Act, which
acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and
SEC rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall
identify by book-entry those securities belonging to each
Fund;
(3) The Custodian shall pay for securities purchased for the
account of each Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities
sold for the account of a Fund upon (i) receipt of advice from
the Securities System that payment for such securities has
been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of securities
for the account of a Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to
the Trust at its request. Upon request, the Custodian shall
furnish the Trust confirmation of each transfer to or from the
account of a Fund in the form of a written advice or notice
and shall furnish to the Trust copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage
to a Fund resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
Securities System; at the election of the Trust, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that a Fund has
not been made whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence
in making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian 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 organization
or organizations, regarding escrow or other arrangements in
connection with transactions for a Fund, (ii) for purpose of
segregating cash or government securities in connection with
options purchased, sold or written for a Fund or commodity futures
contracts or options thereon purchased or sold for a Fund, (iii)
for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the SEC relating
to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only,
in the case of clause (iv), 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.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any
assets of a Fund and any affiliated funds which are subject to
joint repurchase transactions in an account established solely for
such transactions for the Fund and its affiliated funds. For
purposes of this Section 2.14, "affiliated funds" shall include
all investment companies and their portfolios for which
subsidiaries or affiliates of Federated Investors serve as
investment advisers, distributors or administrators in accordance
with applicable exemptive orders from the SEC. The requirements
of segregation set forth in Section 2.1 shall be deemed to be
waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of a Fund held
by it and in connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of a Fund or a nominee of a Fund, all
proxies, without indication of the manner in which such proxies
are to be voted, and shall promptly deliver to the Trust such
proxies, all proxy soliciting materials and all notices relating
to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Fund and the maturity of futures contracts purchased or
sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the
Trust all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange
offer. If the Trust desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian in writing at least three
business days prior to the date on which the Custodian is to take
such action. However, the Custodian shall nevertheless exercise
its best efforts to take such action in the event that
notification is received three business days or less prior to the
date on which action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this
Section 2 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 Custodian
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 Trust promptly
causes such oral instructions to be confirmed in writing. Upon
receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of the Trust
accompanied by a detailed description of procedures approved by
the Board, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided
that the Board and the Custodian are satisfied that such
procedures afford adequate safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may
in its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust in such form that it may
be allocated to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of each Fund except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper reasonably believed by it
to be genuine and to have been properly executed on behalf of a
Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of the Trust as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b)
of any determination of or any action by the Board pursuant to the
Declaration of Trust/Articles of Incorporation as described in
such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the
contrary.
2.21 Notice to Trust by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Trust of any
receipt of cash, income or payments to the Trust and the release
of cash or payment by the Trust.
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in
writing to do so by the Trust, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of a Fund as
described in the Fund's currently effective prospectus and Statement
of Additional Information ("Prospectus") and shall advise the Trust
and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Trust to do so,
shall advise the Transfer Agent periodically of the division of such
net income among its various components. The calculations of the net
asset value per share and the daily income of a Fund shall be made at
the time or times described from time to time in the Fund's currently
effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act,
with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, and specifically including identified cost records
used for tax purposes. All such records shall be the property of the
Trust and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees or agents of the Trust and employees and agents of the SEC.
In the event of termination of this Contract, the Custodian will
deliver all such records to the Trust, to a successor Custodian, or to
such other person as the Trust may direct. The Custodian shall supply
daily to the Trust a tabulation of securities owned by a Fund and held
by the Custodian and shall, when requested to do so by the Trust and
for such compensation as shall be agreed upon between the Trust and
the Custodian, include certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions
from each Fund's independent public accountants/auditors with respect
to its activities hereunder in connection with the preparation of the
Fund's registration statement, periodic reports, or any other reports
to the SEC and with respect to any other requirements of such
Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Trust, to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination and, if there are no such inadequacies, the reports shall
so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in
carrying out the provisions of this Contract; provided, however, that
the Custodian shall be held to any higher standard of care which would
be imposed upon the Custodian by any applicable law or regulation if
such above stated standard of reasonable care was not part of this
Contract. The Custodian shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Trust) 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. Subject to the limitations set
forth in Section 15 hereof, the Custodian shall be kept indemnified by
the Trust but only from the assets of the Fund involved in the issue
at hand and be without liability for any action taken or thing done by
it in carrying out the terms and provisions of this Contract in
accordance with the above standards.
In order that the indemnification provisions contained in this
Section 8 shall apply, however, it is understood that if in any case
the Trust may be asked to indemnify or save the Custodian harmless,
the Trust shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood
that the Custodian will use all reasonable care to identify and notify
the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification.
The Trust shall have the option to defend the Custodian against any
claim which may be the subject of this indemnification, and in the
event that the Trust so elects it will so notify the Custodian and
thereupon the Trust shall take over complete defense of the claim, and
the Custodian shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this
Section. The Custodian shall in no case confess any claim or make any
compromise in any case in which the Trust will be asked to indemnify
the Custodian except with the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance
with a separate Agreement entered into between the Custodian and the
Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the
Custodian or its nominee assigned to a Fund being liable for the
payment of money or incurring liability of some other form, the
Custodian may request the Trust, as a prerequisite to requiring the
Custodian to take such action, to provide indemnity to the Custodian
in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee
from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from
it or its nominee's own failure to act in accordance with the standard
of reasonable care or any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above-stated standard of reasonable care were not part of this
Contract. To secure any authorized charges and any advances of cash
or securities made by the Custodian to or for the benefit of a Fund
for any purpose which results in the Fund incurring an overdraft at
the end of any business day or for extraordinary or emergency purposes
during any business day, the Trust hereby grants to the Custodian a
security interest in and pledges to the Custodian securities held for
the Fund by the Custodian, in an amount not to exceed 10 percent of
the Fund's gross assets, the specific securities to be designated in
writing from time to time by the Trust or the Fund's investment
adviser. Should the Trust fail to make such designation, or should it
instruct the Custodian to make advances exceeding the percentage
amount set forth above and should the Custodian do so, the Trust
hereby agrees that the Custodian shall have a security interest in all
securities or other property purchased for a Fund with the advances by
the Custodian, which securities or property shall be deemed to be
pledged to the Custodian, and the written instructions of the Trust
instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes of
the requirements of the Uniform Commercial Code. Should the Trust
fail to cause a Fund to repay promptly any authorized charges or
advances of cash or securities, subject to the provision of the second
paragraph of this Section 8 regarding indemnification, the Custodian
shall be entitled to use available cash and to dispose of pledged
securities and property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument
in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than sixty (60) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Trust has approved the initial use of
a particular Securities System as required in each case by Rule 17f-4
under the 1940 Act; provided further, however, that the Trust shall
not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the
Declaration of Trust/Articles of Incorporation, and further provided,
that the Trust may at any time by action of its Board (i) substitute
another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this
Contract in the event of the appointment of a conservator or receiver
for the Custodian by the appropriate banking regulatory agency or upon
the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder for each
Fund and shall transfer to separate accounts of the successor
custodian all of each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of
the Board of the Trust, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance
with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act,
(delete "doing business ... Massachusetts" unless SSBT is the
Custodian) doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$100,000,000, all securities, funds and other properties held by the
Custodian and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract for each Fund
and to transfer to separate accounts of such successor custodian all
of each Fund's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing
to failure of the Trust to procure the certified copy of the vote
referred to or of the Board to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Contract as may in their
joint opinion be consistent with the general tenor of this Contract.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Declaration of Trust/Articles of Incorporation. No interpretive or
additional provisions made as provided in the preceding sentence shall
be deemed to be an amendment of this Contract.
12.Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Trust or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust of
those Trusts which are business trusts and agrees that the obligations
and liabilities assumed by the Trust and any Fund pursuant to this
Contract, including, without limitation, any obligation or liability
to indemnify the Custodian pursuant to Section 8 hereof, shall be
limited in any case to the relevant Fund and its assets and that the
Custodian shall not seek satisfaction of any such obligation from the
shareholders of the relevant Fund, from any other Fund or its
shareholders or from the Trustees, Officers, employees or agents of
the Trust, or any of them. In addition, in connection with the
discharge and satisfaction of any claim made by the Custodian against
the Trust, for whatever reasons, involving more than one Fund, the
Trust shall have the exclusive right to determine the appropriate
allocations of liability for any such claim between or among the
Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed effective as of the 1st day of December,
1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle By /s/John G. Donahue
--------- ----------
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie By /s/ F. J. Sidoti, Jr.
-------------- -------------
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By /s/ James J. Dolan
------ ------------
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Federated Investment Portfolios
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
FOR
FUND ACCOUNTING,
ADMINISTRATIVE SERVICES
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, by and between FEDERATED INVESTMENT
PORTFOLIOS having its 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
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 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;
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 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 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 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
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 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; and
(12) review Investors' Prospectuses and Statements of
Additional Information in order to recommend to the Board
that it approve each Investors registration statement.
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."
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, 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 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 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 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 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 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;
(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
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
(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 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.
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.
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 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.
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.
FEDERATED INVESTMENT PORTFOLIOS
By: /s/ J. Christopher Donahue
J. Christopher Donahue
President
FEDERATED SERVICES COMPANY
By: /s/ Thomas J. Ward
Thomas J. Ward
Senior Vice President
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY SERVICES
Federated Investment Portfolios
Bond Index Portfolio
1,2,3,4
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ASSIGNMENT
THIS ASSIGNMENT is entered into as of March 1, 1996 by and between
FEDERATED SERVICES COMPANY (`FSCo'') a Pennsylvania Corporation, and
FEDERATED INVESTMENT PORTFOLIOS (the `Investment Company'') on behalf of
its portfolios (the `Funds''), and FEDERATED ADMINISTRATIVE SERVICES,
INC., a Pennsylvania Corporation (`FASI'').
WHEREAS, FSCo has entered into an agreement (`Agreement'') with the
Investment Company under which it performs fund accounting, administrative,
and custody procurement services (the `Services'');
WHEREAS, FSCo desires to assign its duties, and responsibilities under
the Agreement, with respect to the Services, to FASI; and
WHEREAS, FASI desires to accept such assignment of Services under the
Agreement from FSCo;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration, receipt of which is hereby acknowledged,
the parties, intending to be legally bound hereby, agree as follows:
1. FSCo does hereby assign all of its responsibilities to provide the
Services to the Funds under the Agreement to FASI, and FASI does hereby
accept such assignment;
2. FASI assumes all rights and responsibilities of FSCo under the
Agreement; and
3. The Investment Company shall make all fees due under the Agreement for
Services rendered payable to FASI.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed by their authorized representatives as of the date first
written above.
FEDERATED SERVICES COMPANY FEDERATED INVESTMENT PORTFOLIOS
By: /s/ James J. Dolan By: /s/ J. Christopher Donahue
James J. Dolan J. Christopher Donahue
President President
FEDERATED ADMINISTRATIVE SERVICES, INC.
By: /s/ Lawrence Caracciolo
Lawrence Caracciolo
Treasurer
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of Federated Investment
Portfolios and the Deputy General Counsel of Federated Services Company,
and each of them, their true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for them and in their names,
place and stead, in any and all capacities, to sign any and all documents
to be filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as each
of them might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue
John F. Donahue Chairman and Trustee
(Chief Executive Officer) June 6, 1996
/s/ J. Christopher Donahue
J. Christopher DonahuePresident June 6, 1996
/s/ John W. McGonigle
John W. McGonigle Vice President and Treasurer June 6, 1996
(Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Trustee June 6, 1996
Thomas G. Bigley
/s/ John T. Conroy, Jr.Trustee June 6, 1996
John T. Conroy, Jr.
/s/ William J. CopelandTrustee June 6, 1996
William J. Copeland
/s/ James E. Dowd Trustee June 6, 1996
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee June 6, 1996
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee June 6, 1996
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee June 6, 1996
Peter E. Madden
/s/ Gregor F. Meyer Trustee June 6, 1996
Gregor F. Meyer
/s/ John E. Murray, Jr.Trustee June 6, 1996
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee June 6, 1996
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee June 6, 1996
Marjorie P. Smuts
Sworn to and subscribed before me this 6th day of June , 1996.
/s/Marie Hamm
Notary Public
