1933 Act File No.
1940 Act File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
FEDERATED INVESTMENT TRUST
(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)
Approximate Date of Proposed Public Offering As soon as possible after
the effectiveness of the Registration Statement
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of 1940,
Registrant hereby elects to register an indefinite number of shares.
Amendment Pursuant to Rule 473
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
Federated Investment Portfolios has also executed this Registration Statement.
CROSS-REFERENCE SHEET
This Initial Registration Statement of Federated Investment Trust, which
consists of one portfolio, Federated Bond Index Fund ((a) Institutional Shares
and (b) Institutional Service Shares)) is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(a,b) Cover Page.
Item 2. Synopsis.................(a) Summary of Fund Expenses - Institutional
Shares; (b) Summary of Fund Expenses -
Institutional Service Shares.
Item 3. Condensed Financial
Information..............(a,b) Performance Information.
Item 4. General Description of
Registrant...............(a,b) General Information; Investment
Information; Investment Objective; Investment
Policies; Investment Limitations; Special
Information Concerning Hub and Spoke; Other
Classes of Shares; Miscellaneous; Addresses.
Item 5. Management of the Fund...Information About the Trust and Federated
Portfolios; Management of the Trust and Federated
Portfolios; Expenses; (a) Distribution of
Institutional Shares; Shareholder Services;
Supplemental Payments to Financial Institutions;
(b) Distribution of Institutional Service Shares;
Distribution Plan and Shareholder Services;
Supplemental Payments to Financial Institutions;
(a, b) Administration of the Trust; Service
Providers of the Portfolio; Effect of Banking
Laws.
Item 6. Capital Stock and Other
Securities...............(a,b) Dividends; Capital Gains; Shareholder
Information; Voting Rights; Massachusetts
Partnership Law; Tax Information.
Item 7. Purchase of Securities Being
Offered..................(a,b) Net Asset Value; Determination of the
Fund's Net Asset Value; (a) Investing in
Institutional Shares; (b) Investing in
Institutional Service Shares; (a,b) Share
Purchases; Minimum Investment Required; What
Shares Cost; Certificates and Confirmations;
Retirement Plans.
Item 8. Redemption or Repurchase.(a) Redeeming Institutional Shares; (b)
Redeeming Institutional Service Shares;
(a,b) Telephone Redemption; Written
Requests; Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(a, b) Cover Page.
Item 11. Table of Contents........(a, b) Table of Contents.
Item 12. General Information and
History..................(a, b) Description of Federated Portfolios;
About Federated Investors.
Item 13. Investment Objectives and
Policies.................(a, b) Investment Objective and Policies.
Item 14. Management of the Trust..(a, b) Management of the Trust and Federated
Portfolios; Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities....(a, b) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(a, b) Investment Advisory and Sub-Advisory
Services; Other Services.
Item 17. Brokerage Allocation.....Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............(a,b) Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................(a, b) Purchasing Shares; Determining Net
Asset Value; Redeeming Shares; Redemption
in Kind.
Item 20. Tax Status...............(a, b) Tax Status.
Item 21. Underwriters.............Not applicable.
Item 22. Calculations of Performance
Data.....................(a, b) Total Return; Yield; Performance
Comparisons.
Item 23. Financial Statements.....To be filed by Amendment.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 4, 1996
FEDERATED BOND INDEX FUND
(A Portfolio of Federated Investment Trust)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Federated Bond Index Fund (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of securities
which is an investment portfolio of Federated Investment Trust (the "Trust"), an
open-end management investment company (a mutual fund). Institutional Shares are
sold at net asset value.
The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index which encompasses U.S. Treasury and agency
securities, corporate investment grade bonds, and mortgage-backed securities.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL
OF ITS INVESTABLE ASSETS ("ASSETS") IN BOND INDEX PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED SERIES OF FEDERATED INVESTMENT PORTFOLIOS (THE "FEDERATED
PORTFOLIOS"), AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE PORTFOLIO HAS THE
SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. THE FUND INVESTS IN THE
PORTFOLIO THROUGH A TWO-TIER MASTER/FEEDER FUND STRUCTURE. SEE "SPECIAL
INFORMATION CONCERNING HUB AND SPOKE."
Federated Management is the Portfolio's investment adviser. Federated Management
has delegated the daily management of the security holdings of the Portfolio to
United States Trust Company of New York ("U.S. Trust Company"), acting as sub-
adviser. U.S. Trust Company and Federated Management may hereinafter be
referred to collectively as the "Investment Managers". For more information on
the Investment Managers of the Fund, please refer to the prospectus section
herein entitled "Management of the Trust and Federated Portfolios."
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK (INCLUDING U.S. TRUST COMPANY), ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated , 1996, with the
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Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Statement of Additional Information or a paper
copy of this prospectus, if you have received your prospectus electronically,
free of charge by calling 1-800-245-4270. To obtain other information or make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated , 1996
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TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SHARES
- ---------------------------------------------------
GENERAL INFORMATION
- ---------------------------------------------------
INVESTMENT INFORMATION
- ---------------------------------------------------
Investment Objective
Investment Policies
Investment Limitations
Special Information Concerning Hub and Spoke
INFORMATION ABOUT THE TRUST AND FEDERATED
PORTFOLIOS
- ---------------------------------------------------
Management of the Trust and Federated Portfolios
Expenses
Distribution of Institutional Shares
Administration of the Trust
Service Providers of the Portfolio
NET ASSET VALUE
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INVESTING IN INSTITUTIONAL SHARES
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Share Purchases
Minimum Investment Required
What Shares Cost
Subaccounting Services
Certificates and Confirmations
Dividends
Capital Gains
Retirement Plans
REDEEMING INSTITUTIONAL SHARES
- ---------------------------------------------------
Telephone Redemption
Written Requests
Accounts With Low Balances
SHAREHOLDER INFORMATION
- ---------------------------------------------------
Voting Rights
EFFECT OF BANKING LAWS
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TAX INFORMATION
- ---------------------------------------------------
PERFORMANCE INFORMATION
- ---------------------------------------------------
OTHER CLASSES OF SHARES
- ---------------------------------------------------
MISCELLANEOUS
- ---------------------------------------------------
ADDRESSES
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES--INSTITUTIONAL SHARES
- -------------------------------------------------------------
The following table provides (i) a summary of estimated expenses related to
purchases and sales of Fund Shares and the aggregate annual operating expenses
of Fund Shares and the Portfolio as a percentage of their projected average
daily net assets, and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in Fund Shares.
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)......................None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable)..............................................None
Redemption Fee (as a percentage of amount redeemed, if
applicable)..............................................None
Exchange Fee..............................................None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)..........................0.00%
12b-1 Fee.................................................None
Total Other Expenses (after expense reimbursement)........0.35%
Shareholder Services Fee (after waiver)(2).........0.00%
Total Institutional Shares Operating Expenses (3).........0.35%
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. While the Fund does not pay any fee
directly to an investment adviser, it bears indirectly, as an investor in the
Portfolio, any fees paid by the Portfolio to its investment adviser. The
Portfolio has entered into an investment advisory agreement with Federated
Management and agrees to pay an annual fee of up to 0.25% of the Portfolio's
average net assets. Federated Management can terminate this voluntary waiver at
any time at its sole discretion.
(2) The maximum shareholder services fee is 0.25%.
(3) The Total Institutional Shares Operating Expenses are estimated to be 3.42%
absent the anticipated voluntary waivers of the management fee and the
shareholder services fee and the anticipated voluntary reimbursement of certain
other operating expenses.
Total Institutional Shares Operating Expenses include the Fund's pro rata share
of the aggregate annual operating expenses of the Portfolio, in which all of the
investable assets of the Fund are invested. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Fund's pro rata share
of the expenses for the Portfolio will be less than or approximately equal to
the expenses which the Fund would incur if it retained the services of an
investment adviser and the Assets of the Fund were invested directly in the type
of securities held by the Portfolio. 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 of the Portfolio for the twelve
month period following January 2, 1996.
*Total Institutional Shares Operating Expenses in the table above are estimated
based on expenses expected to be incurred during the fiscal year ending May 31,
1996. During the course of this period, expenses may be more or less than the
amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND "TRUST
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject
to additional fees.
EXAMPLE
1 YEAR 3 YEARS
- ------------------------------------------------------------------
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual
return and (2) redemption at the end
of each time period $4 $11
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING MAY 31,
1996.
GENERAL INFORMATION
- ------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 3, 1995. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "Trustees") has established two classes of shares of the Fund,
known as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made
available to financial intermediaries, as well as public and private
organizations. An investment in the Fund serves as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. investment grade fixed income securities that attempt to provide investment
results that correspond to the Lehman Brothers 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. A minimum initial investment of $25,000 over
a 90-day period is required, unless the investment is in a retirement program,
in which case the minimum initial investment is $50. Subsequent investments
must be in amounts of at least $100, or $50 for retirement programs.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
The Fund invests through the Portfolio, a series of Federated Portfolios, which
is a business trust organized under the laws of the Commonwealth of
Massachusetts. Federated Portfolios was established as a Massachusetts business
trust under a Declaration of Trust dated as of September 29, 1995.
INVESTMENT INFORMATION
- ------------------------------------------------------------------
Unless otherwise stated, all of the investment objectives, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental," i.e., the approval of the Fund's shareholders is not
required to change its investment objective or any of its investment policies
and strategies. Likewise, the approval of the Fund and other investors in the
Portfolio is not required to change the Portfolio's investment objective or any
of the Portfolio's investment policies and strategies. Any changes in the
Fund's or the Portfolio's investment objective, policies or strategies could
result in the Fund having investment objectives, policies and strategies
different from those applicable at the time of a shareholder's investment in the
Fund.
INVESTMENT OBJECTIVE
The investment objective of the Fund 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 Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio, which is a diversified open-end management investment
company that has the same investment objective, policies and limitations as the
Fund. 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 fixed income securities. The Aggregate Bond Index is a broad
market-weighted index of U.S. investment grade fixed income securities.
While there is no assurance that the Fund (or the Portfolio) will achieve it
investment objective, the Fund (and the Portfolio) endeavor to do so by
following the investment policies described in this prospectus. Shareholder
approval is not required to change the Fund's investment objective. Likewise,
the approval of the investors in the Portfolio is not required to change the
Portfolio's investment objective. Shareholders will be given 30 days' prior
notice before any material change becomes effective. If there is a change in
the Fund's (or the Portfolio's) investment objective, such change could result
in the Fund (or the Portfolio) having an investment objective that is different
than the objective a shareholder considered applicable at the time of
investment. If the Fund's (or the Portfolio's) investment objective is changed,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then-current financial position and needs.
Since the investment policies and limitations of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investment policies and limitations of the Portfolio. Further information about
the investment policies and limitations of the Portfolio, including a list of
those investment limitations that are fundamental (i.e., that cannot be changed
without shareholder approval) appears in the Statement of Additional
Information.
INVESTMENT POLICIES
Unless indicated otherwise, the investment policies discussed below may be
changed without the approval of the Fund's shareholders (or the investors of the
Portfolio). Shareholders will be given 30 days' prior notice before any
material change becomes effective.
Investment Philosophy 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.
Over the long term, the Investment Managers 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 Federated Portfolios 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 fixed income
securities 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 Portfolio is managed without
regard to tax ramifications. As of June 30, 1995, 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 54%
Corporate Bonds 17%
Mortgage-backed securities 28%
Asset-backed securities 1%
Option-adjusted duration 4.6 years
The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S.
Government agencies and quasi-federal corporations; corporate debt guaranteed by
the U.S. Government; fixed rate nonconvertible dollar-denominated corporate
debt; 15- and 30-year fixed rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FMNA); and
asset-backed pass-through securities representing pools of credit card
receivables and auto or home equity loans.
U.S. Government and Agency Securities. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance: Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, such as Government
National Mortgage Association pass-through certificates, are supported by the
full faith and credit of the U.S. Treasury; other securities, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury. Securities issued by the Federal National Mortgage
Association are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; other securities,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Portfolio and the Fund and their respective net
asset values and yields are not guaranteed by the U.S. Government or any federal
agency or instrumentality.
The Portfolio may, from time to time, substitute one type of investment grade
bond for another. For instance, the Portfolio may hold more short-term
corporate bonds (and fewer short-term U.S. Treasury bonds) than represented in
the Aggregate Bond Index in an attempt to increase income.
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 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 the Appendix to the Statement of Additional Information for a
more detailed explanation of these ratings.
Corporate bonds are subject to call risk during periods of falling interest
rates. Securities with high stated interest rates may be prepaid (or called)
prior to maturity, requiring the Portfolio to invest the proceeds at generally
lower interest rates. Call provisions, common in many corporate bonds, allow
bond issuers to redeem bonds prior to maturity (at a specific price). When
interest rates are falling, bond issuers often exercise these call provisions,
paying off bonds that carry high stated interest rates and often issuing new
bonds at lower rates. For the Portfolio, the result would be that bonds with
high interest rates are called and must be replaced with lower-yielding
instruments. In these circumstances, the income of the Portfolio would decline.
Mortgage Pass-Throughs and Collateralized Mortgage Obligations. The Portfolio
may purchase mortgage and mortgage-related securities such as pass-throughs and
collateralized mortgage obligations that meet the Portfolio's selection criteria
(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 Fund may be a suitable vehicle for
those investors seeking ownership in the "bond market" as a whole, without
regard to particular sectors. The Fund 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 Fund may be inappropriate for investors who have short-term
objectives or who require stability of principal. Investors should not consider
the Fund 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, the Portfolio may omit or remove
Index securities from its portfolio if the Investment Managers believe the
security to be insufficiently liquid or believe the merit of the investment has
been substantially impaired by extraordinary events or financial conditions.
Over the long term, the Investment Managers seek a correlation of 0.95 or better
between the performance of the Portfolio and that of the Aggregate Bond Index.
See "Investment Philosophy and Strategies" above.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place in the future, beyond the normal settlement date, at a stated price
and yield. Securities purchased on a forward commitment or when-issued basis
are recorded as an asset and are subject to changes in value based upon changes
in the general level of interest rates. When such transactions are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Portfolio will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Portfolio enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained. There is a risk that the securities may not be delivered and that
the Portfolio may incur a loss.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Trustees of Federated Portfolios. 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 and sub-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 Fund's shareholders 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 the Statement of Additional Information.
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 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 the Statement of Additional
Information.
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 Investment Managers and
approved by the Trustees of Federated Portfolios. The Trustees of Federated
Portfolios 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 shareholder
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 the Aggregate Bond 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 deposit,
time 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
in which the Portfolio may invest 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
Federated Portfolios 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
Federated Portfolios. 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 payable on the loaned security and in addition, if the collateral
received is other than cash, receives a fee based on the amount of the loan.
Such loans will be terminable at any time upon specified notice. The Portfolio
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio.
Short Sales "Against the Box." In a short sale, the Portfolio sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales only if at the time
of the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." The Portfolio may make a short sale as
a hedge, when it believes that the value of a security owned by it (or a
security convertible or exchangeable for such security) may decline, or when the
Portfolio wants to sell the security at an attractive current price but wishes
to defer recognition of gain or loss for tax purposes. Not more than 40% of the
Portfolio's total assets would be involved in short sales "against the box."
Certain Other Obligations. Consistent with its investment objectives, policies
and restrictions, the Portfolio may also invest in participation interests,
guaranteed investment contracts and zero coupon obligations. See the Statement
of Additional Information. In order to allow for investments in new instruments
that may be created in the future, upon supplementing this prospectus, the
Portfolio may invest in obligations other than those listed previously, provided
such investments are consistent with the Portfolio's and Fund's investment
objective, policies and restrictions.
INVESTMENT LIMITATIONS
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
policies which may not be changed without investor approval.
The Statement of Additional Information includes a 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 Fund and the Portfolio. Fundamental investment
restrictions may not be changed, in the case of the Fund, without the approval
of the shareholders of the Fund or, in the case of the Portfolio, without the
approval of the investors (including the Fund) 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 of a security held by the Portfolio is not considered
a violation of the policy.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE
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Unlike other mutual funds that directly acquire and manage their own portfolios
of securities, the Fund seeks to achieve its investment objective by investing
all of its Assets in the Portfolio. The Fund invests in the Portfolio through
Signature Financial Group, Inc.'s two-tier structure known as the Hub and Spoke
financial services method. Hub and Spoke employs a two-tier master/feeder fund
structure and is a registered service mark of Signature Financial Group, Inc.
The Fund has the same investment objective and policies as the Portfolio. In
addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to issue their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Investors in the Fund should be aware
that these differences may result in differences in returns experienced by
investors in the different funds that invest in the Portfolio. Such differences
in returns are also present in other mutual fund structures. Information
concerning other holders of interests (e.g., other spokesSM or feeder funds) in
the Portfolio is available from Federated Administrative Services at 1-800-245-
4270.
The investment objective of the Fund may be changed without the approval of the
Fund's shareholders but not without written notice thereof to the Fund's
shareholders thirty days prior to implementing the change. If there were a
change in the Fund's investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then-current
financial position and needs. The investment objective of the Portfolio may be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the Portfolio's investors (and notice by the Fund to
its shareholders) thirty days prior to implementing the change. There can, of
course, be no assurance that the investment objective of the Fund or the
Portfolio will be achieved. See "Investment Restrictions" in the Statement of
Additional Information for a
description of the fundamental investment policies and restrictions of the
Portfolio and the Fund 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 ("1940 Act")) of the Portfolio or Fund. Except as stated
otherwise, the investment objective, policies, strategies and restrictions
described herein and in the Statement of Additional Information are non-
fundamental.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility also exists for traditionally structured funds which
have large or institutional investors). Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control over the
operations of the Portfolio. Whenever the Fund is requested to vote as an
investor in the Portfolio on matters pertaining to the Portfolio (other than a
vote by the Fund to continue the operation of the Portfolio upon the withdrawal
of another investor in the Portfolio), the Fund will hold a meeting of its
shareholders and will cast all of its votes as an investor in the Portfolio in
the same proportion as directed by the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the votes cast by the Fund at the
meeting of the Portfolio investors. The percentage of votes representing the
Fund's shareholders will be voted by the Fund in the same proportion as the
Fund's shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objective, policies or limitations may require the Fund to withdraw
its investment in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution
from the Portfolio). If securities are distributed, the Fund could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
The Fund may withdraw its investment in the Portfolio at any time, if the
Trustees of the Trust determine that it is in the best interests of the Fund to
do so. Upon any such withdrawal, the Trustees of the Trust would consider what
action might be taken, including investing the Fund's Assets in another pooled
investment entity having the same investment objective and policies as the Fund
or retaining an investment adviser to manage the Fund's assets in accordance
with the investment policies described above with respect to the Portfolio.
For descriptions of the investment objective, policies and limitations of the
Portfolio, see "Investment Objective," "Investment Policies," and "Investment
Limitations" herein and in the Statement of Additional Information. For
descriptions of the management of the Portfolio, see "Management of the Trust
and Federated Portfolios" herein and in the Statement of Additional Information.
For descriptions of the expenses of the Portfolio, see "Management of the Trust
and Federated Portfolios" and "Expenses" below.
INFORMATION ABOUT THE TRUST AND FEDERATED PORTFOLIOS
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MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS
BOARD OF TRUSTEES. Each of the Trust and Federated Portfolios is managed by its
Board of Trustees. The respective Trustees are responsible for managing the
business affairs of the Trust and Federated Portfolios and for exercising all
the powers of the Trust and Federated Portfolios except those reserved for the
shareholders and investors, respectively. The Executive Committee of each Board
of Trustees handles the Board's responsibilities between meetings of the Board.
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Federated Portfolios, up to and including creating a separate board of trustees.
See "Management of the Trust and of Federated Portfolios" in the Statement of
Additional Information for more information about the Trustees and officers of
the Trust and of Federated Portfolios.
INVESTMENT ADVISER. The Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio, which has the same investment
objective, policies, and limitations as the Fund. Federated Management (the
"Adviser") is responsible for the management of the assets of the Portfolio,
pursuant to an investment advisory agreement (the "Advisory Agreement") with
Federated Portfolios on behalf of the Portfolio. Federated Management has
delegated the daily management of the security holdings of the Portfolio to U.S.
Trust Company, acting as sub-adviser.
Subject to the general guidance and policies set by the Trustees of Federated
Portfolios, the Adviser provides general supervision over the investment
management functions performed by U.S. Trust Company. The Adviser closely
monitors U.S. Trust Company's application of the Portfolio's investment policies
and strategies, and regularly evaluates U.S. Trust Company's investment results
and trading practices.
The Trust, Federated Portfolios, and the Adviser each has adopted strict codes
of ethics governing the conduct of all employees who manage the Fund, the
Portfolio and their portfolio securities. These codes recognize that such
persons owe a fiduciary duty to the Fund's shareholders and the Portfolio's
investors and must place their interests ahead of the employees' own interest.
Among other things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in securities
being purchased or sold, or being considered for purchase or sale, by the Fund
and Portfolio; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days.
Violations of the codes are subject to review by the Trustees, and could result
in severe penalties.
ADVISORY FEES. For its services under the Advisory Agreement, the Adviser is
entitled to receive from the Portfolio a fee accrued daily and paid monthly at
an annual rate equal to .25 of 1% of the Portfolio's average daily net assets.
The Adviser has agreed to currently waive all investment advisory fees with
respect to the Portfolio. This waiver may be terminated at any time. The
Adviser has also undertaken to reimburse the Portfolio for operating expenses in
excess of limitations established by certain states. This does not include
reimbursement to the Fund of any expenses incurred by its shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized
on April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 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.
Susan M. Nason has been the Portfolio's portfolio manager since its inception.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President of
the Adviser since 1993. Ms. Nason served as an Assistant Vice President of the
Adviser from 1990 until 1992, and from 1987 until 1990 she acted as an
investment analyst. Ms. Nason is a Chartered Financial Analyst and received her
M.B.A. in Finance from Carnegie Mellon University.
SUB-ADVISER. Federated Management has delegated the daily management of the
Portfolio's security holdings to U.S. Trust Company. U.S. Trust Company is
located at 770 Broadway, New York, New York. Subject to the general guidance
and policies set by the Trustees of Federated Portfolios, Federated Management
closely monitors U.S. Trust Company's application of the Portfolio's investment
policies and strategies, and regularly evaluates the U.S. Trust Company's
investment results and trading practices.
Sub-Advisory Fees. Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Adviser and U.S. Trust Company, U.S. Trust Company 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 Federated Portfolios. For the investment management
services it provides to the Portfolio, U.S. Trust Company is compensated only by
the Adviser, and receives no fees directly from the Fund or the Portfolio. For
its services under the Sub-Advisory Agreement, U.S. Trust Company is entitled to
receive from the Adviser a fee accrued daily and paid monthly at an annual rate
equal to .12 of 1% of the Portfolio's average daily net assets. U.S. Trust
Company has agreed to currently waive all sub-advisory fees with respect to the
Portfolio, although this waiver may be terminated at any time. 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.
Sub-Adviser's Background. U.S. Trust Company is a state-chartered bank and
trust company which provides trust and banking services to individuals,
corporations and institutions, both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency services, and personal and corporate banking. U.S.
Trust Company is a member bank of the Federal Reserve System and the Federal
Deposit Insurance Corporation and is one of the twelve members of the New York
Clearing House Association. On June 30, 1995, U.S. Trust Company's Asset
Management Group had approximately $41.2 billion in assets under management.
U.S. Trust Company, which has its principal offices at 114 West 47th Street, New
York, New York 10036, is a subsidiary of U.S. Trust Corporation, a registered
bank holding company. U.S. Trust Company also serves as investment adviser to
Excelsior Funds, Inc. (formerly known as UST Master Funds, Inc.), Excelsior Tax-
Exempt Funds, Inc. (formerly known as UST Master Tax-Exempt Funds, Inc.), and
Excelsior Institutional Trust, all of which are registered investment companies.
U.S. Trust Company also serves as investment adviser to the UST Variable Series,
Inc.
It is the responsibility of U.S. Trust Company in its capacity as sub-adviser to
make the day-to-day investment decisions for the Portfolio and to place the
purchase and sales orders for securities transactions of the Portfolio, subject
to the general supervision of Federated Management. U.S. Trust Company
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio.
Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President, of
U.S. Trust Company, Structured Investment Management Department, have been
portfolio managers of the Portfolio since its inception and are responsible for
the day-to-day management of the Portfolio.
Mr. Theccanat has been managing structured investment portfolios at U.S. Trust
Company since January, 1990. Prior to this, Mr. Theccanat was a Vice President
of Drexel Burnham & Lambert, and was responsible for interest rate and foreign
exchange risk management. Mr. Tavel designs, develops and implements analytic
procedures and services utilizing quantitative and financial information. He
has over 17 years of experience in the execution of decision support systems at
U.S. Trust Company and previously at Lehman Asset Management, where he was
Director of Institutional Computer Services.
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.
EXPENSES
The Fund invests through the Portfolio, which is a series of Federated
Portfolios. Expenses of Federated Portfolios (of which the Portfolio bears its
pro rata share) include the compensation of its Trustees who are not affiliated
with the Investment Managers; governmental fees, interest charges; taxes; fees
and expenses of independent auditors, of legal counsel and of any transfer
agent, administrator, registrar or dividend disbursing agent of Federated
Portfolios; insurance premiums; and expenses of calculating the net asset value
of, and the net income or interests in the Portfolio.
Expenses of Federated Portfolios also include expenses connected with the
execution, recording and settlement of security transactions; fees and expenses
of Federated Portfolio's custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
offices and commissions; expenses of meeting of investors and Trustees; and the
advisory fees, if any, payable to the Adviser under the Advisory Agreement.
Holders of Fund Shares pay their allocable portion of Trust expenses. The Trust
expenses for which holders of Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.
At present, the only expenses allocated to Shares as a class are expenses under
the Fund's Shareholder Services Agreement which relate to Shares.
However, the Trustees reserve the right to allocate certain other expenses to
holders of Shares as it deems appropriate ("Class Expenses"). In any case,
Class Expenses would be limited to: transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of Shares of the Fund to obtain certain personal services
for shareholders and to maintain shareholder accounts ("Shareholder Services").
Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform Shareholder Services directly or will select financial
institutions to perform Shareholder Services. Financial institutions will
receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for their performance
of sales services, distribution-related support services, or Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments to
financial institutions under the Shareholder Services Agreement, the distributor
and Federated Shareholder Services, from their own assets, may also pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services or shareholder services.
The support may include participating in sales, educational and training
seminars for employees of the financial institution at recreational-type
facilities, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such financial assistance
will be predicated upon the amount of Shares the financial institution sells or
may sell and/or upon the type and nature of sales or marketing support furnished
by the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates, and not the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
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.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate, accrued
daily and paid monthly, which relates to the average aggregate daily net assets
of the Fund as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FUND
-------------------- ----------------------------------
0.1000 of 1% on the first $250 million
0.0875 of 1% on the next $250 million
0.0750 of 1% on the next $250 million
0.0700 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $60,000
per fund and $30,000 per each additional class of shares. Federated
Administrative Services may choose voluntarily to waive a portion of its fee.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts is transfer agent for Shares of the Fund and dividend
disbursing agent for the Fund.
SERVICE PROVIDERS OF THE PORTFOLIO
Federated Services Company serves as transfer agent, dividend disbursing agent
and custody procurement agent for Federated Portfolios. Federated Services
Company also maintains Federated Portfolio's accounting records.
Federated Securities Corp. is the placement agent for investments in the
Portfolio but receives no fee for such services.
Federated Administrative Services provides administrative personnel and services
(including certain legal and financial reporting services) necessary to operate
the Portfolio. Federated Administrative Services is entitled to receive a fee
from the Portfolio accrued daily and paid monthly at an annual rate of up to
0.05% of the average daily net assets of the Portfolio, subject to a minimum of
$60,000 for the Portfolio (unless waived). From time to time, Federated
Administrative Services may waive all or a portion of the administrative fee.
Federated Investors and its subsidiaries have agreed to waive fees and reimburse
expenses in order 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.
NET ASSET VALUE
- ------------------------------------------------------------------
The Fund's net asset value per share fluctuates. The net asset value per share
for Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Shares in the liabilities of the Fund and those attributable to Shares,
and dividing the remainder by the total number of Shares outstanding. Since the
Fund will invest all of its Assets in the Portfolio, the value of the Fund's
Assets will be equal to the value of its beneficial interest in the Portfolio.
INVESTING IN INSTITUTIONAL SHARES
- ------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Bond Index Fund--Institutional Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Wire Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Bond Index Fund --Institutional Shares to Federated
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by
mail are considered received after payment by check is converted by the transfer
agent's bank, State Street Bank, into federal funds. This is generally the next
business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. Subsequent investments must be in amounts of at least $100. The minimum
initial investment in Shares is $50 if the investment is in a retirement
program, for which subsequent investments must be in amounts of at least $50.
An institutional investor's minimum investment will be calculated by combining
all accounts it maintains with the Trust. Accounts established through a non-
affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value per Share next determined after an
order is received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a non-affiliated bank or broker may be charged an
additional service fee by that bank or broker.
The net asset value of the Fund is determined 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, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Any day on which the Fund may determine its net asset value, as
described above, may be referred to herein as a "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 Federated Portfolios. 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 Business Days. In such cases,
the net asset value per share of Fund Shares may be significantly affected on
days when shareholders neither purchase nor redeem their shares of beneficial
interest in the Fund. The Portfolio may use one or more independent pricing
services in connection with the pricing of its portfolio securities.
SUBACCOUNTING SERVICES
Institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company, Boston,
Massachusetts, maintains a share account for each shareholder. Certificates for
Shares of the Fund are not issued unless requested by contacting the Fund or
Federated Services Company in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends equal to all or substantially all of the Fund's net investment income
allocable to Shares are declared daily and paid monthly. The Fund's net income
for dividend purposes consists of (i) all accrued income, whether taxable or
tax-exempt, plus discount earned on the Fund's assets, less (ii) amortization of
premium on such assets, accrued expenses directly attributable to the Fund and
the general expenses of the Trust (e.g., legal, administrative, accounting, and
Trustees' fees). Dividends and distributions will reduce the net asset value of
the Fund by the amount of the dividend or distribution. Dividends are declared
just prior to determining net asset value. If an order for Shares is placed on
the preceding Business Day, Shares purchased by wire begin earning dividends on
the Business Day wire payment is received by State Street Bank. If the order
for Shares and payment by wire are received on the same day, Shares begin
earning dividends on the next Business Day. Shares purchased by check begin
earning dividends on the Business Day after the check is converted by the
transfer agent into federal funds. Dividends are automatically reinvested on
payment dates in additional Shares unless cash payments are requested by
contacting the Fund.
CAPITAL GAINS
Long-term capital gains realized by the Fund, if any, will be distributed once a
year, usually in December, if the Fund's profits during that year from the sale
of securities held for longer than the applicable period exceed losses during
such year from the sale of securities together with any net capital losses
carried forward from prior years (to the extent not used to offset short-term
capital gains). Net short-term capital gains realized during the Fund's fiscal
year will also be distributed during such year.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact Federated Securities Corp. and
consult a tax adviser.
REDEEMING INSTITUTIONAL SHARES
- ------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All
proceeds will normally be wire transferred the following business day, but in no
event more than seven days, to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. Proceeds from
redemption requests received on holidays when wire transfers are restricted will
be wired the following Business Day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement. If at any time the Fund shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written requests, should be considered. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may also be redeemed in any amount by mailing a written request to:
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. If
Share certificates have been issued, they should be sent unendorsed with the
written request by registered or certified mail to the address noted above.
The written request should state: the Fund name and class of shares name; the
account number; and the number of shares to be redeemed or the dollar amount
requested. All owners of the account must sign the request exactly as the
Shares are registered. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after the receipt of a
proper written redemption request. Dividends are paid up to and including the
day that a redemption request in processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must
have their signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization which is
administered by the Federal Deposit Insurance Corporation; a member firm of a
domestic stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Fund does not accept
signatures guaranteed by a notary public.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each series in the Trust have equal voting rights except that in matters
affecting only a particular series or class, only shares of that series or class
are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation (e.g., to approve a
change in the Fund's fundamental investment policies or limitations) and for the
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote. Shareholders of all series of
the Trust will vote together to elect Trustees of the Trust and for certain
other matters. Under certain circumstances, the shareholders of one or more
series of the Trust could control the outcome of these votes.
The Fund invests in the Portfolio, a series of Federated Portfolios, which is a
business trust organized under the laws of the Commonwealth of Massachusetts.
The interests in Federated Portfolios are divided into separate series or
portfolios. Investors in each series of Federated Portfolios will vote
separately or together in the same manner as shareholders of the Trust's series.
Federated Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Portfolio and the other series of Federated Portfolios
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the series in which they invest (and of no other series) and of the overall
obligations of Federated Portfolios. However, the Trustees of the Trust believe
that the risk of the Fund incurring financial loss on account of such liability
is limited to circumstances in which neither the Portfolio nor Federated
Portfolios are able to meet their obligations, and that neither the Fund nor its
shareholders will be exposed to a material risk of liability by reason of the
Fund's investment in the Portfolio.
For more information regarding the Trustees of the Trust and of Federated
Portfolios, see "Management of Trust and Federated Portfolios" in the Statement
of Additional Information.
EFFECT OF BANKING LAWS
- ------------------------------------------------------------------
The Glass-Steagall Act and applicable banking laws and regulations generally
prohibit certain financial institutions such as U.S. Trust Company from engaging
in the business of underwriting securities of open-end investment companies such
as the Trust. Based on advice of its counsel, it is the position of U.S. Trust
Company that the investment sub-advisory services it performs under the Sub-
Advisory Agreement with the Adviser on behalf of the Portfolio do not constitute
underwriting activities and are consistent with the requirements of the Glass-
Steagall Act. State laws on this issue may differ from the interpretations of
relevant federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. Future changes in either
federal statutes or regulations relating to the permissible activities of banks,
as well as future judicial or administrative decisions and interpretations of
present and future statutes and regulations, could prevent a bank from
continuing to perform all or part of its investment management activities. If a
bank were prohibited from so acting, alternative means for continuing the
management of the Portfolio and the Fund would be sought. In such event,
changes in the operation of the Portfolio and the Fund might occur. The
Trustees of Federated Portfolios and of the Trust do not expect that investors
in the Portfolio or shareholders of the Fund would suffer any adverse financial
consequences as a result of these occurrences.
TAX INFORMATION
- ------------------------------------------------------------------
Each year the Trust intents to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Provided the Fund meets all income,
distribution and diversification requirements of the Code, and distributes
substantially all of its net investment income and realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes will be required to be paid from the Fund. If
the Fund fails to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income.
Whether or not the Fund qualifies as a RIC, the Fund's distributions would
generally be taxable as ordinary dividend income to shareholders. With respect
to the Fund, the Portfolio in which it invests is also not expected to be
required to pay any federal income or excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes and any
state or local taxes on the dividends and net capital gain distributions, if
any, they receive from the Fund. Dividends from ordinary income and any
distributions from net short-term capital gains are taxable to Fund shareholders
as ordinary income for federal income tax purposes. Distributions of net
capital gains are taxable to Fund shareholders as long-term capital gains
without regard to the length of time the Fund shareholders have held their
Shares. Dividends and distributions, if any, paid to shareholders will be
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional Shares of the Fund.
Dividends declared in October, November or December of any year payable to Fund
shareholders of record on a specified date in such months will be deemed to have
been received by Fund shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
At the end of each calendar year, each Fund shareholder receives information for
tax purposes on the dividends and other distributions received during that
calendar year, including the portion thereof taxable as ordinary income, the
portion taxable as long-term capital gains, the portion (if any) which
constitutes a return of capital (which is generally free of tax but results in a
basis reduction), and the amount of dividends (if any) which may qualify for the
dividends-received deduction for corporations.
In general, any gain or loss realized upon a taxable disposition of Shares of a
Fund by a shareholder that holds such Shares as a capital asset will be treated
as long-term capital gain or loss if the Shares have been held for more than 12
months and otherwise as a short-term capital gain or loss. However, any loss
realized upon a redemption of Shares in the Fund held for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gain made with respect to those Shares. Any loss realized upon a
disposition of Shares may also be disallowed under rules relating to wash sales.
The Fund may be required to withhold federal income tax at the rate of 31% from
all taxable distributions and redemption proceeds payable to shareholders who do
not provide the Fund with their correct taxpayer identification number or make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Such withholding is not an
additional tax. Any amounts withheld may be credited against the Fund
shareholder's federal income tax liability.
Under current law, neither the Trust, as a business trust, nor any of the Funds
are liable for any income or franchise tax in the Commonwealth of Massachusetts
as long as the Fund continues to qualify as a "regulated investment company"
under the Code.
The foregoing discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state and local laws.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------
From time to time, the Fund advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Fund after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The Fund is sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
retail and private banking customers of financial institutions and are subject
to a minimum initial investment of $5,000.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Fund. This, plus other expense differences between
Institutional Shares and Institutional Service Shares, may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-245-4270.
MISCELLANEOUS
The Fund's Statement of Additional Information bears the same date as this
prospectus and contains more detailed information about the Fund and the
Portfolio, including information related to
(i) investment policies and restrictions of the Fund and the Portfolio, (ii)
Trustees and officers of the Trust and of Federated Portfolios, (iii) portfolio
transactions and any brokerage commissions, (iv) rights and liabilities of
shareholders of the Trust and investors in Federated Portfolios, (v) additional
performance information, including a description of the Fund's calculation of
yield and total return, and (vi) determination of the net asset value of Shares
of the Fund.
ADDRESSES
- ------------------------------------------------------------------
Federated Bond Index Fund
Institutional Shares Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Distributor and Placement Agent
Federated Securities Corp. Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Investment Adviser for Bond Index
Portfolio
Federated Management Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Sub-Adviser for Bond Index Portfolio
United States Trust Company
of New York Mutual Funds Service Division
770 Broadway
New York, New York 10003-9598
- ------------------------------------------------------------------
Custodian for Federated Bond
Index Fund
State Street Bank
and Trust Company P.O. Box 8600
Boston, Massachusetts
02266-8600
- ------------------------------------------------------------------
Custodian for Bond Index Portfolio
Investors Bank and Trust Company 79 Milk Street
7th Floor
Boston, Massachusetts 02205
- ------------------------------------------------------------------
Administrator
Federated Administrative Services Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Transfer Agent and
Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-
8600
- ------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh,
Pennsylvania 15219
- ------------------------------------------------------------------
FEDERATED BOND INDEX FUND
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management
Investment Company
Prospectus dated , 1996
---------
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-IS [RECYCLED PAPER LOGO]
- -------------
- ------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 4, 1996
FEDERATED BOND INDEX FUND
(A Portfolio of Federated Investment Trust)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Bond Index Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is an investment portfolio of Federated Investment Trust (the
"Trust"), an open-end management investment company (a mutual fund).
Institutional Service Shares are sold at net asset value.
The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index which encompasses U.S. Treasury and agency
securities, corporate investment grade bonds, and mortgage-backed securities.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL
OF ITS INVESTABLE ASSETS ("ASSETS") IN BOND INDEX PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED SERIES OF FEDERATED INVESTMENT PORTFOLIOS (THE "FEDERATED
PORTFOLIOS"), AN OPEN-END MANAGEMENT INVESTMENT COMPANY. THE PORTFOLIO HAS THE
SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. THE FUND INVESTS IN THE
PORTFOLIO THROUGH A TWO-TIER MASTER/FEEDER FUND STRUCTURE. SEE "SPECIAL
INFORMATION CONCERNING HUB AND SPOKE."
Federated Management is the Portfolio's investment adviser. Federated Management
has delegated the daily management of the security holdings of the Portfolio to
United States Trust Company of New York ("U.S. Trust Company"), acting as sub-
adviser. U.S. Trust Company and Federated Management may hereinafter be
referred to collectively as the "Investment Managers". For more information on
the Investment Managers of the Fund, please refer to the prospectus section
herein entitled "Management of the Trust and Federated Portfolios."
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK (INCLUDING U.S. TRUST COMPANY), ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Statement of Additional Information for Institutional
Service Shares and Institutional Shares dated , 1996, with the
--------
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus.
You may request a copy of the Statement of Additional Information or a paper
copy of this prospectus, if you have received your prospectus electronically,
free of charge by calling 1-800-245-4270. To obtain other information or make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated , 1996
-----------
TABLE OF CONTENTS
- ------------------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INSTITUTIONAL SERVICE SHARES
- ---------------------------------------------------
GENERAL INFORMATION
- ---------------------------------------------------
INVESTMENT INFORMATION
- ---------------------------------------------------
Investment Objective
Investment Policies
Investment Limitations
Special Information Concerning Hub and Spoke
INFORMATION ABOUT THE TRUST AND FEDERATED
PORTFOLIOS
- ---------------------------------------------------
Management of the Trust and Federated
Portfolios
Expenses
Distribution of Institutional Service Shares
Administration of the Trust
Service Providers of the Portfolio
NET ASSET VALUE
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES
- ---------------------------------------------------
Share Purchases
Minimum Investment Required
What Shares Cost
Subaccounting Services
Certificates and Confirmations
Dividends
Capital Gains
Retirement Plans
REDEEMING INSTITUTIONAL SERVICE SHARES
- ---------------------------------------------------
Telephone Redemption
Written Requests
Accounts With Low Balances
SHAREHOLDER INFORMATION
- ---------------------------------------------------
Voting Rights
EFFECT OF BANKING LAWS
- ---------------------------------------------------
TAX INFORMATION
- ---------------------------------------------------
PERFORMANCE INFORMATION
- ---------------------------------------------------
OTHER CLASSES OF SHARES
- ---------------------------------------------------
MISCELLANEOUS
- ---------------------------------------------------
ADDRESSES
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES--INSTITUTIONAL SERVICE SHARES
- -------------------------------------------------------------
The following table provides (i) a summary of estimated expenses related to
purchases and sales of Fund Shares and the aggregate annual operating expenses
of Fund Shares and the Portfolio as a percentage of their projected average
daily net assets, and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in Fund Shares.
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)......................None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable)..............................................None
Redemption Fee (as a percentage of amount redeemed, if
applicable)..............................................None
Exchange Fee..............................................None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)..........................0.00%
12b-1 Fee (after waiver)(2) ..............................0.00%
Total Other Expenses (after expense reimbursement)........0.65%
Shareholder Services Fee...........................0.25%
Total Institutional Service Shares Operating Expenses (3).0.65%
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. While the Fund does not pay any fee
directly to an investment adviser, it bears indirectly, as an investor in the
Portfolio, any fees paid by the Portfolio to its investment adviser. The
Portfolio has entered into an investment advisory agreement with Federated
Management and agrees to pay an annual fee of up to 0.25% of the Portfolio's
average net assets. Federated Management can terminate this voluntary waiver at
any time at its sole discretion.
(2) The maximum 12b-1 fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 3.67% absent the anticipated voluntary waivers of the management fee and the
12b-1 fee and the anticipated voluntary reimbursement of certain other operating
expenses.
Total Institutional Service Shares Operating Expenses include the Fund's pro
rata share of the aggregate annual operating expenses of the Portfolio, in which
all of the investable assets of the Fund are invested. The Trustees of the
Trust believe that the aggregate per share expenses of the Fund and the Fund's
pro rata share of the expenses for the Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if it retained
the services of an investment adviser and the Assets of the Fund were invested
directly in the type of securities held by the Portfolio. 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
of the Portfolio for the twelve month period following January 2, 1996.
*Total Institutional Service Shares Operating Expenses in the table above are
estimated based on expenses expected to be incurred during the fiscal year
ending May 31, 1996. During the course of this period, expenses may be more or
less than the amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE
SHARES" AND "TRUST INFORMATION." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
EXAMPLE
1 YEAR 3 YEARS
- ------------------------------------------------------------------
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual
return and (2) redemption at the end
of each time period.............................$6 $19
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING MAY 31,
1996.
GENERAL INFORMATION
- ------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 3, 1995. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "Trustees") has established two classes of shares of the Fund,
known as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Service Shares.
Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. investment grade fixed income securities that attempt to provide investment
results that correspond to the Lehman Brothers 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. A minimum initial investment of $5,000 is
required, unless the investment is in a retirement program, in which case the
minimum initial investment is $50. Subsequent investments must be in amounts of
at least $50.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
The Fund invests through the Portfolio, a series of Federated Portfolios, which
is a business trust organized under the laws of the Commonwealth of
Massachusetts. Federated Portfolios was established as a Massachusetts business
trust under a Declaration of Trust dated as of September 29, 1995.
INVESTMENT INFORMATION
- ------------------------------------------------------------------
Unless otherwise stated, all of the investment objectives, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental," i.e., the approval of the Fund's shareholders is not
required to change its investment objective or any of its investment policies
and strategies. Likewise, the approval of the Fund and other investors in the
Portfolio is not required to change the Portfolio's investment objective or any
of the Portfolio's investment policies and strategies. Any changes in the
Fund's or the Portfolio's investment objective, policies or strategies could
result in the Fund having investment objectives, policies and strategies
different from those applicable at the time of a shareholder's investment in the
Fund.
INVESTMENT OBJECTIVE
The investment objective of the Fund 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 Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio, which is a diversified open-end management investment
company that has the same investment objective, policies and limitations as the
Fund. 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 fixed income securities. The Aggregate Bond Index is a broad
market-weighted index of U.S. investment grade fixed income securities.
While there is no assurance that the Fund (or the Portfolio) will achieve it
investment objective, the Fund (and the Portfolio) endeavor to do so by
following the investment policies described in this prospectus. Shareholder
approval is not required to change the Fund's investment objective. Likewise,
the approval of the investors in the Portfolio is not required to change the
Portfolio's investment objective. Shareholders will be given 30 days' prior
notice before any material change becomes effective. If there is a change in
the Fund's (or the Portfolio's) investment objective, such change could result
in the Fund (or the Portfolio) having an investment objective that is different
than the objective a shareholder considered applicable at the time of
investment. If the Fund's (or the Portfolio's) investment objective is changed,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then-current financial position and needs.
Since the investment policies and limitations of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investment policies and limitations of the Portfolio. Further information about
the investment policies and limitations of the Portfolio, including a list of
those investment limitations that are fundamental (i.e., that cannot be changed
without shareholder approval) appears in the Statement of Additional
Information.
INVESTMENT POLICIES
Unless indicated otherwise, the investment policies discussed below may be
changed without the approval of the Fund's shareholders (or the investors of the
Portfolio). Shareholders will be given 30 days' prior notice before any
material change becomes effective.
Investment Philosophy 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.
Over the long term, the Investment Managers 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 Federated Portfolios 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 fixed income
securities 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 Portfolio is managed without
regard to tax ramifications. As of June 30, 1995, 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 54%
Corporate Bonds 17%
Mortgage-backed securities 28%
Asset-backed securities 1%
Option-adjusted duration 4.6 years
The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S.
Government agencies and quasi-federal corporations; corporate debt guaranteed by
the U.S. Government; fixed rate nonconvertible dollar-denominated corporate
debt; 15- and 30-year fixed rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FMNA); and
asset-backed pass-through securities representing pools of credit card
receivables and auto or home equity loans.
U.S. Government and Agency Securities. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance: Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, such as Government
National Mortgage Association pass-through certificates, are supported by the
full faith and credit of the U.S. Treasury; other securities, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury. Securities issued by the Federal National Mortgage
Association are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; other securities,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Portfolio and the Fund and their respective net
asset values and yields are not guaranteed by the U.S. Government or any federal
agency or instrumentality.
The Portfolio may, from time to time, substitute one type of investment grade
bond for another. For instance, the Portfolio may hold more short-term
corporate bonds (and fewer short-term U.S. Treasury bonds) than represented in
the Aggregate Bond Index in an attempt to increase income.
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 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 the Appendix to the Statement of Additional Information for a
more detailed explanation of these ratings.
Corporate bonds are subject to call risk during periods of falling interest
rates. Securities with high stated interest rates may be prepaid (or called)
prior to maturity, requiring the Portfolio to invest the proceeds at generally
lower interest rates. Call provisions, common in many corporate bonds, allow
bond issuers to redeem bonds prior to maturity (at a specific price). When
interest rates are falling, bond issuers often exercise these call provisions,
paying off bonds that carry high stated interest rates and often issuing new
bonds at lower rates. For the Portfolio, the result would be that bonds with
high interest rates are called and must be replaced with lower-yielding
instruments. In these circumstances, the income of the Portfolio would decline.
Mortgage Pass-Throughs and Collateralized Mortgage Obligations. The Portfolio
may purchase mortgage and mortgage-related securities such as pass-throughs and
collateralized mortgage obligations that meet the Portfolio's selection criteria
(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 Fund may be a suitable vehicle for
those investors seeking ownership in the "bond market" as a whole, without
regard to particular sectors. The Fund 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 Fund may be inappropriate for investors who have short-term
objectives or who require stability of principal. Investors should not consider
the Fund 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, the Portfolio may omit or remove
Index securities from its portfolio if the Investment Managers believe the
security to be insufficiently liquid or believe the merit of the investment has
been substantially impaired by extraordinary events or financial conditions.
Over the long term, the Investment Managers seek a correlation of 0.95 or better
between the performance of the Portfolio and that of the Aggregate Bond Index.
See "Investment Philosophy and Strategies" above.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. These transactions involve a commitment by the
Portfolio to purchase or sell particular securities with payment and delivery
taking place in the future, beyond the normal settlement date, at a stated price
and yield. Securities purchased on a forward commitment or when-issued basis
are recorded as an asset and are subject to changes in value based upon changes
in the general level of interest rates. When such transactions are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Portfolio will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Portfolio enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained. There is a risk that the securities may not be delivered and that
the Portfolio may incur a loss.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Trustees of Federated Portfolios. 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 and sub-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 Fund's shareholders 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 the Statement of Additional Information.
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 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 the Statement of Additional
Information.
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 Investment Managers and
approved by the Trustees of Federated Portfolios. The Trustees of Federated
Portfolios 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 shareholder
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 the Aggregate Bond 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 deposit,
time 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
in which the Portfolio may invest 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
Federated Portfolios 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
Federated Portfolios. 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 payable on the loaned security and in addition, if the collateral
received is other than cash, receives a fee based on the amount of the loan.
Such loans will be terminable at any time upon specified notice. The Portfolio
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio.
Short Sales "Against the Box." In a short sale, the Portfolio sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales only if at the time
of the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." The Portfolio may make a short sale as
a hedge, when it believes that the value of a security owned by it (or a
security convertible or exchangeable for such security) may decline, or when the
Portfolio wants to sell the security at an attractive current price but wishes
to defer recognition of gain or loss for tax purposes. Not more than 40% of the
Portfolio's total assets would be involved in short sales "against the box."
Certain Other Obligations. Consistent with its investment objectives, policies
and restrictions, the Portfolio may also invest in participation interests,
guaranteed investment contracts and zero coupon obligations. See the Statement
of Additional Information. In order to allow for investments in new instruments
that may be created in the future, upon supplementing this prospectus, the
Portfolio may invest in obligations other than those listed previously, provided
such investments are consistent with the Portfolio's and Fund's investment
objective, policies and restrictions.
INVESTMENT LIMITATIONS
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
policies which may not be changed without investor approval.
The Statement of Additional Information includes a 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 Fund and the Portfolio. Fundamental investment
restrictions may not be changed, in the case of the Fund, without the approval
of the shareholders of the Fund or, in the case of the Portfolio, without the
approval of the investors (including the Fund) 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 of a security held by the Portfolio is not considered
a violation of the policy.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE
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Unlike other mutual funds that directly acquire and manage their own portfolios
of securities, the Fund seeks to achieve its investment objective by investing
all of its Assets in the Portfolio. The Fund invests in the Portfolio through
Signature Financial Group, Inc.'s two-tier structure known as the Hub and Spoke
financial services method. Hub and Spoke employs a two-tier master/feeder fund
structure and is a registered service mark of Signature Financial Group, Inc.
The Fund has the same investment objective and policies as the Portfolio. In
addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to issue their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Investors in the Fund should be aware
that these differences may result in differences in returns experienced by
investors in the different funds that invest in the Portfolio. Such differences
in returns are also present in other mutual fund structures. Information
concerning other holders of interests (e.g., other spokesSM or feeder funds) in
the Portfolio is available from Federated Administrative Services at 1-800-245-
4270.
The investment objective of the Fund may be changed without the approval of the
Fund's shareholders but not without written notice thereof to the Fund's
shareholders thirty days prior to implementing the change. If there were a
change in the Fund's investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then-current
financial position and needs. The investment objective of the Portfolio may be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the Portfolio's investors (and notice by the Fund to
its shareholders) thirty days prior to implementing the change. There can, of
course, be no assurance that the investment objective of the Fund or the
Portfolio will be achieved. See "Investment Restrictions" in the Statement of
Additional Information for a
description of the fundamental investment policies and restrictions of the
Portfolio and the Fund 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 ("1940 Act")) of the Portfolio or Fund. Except as stated
otherwise, the investment objective, policies, strategies and restrictions
described herein and in the Statement of Additional Information are non-
fundamental.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility also exists for traditionally structured funds which
have large or institutional investors). Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control over the
operations of the Portfolio. Whenever the Fund is requested to vote as an
investor in the Portfolio on matters pertaining to the Portfolio (other than a
vote by the Fund to continue the operation of the Portfolio upon the withdrawal
of another investor in the Portfolio), the Fund will hold a meeting of its
shareholders and will cast all of its votes as an investor in the Portfolio in
the same proportion as directed by the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the votes cast by the Fund at the
meeting of the Portfolio investors. The percentage of votes representing the
Fund's shareholders will be voted by the Fund in the same proportion as the
Fund's shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objective, policies or limitations may require the Fund to withdraw
its investment in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution
from the Portfolio). If securities are distributed, the Fund could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
The Fund may withdraw its investment in the Portfolio at any time, if the
Trustees of the Trust determine that it is in the best interests of the Fund to
do so. Upon any such withdrawal, the Trustees of the Trust would consider what
action might be taken, including investing the Fund's Assets in another pooled
investment entity having the same investment objective and policies as the Fund
or retaining an investment adviser to manage the Fund's assets in accordance
with the investment policies described above with respect to the Portfolio.
For descriptions of the investment objective, policies and limitations of the
Portfolio, see "Investment Objective," "Investment Policies," and "Investment
Limitations" herein and in the Statement of Additional Information. For
descriptions of the management of the Portfolio, see "Management of the Trust
and Federated Portfolios" herein and in the Statement of Additional Information.
For descriptions of the expenses of the Portfolio, see "Management of the Trust
and Federated Portfolios" and "Expenses" below.
INFORMATION ABOUT THE TRUST AND FEDERATED PORTFOLIOS
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MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS
BOARD OF TRUSTEES. Each of the Trust and Federated Portfolios is managed by its
Board of Trustees. The respective Trustees are responsible for managing the
business affairs of the Trust and Federated Portfolios and for exercising all
the powers of the Trust and Federated Portfolios except those reserved for the
shareholders and investors, respectively. The Executive Committee of each Board
of Trustees handles the Board's responsibilities between meetings of the Board.
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Federated Portfolios, up to and including creating a separate board of trustees.
See "Management of the Trust and of Federated Portfolios" in the Statement of
Additional Information for more information about the Trustees and officers of
the Trust and of Federated Portfolios.
INVESTMENT ADVISER. The Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio, which has the same investment
objective, policies, and limitations as the Fund. Federated Management (the
"Adviser") is responsible for the management of the assets of the Portfolio,
pursuant to an investment advisory agreement (the "Advisory Agreement") with
Federated Portfolios on behalf of the Portfolio. Federated Management has
delegated the daily management of the security holdings of the Portfolio to U.S.
Trust Company, acting as sub-adviser.
Subject to the general guidance and policies set by the Trustees of Federated
Portfolios, the Adviser provides general supervision over the investment
management functions performed by U.S. Trust Company. The Adviser closely
monitors U.S. Trust Company's application of the Portfolio's investment policies
and strategies, and regularly evaluates U.S. Trust Company's investment results
and trading practices.
The Trust, Federated Portfolios, and the Adviser each has adopted strict codes
of ethics governing the conduct of all employees who manage the Fund, the
Portfolio and their portfolio securities. These codes recognize that such
persons owe a fiduciary duty to the Fund's shareholders and the Portfolio's
investors and must place their interests ahead of the employees' own interest.
Among other things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in securities
being purchased or sold, or being considered for purchase or sale, by the Fund
and Portfolio; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days.
Violations of the codes are subject to review by the Trustees, and could result
in severe penalties.
ADVISORY FEES. For its services under the Advisory Agreement, the Adviser is
entitled to receive from the Portfolio a fee accrued daily and paid monthly at
an annual rate equal to .25 of 1% of the Portfolio's average daily net assets.
The Adviser has agreed to currently waive all investment advisory fees with
respect to the Portfolio. This waiver may be terminated at any time. The
Adviser has also undertaken to reimburse the Portfolio for operating expenses in
excess of limitations established by certain states. This does not include
reimbursement to the Fund of any expenses incurred by its shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized
on April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 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.
Susan M. Nason has been the Portfolio's portfolio manager since its inception.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President of
the Adviser since 1993. Ms. Nason served as an Assistant Vice President of the
Adviser from 1990 until 1992, and from 1987 until 1990 she acted as an
investment analyst. Ms. Nason is a Chartered Financial Analyst and received her
M.B.A. in Finance from Carnegie Mellon University.
SUB-ADVISER. Federated Management has delegated the daily management of the
Portfolio's security holdings to U.S. Trust Company. U.S. Trust Company is
located at 770 Broadway, New York, New York. Subject to the general guidance
and policies set by the Trustees of Federated Portfolios, Federated Management
closely monitors U.S. Trust Company's application of the Portfolio's investment
policies and strategies, and regularly evaluates the U.S. Trust Company's
investment results and trading practices.
Sub-Advisory Fees. Pursuant to a Sub-Advisory Agreement (the "Sub-Advisory
Agreement") between the Adviser and U.S. Trust Company, U.S. Trust Company 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 Federated Portfolios. For the investment management
services it provides to the Portfolio, U.S. Trust Company is compensated only by
the Adviser, and receives no fees directly from the Fund or the Portfolio. For
its services under the Sub-Advisory Agreement, U.S. Trust Company is entitled to
receive from the Adviser a fee accrued daily and paid monthly at an annual rate
equal to .12 of 1% of the Portfolio's average daily net assets. U.S. Trust
Company has agreed to currently waive all sub-advisory fees with respect to the
Portfolio, although this waiver may be terminated at any time. 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.
Sub-Adviser's Background. U.S. Trust Company is a state-chartered bank and
trust company which provides trust and banking services to individuals,
corporations and institutions, both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency services, and personal and corporate banking. U.S.
Trust Company is a member bank of the Federal Reserve System and the Federal
Deposit Insurance Corporation and is one of the twelve members of the New York
Clearing House Association. On June 30, 1995, U.S. Trust Company's Asset
Management Group had approximately $41.2 billion in assets under management.
U.S. Trust Company, which has its principal offices at 114 West 47th Street, New
York, New York 10036, is a subsidiary of U.S. Trust Corporation, a registered
bank holding company. U.S. Trust Company also serves as investment adviser to
Excelsior Funds, Inc. (formerly known as UST Master Funds, Inc.), Excelsior Tax-
Exempt Funds, Inc. (formerly known as UST Master Tax-Exempt Funds, Inc.), and
Excelsior Institutional Trust, all of which are registered investment companies.
U.S. Trust Company also serves as investment adviser to the UST Variable Series,
Inc.
It is the responsibility of U.S. Trust Company in its capacity as sub-adviser to
make the day-to-day investment decisions for the Portfolio and to place the
purchase and sales orders for securities transactions of the Portfolio, subject
to the general supervision of Federated Management. U.S. Trust Company
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio.
Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President, of
U.S. Trust Company, Structured Investment Management Department, have been
portfolio managers of the Portfolio since its inception and are responsible for
the day-to-day management of the Portfolio.
Mr. Theccanat has been managing structured investment portfolios at U.S. Trust
Company since January, 1990. Prior to this, Mr. Theccanat was a Vice President
of Drexel Burnham & Lambert, and was responsible for interest rate and foreign
exchange risk management. Mr. Tavel designs, develops and implements analytic
procedures and services utilizing quantitative and financial information. He
has over 17 years of experience in the execution of decision support systems at
U.S. Trust Company and previously at Lehman Asset Management, where he was
Director of Institutional Computer Services.
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.
EXPENSES
The Fund invests through the Portfolio, which is a series of Federated
Portfolios. Expenses of Federated Portfolios (of which the Portfolio bears its
pro rata share) include the compensation of its Trustees who are not affiliated
with the Investment Managers; governmental fees, interest charges; taxes; fees
and expenses of independent auditors, of legal counsel and of any transfer
agent, administrator, registrar or dividend disbursing agent of Federated
Portfolios; insurance premiums; and expenses of calculating the net asset value
of, and the net income or interests in the Portfolio.
Expenses of Federated Portfolios also include expenses connected with the
execution, recording and settlement of security transactions; fees and expenses
of Federated Portfolio's custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
offices and commissions; expenses of meeting of investors and Trustees; and the
advisory fees, if any, payable to the Adviser under the Advisory Agreement.
Holders of Fund Shares pay their allocable portion of Trust expenses. The Trust
expenses for which holders of Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.
At present, the only expenses allocated to Shares as a class are expenses under
the Fund's Shareholder Services Agreement and the Fund's Distribution Plan which
relate to Shares.
However, the Trustees reserve the right to allocate certain other expenses to
holders of Shares as it deems appropriate ("Class Expenses"). In any case,
Class Expenses would be limited to: transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund may pay to the distributor an amount, computed at an annual rate of
0.25% of the average daily net asset value of Shares, to finance any activity
which is principally intended to result in the sale of Shares subject to the
Distribution Plan. The distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
Shares, computed at an annual rate, to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts. From time to time
and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
Supplemental Payments to Financial Institutions. In addition to payments made
pursuant to the Distribution Plan and Shareholder Services Agreement, Federated
Securities Corp. and Federated Shareholder Services, from their own assets, may
pay financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholders services.
The support may include sponsoring sales, educational and training seminars for
their employees at recreational-type facilities, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the
financial institution sells or may sell and/or upon the type and nature of sales
or marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Adviser or its affiliates, and not
the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
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.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the plans.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate, accrued
daily and paid monthly, which relates to the average aggregate daily net assets
of the Fund as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FUND
-------------------- ----------------------------------
0.1000 of 1% on the first $250 million
0.0875 of 1% on the next $250 million
0.0750 of 1% on the next $250 million
0.0700 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $60,000
per fund and $30,000 per each additional class of shares. Federated
Administrative Services may choose voluntarily to waive a portion of its fee.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts is transfer agent for Shares of the Fund and dividend
disbursing agent for the Fund.
SERVICE PROVIDERS OF THE PORTFOLIO
Federated Services Company serves as transfer agent, dividend disbursing agent
and custody procurement agent for Federated Portfolios. Federated Services
Company also maintains Federated Portfolio's accounting records.
Federated Securities Corp. is the placement agent for investments in the
Portfolio but receives no fee for such services.
Federated Administrative Services provides administrative personnel and services
(including certain legal and financial reporting services) necessary to operate
the Portfolio. Federated Administrative Services is entitled to receive a fee
from the Portfolio accrued daily and paid monthly at an annual rate of up to
0.05% of the average daily net assets of the Portfolio, subject to a minimum of
$60,000 for the Portfolio (unless waived). From time to time, Federated
Administrative Services may waive all or a portion of the administrative fee.
Federated Investors and its subsidiaries have agreed to waive fees and reimburse
expenses in order 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.
NET ASSET VALUE
- ------------------------------------------------------------------
The Fund's net asset value per share fluctuates. The net asset value per share
for Shares is determined by adding the interest of the Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Shares in the liabilities of the Fund and those attributable to Shares,
and dividing the remainder by the total number of Shares outstanding. Since the
Fund will invest all of its Assets in the Portfolio, the value of the Fund's
Assets will be equal to the value of its beneficial interest in the Portfolio.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- ------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Bond Index Fund--Institutional Service Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Wire Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Bond Index Fund --Institutional Service Shares to Federated Services Company,
P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are considered
received after payment by check is converted by the transfer agent's bank, State
Street Bank, into federal funds. This is generally the next business day after
State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $5,000. Subsequent investments must
be in amounts of at least $50. The minimum initial investment in Shares is $50
if the investment is in a retirement program, for which subsequent investments
must also be in amounts of at least $50. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Trust. Accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value per Share next determined after an
order is received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a non-affiliated bank or broker may be charged an
additional service fee by that bank or broker.
The net asset value of the Fund is determined 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, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Any day on which the Fund may determine its net asset value, as
described above, may be referred to herein as a "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 Federated Portfolios. 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 Business Days. In such cases,
the net asset value per share of Fund Shares may be significantly affected on
days when shareholders neither purchase nor redeem their shares of beneficial
interest in the Fund. The Portfolio may use one or more independent pricing
services in connection with the pricing of its portfolio securities.
SUBACCOUNTING SERVICES
Institutions holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company, Boston,
Massachusetts, maintains a share account for each shareholder. Certificates for
Shares of the Fund are not issued unless requested by contacting the Fund or
Federated Services Company in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends equal to all or substantially all of the Fund's net investment income
allocable to Shares are declared daily and paid monthly. The Fund's net income
for dividend purposes consists of (i) all accrued income, whether taxable or
tax-exempt, plus discount earned on the Fund's assets, less (ii) amortization of
premium on such assets, accrued expenses directly attributable to the Fund and
the general expenses of the Trust (e.g., legal, administrative, accounting, and
Trustees' fees). Dividends and distributions will reduce the net asset value of
the Fund by the amount of the dividend or distribution. Dividends are declared
just prior to determining net asset value. If an order for Shares is placed on
the preceding Business Day, Shares purchased by wire begin earning dividends on
the Business Day wire payment is received by State Street Bank. If the order
for Shares and payment by wire are received on the same day, Shares begin
earning dividends on the next Business Day. Shares purchased by check begin
earning dividends on the Business Day after the check is converted by the
transfer agent into federal funds. Dividends are automatically reinvested on
payment dates in additional Shares unless cash payments are requested by
contacting the Fund.
CAPITAL GAINS
Long-term capital gains realized by the Fund, if any, will be distributed once a
year, usually in December, if the Fund's profits during that year from the sale
of securities held for longer than the applicable period exceed losses during
such year from the sale of securities together with any net capital losses
carried forward from prior years (to the extent not used to offset short-term
capital gains). Net short-term capital gains realized during the Fund's fiscal
year will also be distributed during such year.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact Federated Securities Corp. and
consult a tax adviser.
REDEEMING INSTITUTIONAL SERVICE SHARES
- ------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All
proceeds will normally be wire transferred the following business day, but in no
event more than seven days, to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. Proceeds from
redemption requests received on holidays when wire transfers are restricted will
be wired the following Business Day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement. If at any time the Fund shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written requests, should be considered. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may also be redeemed in any amount by mailing a written request to:
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. If
Share certificates have been issued, they should be sent unendorsed with the
written request by registered or certified mail to the address noted above.
The written request should state: the Fund name and class of shares name; the
account number; and the number of shares to be redeemed or the dollar amount
requested. All owners of the account must sign the request exactly as the
Shares are registered. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after the receipt of a
proper written redemption request. Dividends are paid up to and including the
day that a redemption request in processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must
have their signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization which is
administered by the Federal Deposit Insurance Corporation; a member firm of a
domestic stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Fund does not accept
signatures guaranteed by a notary public.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $5,000. This
requirement does not apply, however, if the balance falls below $5,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- ------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each series in the Trust have equal voting rights except that in matters
affecting only a particular series or class, only shares of that series or class
are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Fund's operation (e.g., to approve a
change in the Fund's fundamental investment policies or limitations) and for the
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote. Shareholders of all series of
the Trust will vote together to elect Trustees of the Trust and for certain
other matters. Under certain circumstances, the shareholders of one or more
series of the Trust could control the outcome of these votes.
The Fund invests in the Portfolio, a series of Federated Portfolios, which is a
business trust organized under the laws of the Commonwealth of Massachusetts.
The interests in Federated Portfolios are divided into separate series or
portfolios. Investors in each series of Federated Portfolios will vote
separately or together in the same manner as shareholders of the Trust's series.
Federated Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Portfolio and the other series of Federated Portfolios
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the series in which they invest (and of no other series) and of the overall
obligations of Federated Portfolios. However, the Trustees of the Trust believe
that the risk of the Fund incurring financial loss on account of such liability
is limited to circumstances in which neither the Portfolio nor Federated
Portfolios are able to meet their obligations, and that neither the Fund nor its
shareholders will be exposed to a material risk of liability by reason of the
Fund's investment in the Portfolio.
For more information regarding the Trustees of the Trust and of Federated
Portfolios, see "Management of Trust and Federated Portfolios" in the Statement
of Additional Information.
EFFECT OF BANKING LAWS
- ------------------------------------------------------------------
The Glass-Steagall Act and applicable banking laws and regulations generally
prohibit certain financial institutions such as U.S. Trust Company from engaging
in the business of underwriting securities of open-end investment companies such
as the Trust. Based on advice of its counsel, it is the position of U.S. Trust
Company that the investment sub-advisory services it performs under the Sub-
Advisory Agreement with the Adviser on behalf of the Portfolio do not constitute
underwriting activities and are consistent with the requirements of the Glass-
Steagall Act. State laws on this issue may differ from the interpretations of
relevant federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. Future changes in either
federal statutes or regulations relating to the permissible activities of banks,
as well as future judicial or administrative decisions and interpretations of
present and future statutes and regulations, could prevent a bank from
continuing to perform all or part of its investment management activities. If a
bank were prohibited from so acting, alternative means for continuing the
management of the Portfolio and the Fund would be sought. In such event,
changes in the operation of the Portfolio and the Fund might occur. The
Trustees of Federated Portfolios and of the Trust do not expect that investors
in the Portfolio or shareholders of the Fund would suffer any adverse financial
consequences as a result of these occurrences.
TAX INFORMATION
- ------------------------------------------------------------------
Each year the Trust intents to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Provided the Fund meets all income,
distribution and diversification requirements of the Code, and distributes
substantially all of its net investment income and realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes will be required to be paid from the Fund. If
the Fund fails to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income.
Whether or not the Fund qualifies as a RIC, the Fund's distributions would
generally be taxable as ordinary dividend income to shareholders. With respect
to the Fund, the Portfolio in which it invests is also not expected to be
required to pay any federal income or excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes and any
state or local taxes on the dividends and net capital gain distributions, if
any, they receive from the Fund. Dividends from ordinary income and any
distributions from net short-term capital gains are taxable to Fund shareholders
as ordinary income for federal income tax purposes. Distributions of net
capital gains are taxable to Fund shareholders as long-term capital gains
without regard to the length of time the Fund shareholders have held their
Shares. Dividends and distributions, if any, paid to shareholders will be
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional Shares of the Fund.
Dividends declared in October, November or December of any year payable to Fund
shareholders of record on a specified date in such months will be deemed to have
been received by Fund shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
At the end of each calendar year, each Fund shareholder receives information for
tax purposes on the dividends and other distributions received during that
calendar year, including the portion thereof taxable as ordinary income, the
portion taxable as long-term capital gains, the portion (if any) which
constitutes a return of capital (which is generally free of tax but results in a
basis reduction), and the amount of dividends (if any) which may qualify for the
dividends-received deduction for corporations.
In general, any gain or loss realized upon a taxable disposition of Shares of a
Fund by a shareholder that holds such Shares as a capital asset will be treated
as long-term capital gain or loss if the Shares have been held for more than 12
months and otherwise as a short-term capital gain or loss. However, any loss
realized upon a redemption of Shares in the Fund held for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gain made with respect to those Shares. Any loss realized upon a
disposition of Shares may also be disallowed under rules relating to wash sales.
The Fund may be required to withhold federal income tax at the rate of 31% from
all taxable distributions and redemption proceeds payable to shareholders who do
not provide the Fund with their correct taxpayer identification number or make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Such withholding is not an
additional tax. Any amounts withheld may be credited against the Fund
shareholder's federal income tax liability.
Under current law, neither the Trust, as a business trust, nor any of the Funds
are liable for any income or franchise tax in the Commonwealth of Massachusetts
as long as the Fund continues to qualify as a "regulated investment company"
under the Code.
The foregoing discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state and local laws.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------
From time to time, the Fund advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Fund after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The Fund is sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- ------------------------------------------------------------------
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Institutional Shares are also
made available to financial intermediaries, as well as private and public
organizations and are subject to a minimum initial investment of $25,000.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Fund. This, plus other expense differences between
Institutional Shares and Institutional Service Shares, may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-245-4270.
MISCELLANEOUS
The Fund's Statement of Additional Information bears the same date as this
prospectus and contains more detailed information about the Fund and the
Portfolio, including information related to
(i) investment policies and restrictions of the Fund and the Portfolio, (ii)
Trustees and officers of the Trust and of Federated Portfolios, (iii) portfolio
transactions and any brokerage commissions, (iv) rights and liabilities of
shareholders of the Trust and investors in Federated Portfolios, (v) additional
performance information, including a description of the Fund's calculation of
yield and total return, and (vi) determination of the net asset value of Shares
of the Fund.
ADDRESSES
- ------------------------------------------------------------------
Federated Bond Index Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Distributor and Placement Agent
Federated Securities Corp. Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Investment Adviser for Bond Index
Portfolio
Federated Management Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Sub-Adviser for Bond Index Portfolio
United States Trust Company
of New York Mutual Funds Service Division
770 Broadway
New York, New York 10003-9598
- ------------------------------------------------------------------
Custodian for Federated Bond
Index Fund
State Street Bank
and Trust Company P.O. Box 8600
Boston, Massachusetts
02266-8600
- ------------------------------------------------------------------
Custodian for Bond Index Portfolio
Investors Bank and Trust Company 79 Milk Street
7th Floor
Boston, Massachusetts 02205
- ------------------------------------------------------------------
Administrator
Federated Administrative Services Federated Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
- ------------------------------------------------------------------
Transfer Agent and
Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-
8600
- ------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh,
Pennsylvania 15219
- ------------------------------------------------------------------
FEDERATED BOND INDEX FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified
Management
Investment Company
Prospectus dated , 1996
---------
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
-IS [RECYCLED PAPER LOGO]
- -------------
- ------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
SUBJECT TO COMPLETION, PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED
JANUARY 4, 1996
FEDERATED BOND INDEX FUND
(A PORTFOLIO OF FEDERATED INVESTMENT TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). The Shares represent
interests in a diversified portfolio of securities of Federated Bond Index
Fund (the "Fund"), a portfolio of Federated Investment Trust (the "Trust").
This Statement of Additional Information should be read with the respective
prospectuses for Institutional Shares and Institutional Service Shares
dated , 1996. This Statement is not a prospectus itself. You
-------------
may request a copy of either prospectus or a paper copy of this Statement
of Additional Information, if you have received it electronically, free of
charge by calling 1-800-245-4270. Terms used but not defined herein, which
are defined in the prospectus, are used herein as defined in the
prospectus.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement date , 1996
------------
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
INVESTMENT OBJECTIVE AND POLICIES1 Trustees' Compensation 16
INVESTMENT ADVISORY AND SUB-ADVISORY
Bank Obligations 1
SERVICES 17
Commercial Paper 1
Lending of Portfolio Securities 2 Adviser and Sub-Adviser to the
Variable Rate and Floating Portfolio 17
Securities 2
Participation Interests 3
Illiquid Securities 3
Unsecured Promissory Notes 3
Repurchase Agreements and Reverse 4
Repurchase Agreements 4
Guaranteed Investment Contracts 4
When-Issued Securities 4
Zero Coupon Obligations 5
Futures Contracts and Options on
Futures Contracts 5
Options on Securities 7
Options on Securities Indicies 8
Short Sales "Against the Box" 8
Certain Other Obligations 9
Rating Services 9
Portfolio Turnover 9
Investment Limitations 10
MANAGEMENT OF THE TRUST AND
FEDERATED PORTFOLIOS 12
The Funds 15
Fund Ownership 16
Trustee Liability 16
BROKERAGE TRANSACTIONS 17 YIELD 22
OTHER SERVICES 18 PERFORMANCE COMPARISONS 22
Trust Administration 18 DESCRIPTION OF FEDERATED PORTFOLIOS
Custodian and Portfolio Recordkeeper 23
18
Beneficial Interests 23
Transfer Agent And Dividend
Service Providers 24
Disbursing Agent 18
ABOUT FEDERATED INVESTORS 25
Independent Auditors 19
PURCHASING SHARES 19 Mutual Fund Market 25
APPENDIX 26
Distribution Plan (Institutional
Service Shares only) and
Shareholder Services Agreement19
Conversion To Federal Funds 19
DETERMINING NET ASSET VALUE 19
Determining Market Value of
Securities 19
REDEEMING SHARES 20
Redemption in Kind 20
MASSACHUSETTS PARTNERSHIP LAW 20
TAX STATUS 21
The Fund's Tax Status 21
Taxation of the Portfolio 21
Taxation of Fund Distributions 21
Other Taxation 22
TOTAL RETURN 22
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and Portfolio is described in the
prospectus. There can, of course, be no assurance that the Fund or the
Portfolio will achieve its investment objective.
The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Fund may withdrawal its investment from the
Portfolio at any time if the Board of Trustees of the Trust ("Trustees")
determines that it is in the best interests of the Fund to do so.
Since the investment characteristics of the Fund correspond directly to those of
the Portfolio, the following supplements the discussions of the various
investments of and techniques employed by the Portfolio set forth in the
prospectus of the Fund.
Unless indicated otherwise, the investment objectives and policies of the Fund
may be changed by the Boards of Trustees of the Trust and of Federated
Portfolios without the approval of the Fund's shareholders. Likewise, the
investment objective and policies of the Portfolio may be changed by the Board
of Trustees of Federated Portfolios without the approval of the Portfolio's
investors, such as the Fund. Fund shareholders will be notified before any
material change becomes effective.
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 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 Investment Managers will monitor the liquidity of Rule 144A securities for
the Portfolio under the supervision of the Trustees of Federated Portfolios. 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 objective 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 Portfolio. 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 dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, the Portfolio may
have to sell other securities to pay said accrued dividends 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 the Investment Managers' skill and experience with respect to such
instruments. Should interest rates move in an unexpected manner, the Portfolio
may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities will not be perfect and could produce
unanticipated losses.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase or
sale for future delivery of securities, or contracts based on financial indices.
U.S. futures contracts have been designed by exchanges which have been
designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities and three-
month U.S. Treasury Bills. The Portfolio may also enter into futures contracts
which are based on fixed income securities issued by entities other than the
U.S. Government, including corporate debt securities, or contracts based on
financial indices including any index of U.S. Government securities, or
corporate debt securities.
At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Portfolio will incur brokerage fees when
it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case where
the Portfolio holds or intends to acquire fixed-income securities, is to attempt
to protect the Portfolio from fluctuations in interest rates without actually
buying or selling fixed-income securities. For example, if interest rates were
expected to increase, the Portfolio might enter into futures contracts for the
sale of debt securities. Such a sale would have much the same effect as selling
an equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Portfolio to maintain a
defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Investment Managers may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Investment Managers
believe that use of such contracts will benefit the Portfolio, if the judgment
of the Investment Managers about the general direction of interest rates is
incorrect, the Portfolio's overall performance would be poorer than if it had
not entered into any such contract. For example, if the Portfolio has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of debt securities held by it and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities to meet
daily variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. The
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
Options on Futures Contracts. The Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Portfolio is not fully invested it may purchase a
call option on a futures contract to hedge against a market advance due to
declining interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
security which is deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the
Portfolio intends to purchase. If a put or call option the Portfolio has written
is exercised, the Portfolio will incur a loss which will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
the Portfolio may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Trustees of Federated Portfolios 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 do
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
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 Internal Revenue Code
of 1986 (the "Code") for the Fund's 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 Trustees of
Federated Portfolios.
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 supplementing this registration statement, the Portfolio may
invest in obligations other than those listed previously, provided such
investments are consistent with the investment objectives, policies and
restrictions of the Portfolio and the Fund.
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 Federated Portfolios.
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 prospectus is set forth in the Appendix to this
Statement of Additional Information.
PORTFOLIO TURNOVER
Although the Portfolio is managed to reflect the composition of the 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.
The annual portfolio turnover rate for the Portfolio is not expected to exceed
100%. A rate of 100% indicates that the equivalent of all of the Portfolio's
assets have been sold and reinvested in a calendar year. A high rate of
portfolio turnover may involve correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the
Portfolio and ultimately by the investors in the Portfolio. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
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 the
Portfolio 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.
Except as stated otherwise, all investment policies and restrictions described
herein are non-fundamental, and may be changed without prior shareholder
approval.
INVESTMENT LIMITATIONS
The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed with respect to the Fund or the Portfolio
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the 1940 Act and as used in this Statement of Additional
Information and in the prospectus means, with respect to the Fund (or the
Portfolio), the lesser of (i) 67% or more of the outstanding voting securities
of the Fund (or of the total beneficial interests of the Portfolio) present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund (or of the total beneficial interests of the Portfolio) are present or
represented by proxy, or
(ii) more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio).
Because the Fund invests through the Portfolio, shareholders should be aware
that fundamental policies of the Portfolio may not be changed without the
approval of a "majority of the outstanding voting securities" of the Portfolio;
i.e., the holders of the beneficial interests of the Portfolio. Whenever the
Fund is requested to vote on a fundamental policy of the Portfolio, the Trust
will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by the Fund's shareholders.
With respect to each fundamental investment restriction and each non-fundamental
investment policy listed below, if a percentage restriction (other than a
restriction as to borrowing) or a rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or assets
are so utilized, a later change in such percentage resulting from changes in the
Portfolio's total assets or the value of the Portfolio's securities, or a later
change in the rating of a portfolio security, will not be considered a violation
of the relevant restriction or policy.
As a matter of fundamental policy , the Portfolio (or the Fund) may not (except
that no investment restriction of the Fund shall prevent the Fund from investing
all of its investable assets in an open-end management investment company with
substantially the same investment objective and policies as the Fund):
(1) borrow money or mortgage or hypothecate assets of the Portfolio (or the
Fund), except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (or Fund'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 Fund will not purchase securities while borrowings exceed 5% of the
Portfolio's (or Fund's) total assets;
(2) underwrite securities issued by other persons except insofar as Federated
Portfolios or the Portfolio (or the Trust or the Fund) 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 (or Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (or Fund'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 (Federated Portfolios
(or the Trust) may hold and sell, for the Portfolio's (or Fund's) portfolio,
real estate acquired as a result of the Portfolio's (or Fund's) ownership of
securities);
(5) invest 25% or more of its assets in any one industry (excluding U.S.
Government securities), unless the bonds issued by companies in a single
industry were to comprise 25% or more of Lehman Brothers Aggregate Bond Index,
in which case the Portfolio (or Fund) 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 (or Fund) will not as a matter of
operating policy (except that no operating policy shall prevent the Fund from
investing all of its investable assets in an open-end management investment
company with substantially the same investment objective and policies as the
Fund): (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 (or Fund) if such purchase at
the time thereof would cause (a) more than 10% of the Portfolio's (or Fund'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 (or Fund'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 (or Fund);
(iv) purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio (or Fund) 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 (or
Fund's) portfolio any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of Federated
Portfolios (or the Trust), or is an officer or partner of the Adviser or U.S.
Trust Company, if after the purchase of the securities of such issuer for the
Portfolio (or Fund) 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 (or
Fund's) net assets in warrants (valued at the lower of cost or market), but not
more than 2% of the Portfolio's (or Fund's) net assets may be invested in
warrants not listed on the New York Stock Exchange or the American Stock
Exchange; (vii) make short sales of securities or maintain a short position
(excluding short sales if the Portfolio (or Fund) 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 (or Fund's) net assets
(taken at market value); provided, however, that the value of the Portfolio's
(or Fund'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 (or Fund'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; or
(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 (or Fund's) total assets.
Policies (i) through (ix) above may be changed by the Board of Trustees of
Federated Portfolios or the Trust without investor or shareholder approval.
MANAGEMENT OF THE TRUST AND FEDERATED PORTFOLIOS
Officers and Trustees of the Trust are listed with their addresses, birthdates,
principal occupations during the past five years, and present positions,
including any affiliation with Federated Management, Federated Investors,
Federated Securities Corp., Federated Administrative Services, Federated
Shareholder Services, Federated Services Company, and the Funds, as defined
below. The officers and Trustees of the Trust also serve in the same capacities
as officers and Trustees of Federated Portfolios.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Weston, MA
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; Executive Vice President and
Treasurer of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; 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 both the Trust's and Federated Fund's Executive Committee. The
Executive Committee of a Board of Trustees handles the responsibilities of the
Trustees between meetings of the Board.
THE FUNDS
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal
Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insurance Management Series; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Targeted Duration Trust; Tax-Free Instruments Trust; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office. See
"Description of Federated Portfolios" below for a description of Trustee
liability.
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST/FEDERATED TRUST/ FROM FUND COMPLEX +
PORTFOLIOS FEDERATED
PORTFOLIOS*
John F. Donahue, $ 0 $0 for the Trust, Federated Portfolios, and
Chairman and Trustee 68 other investment companies in the Fund
Complex
J. Christopher Donahue, $0 $0 for the Trust, Federated Portfolios, and
President and Trustee 14 other investment companies in the Fund
Complex
Thomas G. Bigley, $ 0 $20,688 for the Trust, Federated
Portfolios, and
Trustee 49 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ 0 $117,202 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
William J. Copeland, $ 0 $117,202 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
James E. Dowd, $ 0 $117,202 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 0 $106,460 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 0 $117,202 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
Peter E. Madden, $ 0 $90,563 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 0 $106,460 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
John E. Murray, Jr., $ 0 $0.00 for the Trust, Federated Portfolios,
and
Trustee 64 other investment companies in the Fund
Complex
Wesley W. Posvar, $ 0 $106,460 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 0 $106,460 for the Trust, Federated
Portfolios, and
Trustee 64 other investment companies in the Fund
Complex
*As of the date of this Statement of Additional Information, neither the Trust
nor Federated Portfolios (each of which consists of one portfolio) has paid any
fees to the Trustees.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES
ADVISER AND SUB-ADVISER TO THE PORTFOLIO
The Portfolio's investment adviser is Federated Management (the "Adviser"), a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue. For its advisory services, the
Adviser receives an annual investment advisory fee as described in the
prospectus.
The Adviser has contracted to U.S. Trust Company the responsibility 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 in all cases
to the general supervision of the Adviser. 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.
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 Federated Portfolios or by a
majority vote of the investors in the Portfolio (with the vote of each being in
proportion to the respective values of their investments) and, in either case,
by a majority of the Trustees of Federated Portfolios 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 Trustees of
Federated Portfolios on
October 3, 1995. The Adviser, U.S. Trust Company, and administrator have agreed
to waive certain fees.
The Advisory Agreement and Sub-Advisory Agreement provide that the Adviser and
U.S. Trust Company may render services to others, and each agreement is
terminable by the Portfolio without penalty on not more than 60 days' nor less
than 30 days' written notice when authorized either by majority vote of the Fund
and the other 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 Federated Portfolios or by the Adviser or U.S. Trust Company on not
more than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Advisory Agreement and the Sub-
Advisory Agreement provide that neither the Adviser, U.S. Trust Company, nor its
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.
STATE EXPENSE LIMITATIONS
The Adviser, if required by applicable state law, shall reimburse the Fund or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the Portfolio. Such reimbursement, if required, will be equal to the
combined aggregate annual expenses of the Fund and the Portfolio which exceed
that expense limitation with the lowest threshold prescribed by any state in
which the Fund is qualified for offer or sale. Management of each of the Trust
and Federated Portfolios 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.
This arrangement is not part of the Advisory Agreement and may be amended or
rescinded in the future.
BROKERAGE TRANSACTIONS
The Portfolio's purchase and sales of securities may be principal transactions,
that is, securities may be purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases and, therefore, the Portfolio does not
anticipate paying brokerage commissions in such transactions. Purchases and
sales of the Portfolio's portfolio securities will usually be principal
transactions without brokerage commissions. Any transactions for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price. Allocations of transactions, including their frequency, to
various dealers is determined by the Investment Managers in their best judgment
and in a manner deemed to be in the best interest of the investors in the
Portfolio rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
The Advisory and Sub-Advisory Agreements provide that, in executing portfolio
transactions and selecting brokers or dealers, the Investment Managers will seek
to obtain the best net price and the most favorable execution. The Investment
Managers shall consider factors they deem relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.
In addition, the Advisory and Sub-Advisory Agreements authorize the Investment
Managers, to the extent permitted by law and subject to the review of Federated
Portfolio'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 regional 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
Managers 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.
OTHER SERVICES
For information regarding the service providers of Federated Portfolios, see
"Description of Federated Portfolios-Service Providers" in this Statement of
Additional Information.
TRUST ADMINISTRATION
Federated Administrative Services ("FAS") provides administrative personnel and
services to the Fund for a fee as described in the prospectus.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
cash and securities of the Fund.
Federated Services Company maintains the Fund's accounting records. The fee paid
for this service is based upon the level of the Fund's average net assets for
the period plus out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. For its services, the transfer agent receives a fee based
upon the size, type and number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectus under "Investing in Institutional Shares"
or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER SERVICES
AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
With respect to the Institutional Service Shares class of the Fund, by adopting
the Distribution Plan, the Trustees of the Trust expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the respective prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
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 Board of
Trustees of Federated Portfolios, 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 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 Federated Portfolios.
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
Board of Trustees of Federated Portfolios. 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.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Business Day. As of the Valuation Time on
each such day, the value of each investor's beneficial interest in the Portfolio
will be determined by multiplying the net asset value of the Portfolio by the
percentage representing 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 the 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 Business Day adjusted for
any additions or reductions which are to be effected on that following day.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Institutional Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Fund is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the respective class net asset value, whichever is less, for any one shareholder
within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees of
the Trust and of Federated Portfolios determine that further cash payments will
have a material adverse effect on the remaining Fund shareholders and Portfolio
investors. In such a case, the Fund will pay all or a portion of the remainder
of the redemption in portfolio instruments, valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees of the Trust and of Federated Portfolios deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Although the Fund intends to redeem shares in cash, the Fund and the Portfolio
reserve the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities. To the extent available, such
securities will be readily marketable.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
See "Description of Federated Portfolios" below for a description of
Massachusetts partnership law and investor liability with respect to an
investment in Federated Portfolios.
TAX STATUS
THE FUND'S TAX STATUS
Each series of the Trust is treated as a separate entity for federal income tax
purposes under the Code. The Fund has elected to be treated and intends to
qualify each year as a "regulated investment company" under Subchapter M of the
Code (a "RIC") by meeting all applicable requirement of Subchapter M, including
requirements as to the nature of the Fund's gross income, the amount of the
Fund's distributions, and the composition and holding period of the Fund's
portfolio assets. Because the Fund intends to distribute substantially all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes. If the
Fund fails to qualify as a RIC in any year, the Fund would incur a regular
corporate federal income tax upon its taxable income. Whether or not the Fund
qualifies as a RIC, the Fund's distributions would generally be taxable as
ordinary dividend income to shareholders.
The Trust anticipates that under interpretations of the Internal Revenue
Service, (1) the Portfolio will be treated for federal income tax purposes as a
partnership and (2) for purposes of determining whether the Portfolio satisfies
the income and diversification requirements to maintain its status as a RIC, the
Portfolio, as an investor in the Portfolio, 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 or loss attributable to that share. The Portfolio has
advised the Fund that it intends to conduct its operations so as to enable its
investors, including the Fund, to satisfy those requirements.
Any Fund distribution or any distribution of net capital gains or net short-term
capital gains will have the effect of reducing the per share net asset value of
Shares in the Fund by the amount of the distribution. Shareholders purchasing
shares shortly before the record date of any distribution may thus pay the full
price for the Shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
Any investment by the Portfolio in zero coupon bonds, certain securities
purchased at a market discount, and similar instruments will cause the Portfolio
to recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund.
The Portfolio's transactions in options and futures contracts will be subject to
special tax rules that may affect the amount, timing, and character of Fund
income and distributions to investors.
TAXATION OF THE PORTFOLIO
The Trust anticipates that the Portfolio will be treated as a partnership for
federal income tax purposes. As such, the Portfolio is not subject to federal
income taxation. Instead, the Fund 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.
TAXATION OF FUND DISTRIBUTIONS
Dividends from ordinary income and any distributions from net short-term capital
gains are taxable to Fund shareholders as ordinary income for federal income tax
purposes and will not be eligible for the dividends received deduction available
to corporations. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, are taxable to Fund
shareholders as long-term capital gains without regard to the length of time the
shareholders have held their Shares. Distributions are taxable as described
above whether paid in cash or reinvested in additional Shares. Fund shareholders
will be notified annually as to the federal tax status of distributions.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Fund must, and intends to, distribute
during each calendar year substantially all of its ordinary income for that year
and substantially all of its capital gain in excess of its capital losses for
that year, plus any undistributed ordinary income and capital gains from
previous years. For this and other purposes, the Fund dividend will be treated
as paid on December 31 if it is declared by the Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Accordingly, those distributions will be taxable
to shareholders for the taxable year in which that December 31 falls.
Withdrawals by the Fund from the Portfolio generally will not result in the Fund
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 Fund's interest in the Portfolio prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
Portfolio's entire 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 that entire interest and
consists solely of cash and/or unrealized receivables. The basis of the Fund's
interest in the Portfolio generally equals the amount of cash and the basis of
any property that the Fund invests in the Portfolio, increased by the Fund's
share of income form the Portfolio and the amount of any cash distributions and
the basis of any property distributed from the Portfolio.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
RIC for federal income tax purposes.
The Portfolio is organized as a series of Federated Portfolios, a business trust
organized under the laws of the Commonwealth of Massachusetts. The Portfolio is
not subject to any income or franchise tax in the Commonwealth of Massachusetts.
The investment by the Fund in the Portfolio does not cause the Fund to be liable
for any income or franchise tax in the Commonwealth of Massachusetts.
Fund shareholders may be subject to state and local taxes on Fund distributions
to them by the Fund. Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Fund.
TOTAL RETURN
The average annual total return all classes of Shares of the Fund is the average
compounded rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the maximum offering price per share at the end of the
period. The number of Shares owned at the end of the period is based on the
number of Shares purchased at the beginning of the period with $1,000, less any
applicable sales load, adjusted over the period by any additional Shares,
assuming the reinvestment of all dividends and distributions.
YIELD
The yield for all classes of shares of the Fund is determined by dividing the
net investment income per Share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of any class of Shares on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by any
class of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a class
of Shares, performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the Portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the expenses of the Portfolio, the Fund, or either class of
Shares; and
o various other factors.
A class of Shares' performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings and net
asset value per Share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LEHMAN BROTHERS AGGREGATE BOND INDEX which is composed of securities from
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities
Index, and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. Indices are rebalanced monthly by market capitalization.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on monthly reinvestment of dividends over a specified
period of time.
DESCRIPTION OF FEDERATED PORTFOLIOS
BENEFICIAL INTERESTS
The Bond Index Portfolio is a series of Federated Portfolios, which is organized
as a trust having separate series 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. Currently, there is one
portfolio of Federated Portfolios, the Bond Index Portfolio. Investors in a
portfolio will be held personally liable for the obligations and liabilities of
that portfolio (and of no other portfolio) and Federated Portfolios, subject,
however, to indemnification by Federated Portfolios in the event that there is
imposed upon an investor any liability or obligation of the Portfolio or
Federated Portfolios. The Declaration of Trust also provides that Federated
Portfolios may maintain appropriate insurance for the protection of Federated
Portfolios, 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 Portfolio
or Federated Portfolios are unable to meet their obligations.
Investors in a portfolio are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective portfolio only.
Upon liquidation or dissolution of a portfolio, investors are entitled to share
pro rata in the portfolio's (and no other portfolio's) net assets available for
distribution to its investors. Federated Portfolios reserves the right to create
and issue additional portfolios of beneficial interests, in which case the
beneficial interests in each new portfolio would participate equally in the
earnings, dividends and assets of that portfolio (and of no other portfolio).
Investments in a portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and nonassesable, except as set forth below.
Investments in a portfolio may not be transferred.
Each investor of Federated Portfolios is entitled to a vote in proportion to the
amount of its investment in each portfolio. Investors in a portfolio do not have
cumulative voting rights, and a plurality of the aggregate beneficial interests
in all outstanding series of Federated Portfolios 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 portfolio will vote as a separate class
except as to voting for the election or removal of Trustees, the termination of
Federated Portfolios, as otherwise required by the 1940 Act, or if the matter is
determined by the Trustees to be a matter which affects all portfolios.
Federated Portfolio'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 Federated Portfolios,
as required by Federated Portfolio's registration statement, or as submitted to
them by the Trustees.
Federated Portfolios or any portfolio 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 or (i) 67% or more of the
beneficial interests in the affected portfolio 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 are present or represented by proxy, or (b) by an instrument in
writing without a meeting, consented to by investors of the beneficial interests
in the affected portfolio.
Federated Portfolios' Declaration of Trust provides that obligations of
Federated Portfolios are not binding upon the Trustees individually but only
upon the property of Federated Portfolios 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.
Federated Portfolio'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 Federated Portfolios, unless, as to liability to
the Federated Portfolios 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 Federated Portfolios 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 a vote of a majority of disinterested
Trustees or by a written opinion of independent counsel, that such officers or
Trustees have not engaged in willful misfeasance, bad fait, gross negligence or
reckless disregard of their duties.
SERVICE PROVIDERS
ADMINISTRATION
Federated Administrative Services provides administrative personnel and services
to Federated Portfolios at an annual rate which relates to the average aggregate
daily net assets of each series as specified below:
Average Aggregate Daily
Maximum Administrative Fee Net Assets of the Portfolio
.050 of 1% on the first $1 billion
.045 of 1% on the next $1 billion
.040 of 1% on the next $1 billion
.025 of 1% on the next $1 billion
.010 of 1% on the next $1 billion
.005 of 1% on assets in excess of $5 billion
The minimum administrative fee shall be $60,000 annually for each series (unless
waived).
Dr. Henry J. Gailliot, an officer of Federated Management, the Adviser to the
Portfolio, holds approximately 20% of the outstanding common stock and serves as
a director of Commercial Data Services, Inc., a company which provides computer
processing services to FAS.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
Investors Bank and Trust Company, 79 Milk Street, 7th Floor, Boston,
Massachusetts, 02205, is custodian for the cash and securities of the Portfolio.
Federated Services company maintains Federated Portfolio's accounting records.
The fee paid by Federated Portfolios for this service (for which the Portfolio
bears its pro rata share) is based upon the level of Federated Portfolio's
average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
As transfer agent, Federated Services Company, Pittsburgh, Pennsylvania,
maintains all necessary investor records for Federated Portfolios. The fee paid
by Federated Portfolios to Federated Services Company is based upon the size,
type and number of accounts and transactions made by investors.
INDEPENDENT AUDITORS
The Independent Auditors for the Portfolio are Ernst & Young LLP, One Oxford
Centre, Pittsburgh, Pennsylvania, 15219.
ABOUT FEDERATED INVESTORS
Federated Investors in dedicated to meeting investor needs which is reflected in
its investment decision making - structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. In the government sector, as of December
31, 1994, Federated Investors managed 9 mortgage-backed, 4 government/agency and
17 government money market mutual funds, with assets approximating $8.5 billion,
$1.6 billion and $17 billion, respectively. Federated Investors trades
approximately $300 million in U.S. government and mortgage-backed securities
daily and places approximately $13 billion in repurchase agreements each day.
Federated Investors introduced the first U.S. government fund to invest in U.S.
government bond securities in 1969. Federated Investors has been a major force
in the short- and intermediate-term government markets since 1982 and currently
manages nearly $10 billion in government funds within these maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated Investor's equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investor's domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investor's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide including 200 New York Stock Exchange firms supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
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+."
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: To be filed by
Amendment.
(b) Exhibits filed herewith:
(1) Conformed copy of Declaration of Trust of
the Registrant;+
(2) Copy of By-Laws of the Registrant;+
(3) Not applicable;
(4) Specimen Certificate for Shares of the
Registrant; (to be filed by Amendment)
(5) Not applicable;
(6) (i) Form of of the Distributor's Contract
of the Registrant; +
(ii) The Registrant hereby incorporates
the conformed copy of the specimen Mutual Funds Sales and
Service Agreement; Mutual Funds
(1/96)
- --------------
Service Agreement and
Plan/Trustee/Mutual Funds Service Agreement from
Item 24(b)6 of the Cash Trust Series II Registration
Statement on Form N-1A, filed with the Commission on
July 24, 1995. (File Nos. 33-38550 and 811-
6269);
(7) Not applicable;
(8) Form of of the Custodian Agreement of the
Registrant; (to be filed by Amendment)
(9) (i) Form of Administrative Services
Agreement of the Registrant; (to be filed by Amendment)
(ii) Form of Agreement for Fund
Accounting, Shareholder Recordkeeping, and Custody
Services Procurement; +
(iii) Form of Shareholder Services
Agreement; (to be filed by Amendment)
(iv) The responses described in Item
24(b)6(ii) are hereby incorporated by reference.
(10) Opinion and Consent of Counsel as to
Legality of Shares being registered; (to be filed
by Amendment);
(11) Consent of Ernst & Young LLP,
Independent Auditors (to be filed by Amendment);
(12) Not applicable;
(13) (i) Conformed copy of Initial Capital
Understanding; (to be filed by Amendment)
(14) Not applicable;
(15) (i) Form of Registrant's Distribution
Plan pursuant to Rule 12b-1; +
(ii) The responses described in Item
24(b)6(ii) are hereby incorporated by reference.
(16) Not applicable;
(17) Not Applicabl;
(18) Form of Registrant's Plan Pursuant to
Rule 18(f)(3); (to be filed by Amendment);
(19) (i) Conformed copy of Power of Attorney
of Registrant;+
(ii) Conformed copy of Power of Attorney
of Federated Investment Portfolios;+
+ All exhibits have been filed electronically.
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None.
Item 26. Number of Holders of Securities of Bond Index Fund as
of January 1, 1996:
None
Item 27. Indemnification:
Indemnification is provided to Officers and Trustees of the Registrant
pursuant to Article XI of Registrant's Declaration of Trust. Registrant's
Trustees and Officers are covered by an Investment Trust Errors and
Omissions Policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, Officers, and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of
Trust or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by
Trustees, Officers, or controlling persons of the Registrant in connection
with the successful defense of any act, suit, or proceeding) is asserted
by such Trustees, Officers, or controlling persons in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for Trustees, Officers,
and controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware of the
position of the Securities and Exchange Commission as set forth in
Investment Company Act Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable provisions of
the Declaration of Trust or otherwise, in the absence of a final decision
on the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in the
absence of such a decision, a reasonable determination based upon factual
review has been made (i) by a majority vote of a quorum of non-party
Trustees who are not interested persons of the Registrant or (ii) by
independent legal counsel in a written opinion that the indemnitee was not
liable for an act of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an Officer, Trustee, or
controlling person of the Registrant will not be made absent the
fulfillment of at least one of the following conditions: (i) the
indemnitee provides security for his undertaking; (ii) the Registrant is
insured against losses arising by reason of any lawful advances; or
(iii) a majority of a quorum of disinterested non-party Trustees or
independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be
entitled to indemnification.
Item 28. Business and Other Connections of Investment Adviser:
Not applicable.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-
end investment companies: American Leaders Fund, Inc.; Annuity
Management Series; Arrow Funds; Automated Government Money Trust;
BayFunds; The Biltmore Funds; The Biltmore Municipal Funds; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series, Inc.;
Cash Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund; Federated Equity Funds;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3
Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated
U.S. Government Securities Fund: 5-10 Years;First Priority Funds;
Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; SouthTrust Vulcan
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus Funds;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.-
1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President Federated
Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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 Administrative Services
("Administrator") Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Federated Services Company P.O. Box 8600 ("Portfolio
Accountant") Boston, Maassachusetts
02266-8600
State Street Bank and Trust P.O. Box 8600 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 shareholders.
Registrant hereby undertakes to furnish each shareholder to whom a prospectus is
delivered, a copy of the Registrant's latest annual report, upon request and
without charge.
Registrant hereby undertakes to file a post-effective amendment on behalf of
Federated Bond Index Fund, using financial statements for Federated Bond Index
Fund, which need not be certified, within four to six months from the effective
date of this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INVESTMENT TRUST, 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 4th day of January, 1996.
FEDERATED INVESTMENT TRUST
BY: /s/ S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
January 4, 1996
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacity and on the date indicated:
NAME TITLE DATE
By:/s/ S. Elliott Cohan
S. Elliott Cohan Attorney In Fact January 4, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
SIGNATURES
Federated Investment Portfolios ("Federated Portfolios") has duly caused the
Registraton Statement on Form N-1A ("Registration Statement") of Federated
Investment Trust (the "Trust") to be signed on its behalf by the undersigned,
therto duly authorized in the City of Pittsburgh and the Commonwealth of
Pennsylvania on the 4th day of January, 1996.
FEDERATED INVESTMENT PORTFOLIOS
BY: /s/ S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
January 4, 1996
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacity and on the date indicated:
NAME TITLE DATE
By:/s/ S. Elliott Cohan
S. Elliott Cohan Attorney In Fact January 4, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit 1 under Form N-1A
Exhibt 3(a) under Item 601/Reg SK
FEDERATED INVESTMENT TRUST
DECLARATION OF TRUST
TABLE OF CONTENTS
Page
ARTICLE I. NAMES AND DEFINITIONS ......................................1
Section 1. Name .................................................1
Section 2. Definitions ..........................................1
ARTICLE II. PURPOSE OF TRUST..........................................2
ARTICLE III. BENEFICIAL INTEREST.......................................2
Section 1. Shares of Beneficial Interest.........................2
Section 2. Ownership of Shares ..................................2
Section 3. Investment in the Trust ..............................3
Section 4. No Pre-emptive Rights; Action by Shareholder..........3
Section 5. Establishment and Designation of Series or Class .....3
ARTICLE IV. THE TRUSTEES .............................................5
Section 1. Management of the Trust ..............................5
Section 2. Election of Trustees by Shareholders .................5
Section 3. Term of Office of Trustees ...........................5
Section 4. Termination of Service and Appointment of Trustees ...6
Section 5. Number of Trustees ...................................6
Section 6. Effect of Death, Resignation, etc. of a Trustee ......6
Section 7. Ownership of Assets ..................................6
ARTICLE V. POWERS OF THE TRUSTEES ...................................6
Section 1. Powers ...............................................6
Section 2. Principal Transactions ...............................9
Section 3. Trustees and Officers as Shareholders.................9
Section 4. Parties to Contract...................................9
Page
ARTICLE VI. TRUSTEES' EXPENSES AND COMPENSATION .....................10
Section 1. Trustee Reimbursement...............................10
Section 2. Trustee Compensation ...............................10
ARTICLE VII. INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINCIPAL
UNDERWRITER AND TRANSFER AGENT .............................11
Section 1. Investment Adviser .................................11
Section 2. Administrative Services ............................11
Section 3. Principal Underwriter ..............................11
Section 4. Transfer Agent .....................................12
ARTICLE VIII. SHAREHOLDERS' VOTING POWERS AND MEETINGS ................12
Section 1. Voting Powers ......................................12
Section 2. Meetings............................................12
Section 3. Quorum and Required Vote ...........................13
Section 4. Action by Written Consent ..........................13
Section 5. Additional Provisions ..............................13
ARTICLE IX. CUSTODIAN ...............................................13
ARTICLE X. DISTRIBUTIONS AND REDEMPTIONS ...........................13
Section 1. Distributions ......................................13
Section 2. Redemptions and Repurchases ........................14
Section 3. Net Asset Value of Shares...........................15
Section 4. Suspension of the Right of Redemption...............15
Section 5. Trust's Right to Redeem Shares .....................15
ARTICLE XI. LIMITATION OF LIABILITY AND INDEMNIFICATION .............15
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders ...............................................15
Section 2. Limitation of Personal Liability and Indemnification of
Trustees, Officers, Employees or Agents of the Trust .......16
Section 3. Express Exculpatory Clauses and Instruments ........16
Page
ARTICLE XII. MISCELLANEOUS............................................17
Section 1. Trust is not a Partnership .........................17
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety
............................................................17
Section 3. Establishment of Record Dates ......................17
Section 4. Termination of Trust ...............................18
Section 5. Offices of the Trust, Filing of Copies, Headings,
Counterparts ...............................................18
Section 6. Applicable Law .....................................18
Section 7. Amendments -- General ..............................19
Section 8. Amendments -- Series and Classes....................19
Section 9. Use of Name ........................................20
FEDERATED INVESTMENT TRUST
DECLARATION OF TRUST
Dated October 3, 1995
DECLARATION OF TRUST made October 3, 1995, by the undersigned, and by the
holders of shares of beneficial interest to be issued hereunder as
herinafter provided.
WHEREAS, the Trustees desire to establish a trust fund for the investment and
reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property contributed
to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This Trust shall be known as the Federated Investment
Trust, and the Trustees may conduct the business of the Trust under that
name or any other name as they may determine from time to time.
Section 2. Definitions. Wherever used herein, unless otherwise required by
the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings
given them in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to the Massachusetts Business Trust established
by this Declaration of Trust, as amended from time to time,
inclusive of each and every Series and Class established hereunder;
(c) "Class" refers to a class of Shares established and designated under
or in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and designated
under or in accordance with the provisions of Article III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or
in any successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or Class;
(g) "Trustees" refer to the individual Trustees in their capacity as
Trustees hereunder of the Trust and their successor or successors
for the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to
time, or if more than one Series or Class of Shares is authorized by
the Trustees, the equal proportionate units into which each Series
or Class of Shares shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(i) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, (including any exemptions granted
thereunder) as amended from time to time; and
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to operate as an investment company, and
provide investors a continuous source of managed investments by investing
primarily in securities, including other investment companies, derivative
securities, and also in debt instruments, commodities, commodity
contracts and options thereon, and other property.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into transferable Shares, without par
value. Subject to the provisions of Section 5 of this Article III, each
Share shall have voting rights as provided in Article VIII hereof, and
holders of the Shares of any Series shall be entitled to receive
dividends, when and as declared with respect thereto in the manner
provided in Article X, Section 1 hereof. The Shares of any Series may be
issued in one or more Classes, as the Trustees may authorize pursuant to
Article XII, Section 8 hereof. Unless the Trustees have authorized the
issuance of Shares of a Series in two or more Classes, each Share of a
Series shall represent an equal proportionate interest in the assets and
liabilities and the income and the expenses of the Series with each other
Share of the same Series, none having priority or preference over
another. If the Trustees have authorized the issuance of Shares of a
Series in two or more Classes, then the Classes may have such variations
as to dividend, redemption, and voting rights, net asset values, expenses
borne by the Classes, and other matters as the Trustees have authorized
provided that each Share of a Class shall represent an equal
proportionate interest in the assets and liabilities and the income and
the expenses of the Class with each other Share of the same Class, none
having priority or preference over another. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide
or combine the Shares of any Series or Class into a greater or lesser
number without thereby changing the proportionate beneficial interests in
the Series or Class.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded in
the books of the Trust or a transfer agent which books shall be
maintained separately for the Shares of each Series or Class. The
Trustees may make such rules as they consider appropriate for the
transfer of Shares and similar matters. The record books of the Trust or
any transfer agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series or Class and as to the number of Shares
of each Series or Class held from time to time by each.
Section 3. Investment in the Trust. The Trustees shall accept investments in
the Trust from such persons and on such terms as they may from time to
time authorize. After the date of the initial contribution of capital
(which shall occur prior to the initial public offering of Shares), the
number of Shares to represent the initial contribution shall be
considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the Trust to
be allocated among any Series or Classes in the manner described in
Section 5(a) of this Article. Subsequent to such initial contribution of
capital, Shares (including Shares which may have been redeemed or
repurchased by the Trust) may be issued or sold at a price which will net
the relevant Series or Class, as the case may be, before paying any taxes
in connection with such issue or sale, not less than the net asset value
(as defined in Article X, Section 3) thereof; provided, however, that the
Trustees may in their discretion impose a sales charge upon investments
in or redemptions from the Trust, and upon reinvestments of dividends and
capital gains in Shares.
Section 4. No Pre-emptive Right; Action by Shareholder. Shareholders shall
have no pre-emptive or other right to subscribe to any additional Shares
or other securities issued by the Trust. No action may be brought by a
Shareholder on behalf of the Trust unless a prior demand regarding such
matter has been made on the Trustees of the Trust.
Section 5. Establishment and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional Series
or Class or to modify the rights and preferences of any existing Series
or Class, the initial Series shall be, and is established and designated
as,
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Shares of any Series or Class established in this Section 5 shall have
the following relative rights and preferences:
(a) Assets belonging to Series or Class. All consideration received by
the Trust for the issue or sale of Shares of a particular Series or
Class, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds
thereof from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably
belong to that Series or Class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets belonging to" that
Series or Class. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are
not readily identifiable as belonging to any particular Series or
Class (collectively "General Assets"), the Trustees shall allocate
such General Assets to, between or among any one or more of the
Series or Classes established and designated from time to time in
such manner and on such basis as they, in their sole discretion,
deem fair and equitable, and any General Assets so allocated to a
particular Series or Class shall belong to that Series or Class.
Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series or Classes for all purposes.
(b) Liabilities Belonging to Series or Class. The assets belonging to
each particular Series or Class shall be charged with the
liabilities of the Trust in respect to that Series or Class and all
expenses, costs, charges and reserves attributable to that Series or
Class, and any general liabilities of the Trust which are not
readily identifiable as belonging to any particular Series or Class
shall be allocated and charged by the Trustees to and among any one
or more of the Series or Classes established and designated from
time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves so charged to a Series or
Class are herein referred to as "liabilities belonging to" that
Series or Class. Each allocation of liabilities belonging to a
Series or Class by the Trustees shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
(c) Dividends, Distributions, Redemptions, Repurchases
and Indemnification. Notwithstanding any other provisions of this
-
Declaration of Trust, including, without limitation, Article X, no
dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any Series or
Class) with respect to, nor any redemption or repurchase of the
Shares of any Series or Class shall be effected by the Trust other
than from the assets belonging to such Series or Class, nor except
as specifically provided in Section 1 of Article XI hereof, shall
any Shareholder of any particular Series or Class otherwise have any
right or claim against the assets belonging to any other Series or
Class except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series or Class.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration of Trust, including, without limitation, Section 1 of
Article VIII, only Shareholders of a particular Series or Class
shall be entitled to vote on any matters affecting such Series or
Class. Except with respect to matters as to which any particular
Series or Class is affected materially differently or as otherwise
required by applicable law, all of the Shares of each Series or
Class shall, on matters as to which such Series or Class is entitled
to vote, vote with other Series or Classes so entitled as a single
class. Notwithstanding the foregoing, with respect to matters which
would otherwise be voted on by two or more Series or Classes as a
single class, the Trustees may, in their sole discretion, submit
such matters to the Shareholders of any or all such Series or
Classes, separately.
(e) Fraction. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole Share of
that Series or Class, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust or of any Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have
the right to exchange said Shares for Shares of one or more other
Series or Classes in accordance with such requirements and
procedures as may be established by the Trustees.
(g) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or
Class, unless otherwise required by applicable law, to combine the
assets and liabilities belonging to a single Series or Class with
the assets and liabilities of one or more other Series or Classes.
(h) Elimination of Series or Classes. The Trustees shall have the
authority, without the approval of Shareholders of any Series or
Class, unless otherwise required by applicable law, to amend this
Declaration of Trust to abolish that Series or Class and to rescind
the establishment and designation thereof.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility. The Trustees
who shall serve as Trustees are the undersigned.
Section 2. Election of Trustees by Shareholders. Unless otherwise required
by the 1940 Act or any court or regulatory body of competent
jurisdiction, or unless the Trustees determine otherwise, a Trustee shall
be elected by the Trustees, and Shareholders shall have no right to elect
Trustees.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust, and until its termination as
hereinafter provided; except (a) that any Trustee may resign his office
at any time by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein; (b) that any Trustee may be removed
at any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such
removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become mentally or physically
incapacitated may be retired by written instrument signed by a majority
of the other Trustees, specifying the date of his retirement; and (d) a
Trustee may be removed at any special meeting of Shareholders of the
Trust by a vote of two-thirds of the outstanding Shares. Any removals
shall be effective as to the Trust and each Series and Class hereunder.
Section 4. Termination of Service and Appointment of Trustees. In case of
the death, resignation, retirement, removal or mental or physical
incapacity of any of the Trustees, or in case a vacancy shall, by reason
of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing such other person as they
in their discretion shall see fit. An appointment of a Trustee may be
made by the Trustees then in office in anticipation of a vacancy to occur
by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this Trust, the trust estate shall vest in
the new Trustee or Trustees, together with the continuing Trustees,
without any further act or conveyance, and he shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 4 is subject to
the provisions of Section 16(a) of the 1940 Act.
Section 5. Number of Trustees. The number of Trustees, not less than three
(3) nor more than twenty (20) serving hereunder at any time, shall be
determined by the Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally
incapacitated, the other Trustees shall have all the powers hereunder and
the certificate signed by a majority of the other Trustees of such
vacancy, absence or incapacity shall be conclusive, provided, however,
that no vacancy which reduces the number of Trustees below three (3)
shall remain unfilled for a period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee. The death,
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one or more of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
Section 7. Ownership of Assets. The assets belonging to each Series or Class
shall be held separate and apart from any assets now or hereafter held in
any capacity other than as Trustee hereunder by the Trustees or any
successor Trustee. All of the assets belonging to each Series or Class
or owned by the Trust shall at all times be considered as vested in the
Trustees. No Shareholder shall be deemed to have a severable ownership
interest in any individual asset belonging to any Series or Class or
owned by the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate undivided beneficial interest
in a Series or Class.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and
to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of
the Trust or a Series or Class. The Trustees shall not be bound or
limited by present or future laws or customs in regard to trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem
proper to accomplish the purpose of this Trust. Without limiting the
foregoing, the Trustees shall have the following specific powers and
authority, subject to any applicable limitation in the 1940 Act or in
this Declaration of Trust or in the By-Laws of the Trust:
(a) To buy, and invest funds in their hands in securities and other
property, including, but not limited to, common stocks, preferred
stocks, bonds, debentures, warrants and rights to purchase
securities, options, certificates of beneficial interest, money
market instruments, notes or other evidences of indebtedness issued
by any corporation, trust or association, domestic or foreign, or
issued or guaranteed by the United States of America or any agency
or instrumentality thereof, by the government of any foreign
country, by any State of the United States, or by any political
subdivision or agency or instrumentality of any State or foreign
country, or "when-issued" or "delayed-delivery" contracts for any
such securities, investment company shares or interests, or any
repurchase agreement or reverse repurchase agreement, or debt
instruments, commodities, commodity contracts and options thereon,
or to retain assets belonging to each and every Series or Class in
cash, and from time to time to change the investments of the assets
belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the Declaration
of Trust providing for the conduct of the business of the Trust and
to amend and repeal them to the extent that they do not reserve that
right to the Shareholders;
(c) To elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider appropriate;
(d) To appoint or otherwise engage a bank or other entity permitted by
the 1940 Act, as custodian of any assets belonging to any Series or
Class subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend disbursing
agents, Shareholder servicing agents, investment advisers,
sub-investment advisers, principal underwriters, administrative
service agents, and such other agents as the Trustees may from time
to time appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series or Class
either through a Principal Underwriter in the manner hereinafter
provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a committee
or committees composed of Trustees, including without limitation, an
Executive Committee, or to any officers of the Trust and to any
agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one or
more Series or Classes, subject to the provisions of Article XII,
Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons, including the
investment adviser of the Trust as the Trustees shall deem proper,
granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem
proper;
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other property;
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to
the usual business practice of Massachusetts business trusts or
investment companies;
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security
of which belongs to any Series or Class; to consent to any contract,
lease, mortgage, purchase, or sale of property by such corporation
or concern, and to pay calls or subscriptions with respect to any
security which belongs to any Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets belonging to any Series or Class to
pay, or to satisfy, any debts, claims or expenses incurred in
connection therewith, including those of litigation, upon any
evidence that the Trustees may deem sufficient (such powers shall
include without limitation any actions, suits, proceedings,
disputes, claims, demands and things relating to the Trust wherein
any of the Trustees may be named individually and the subject matter
of which arises by reason of business for or on behalf of the
Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such amounts
as the Trustees may deem desirable, but subject to the limitation
set forth in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee or agent of the Trust, or is or was serving at the request
of the Trust as a trustee, director, officer, agent or employee of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such;
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property
rights relating to any or all of the assets belonging to any Series
or Class;
The Trustees shall have all of the powers set forth in this Section 1
with respect to all assets and liabilities of each Series and Class.
Section 2. Principal Transactions. The Trustees shall not cause the Trust on
behalf of any Series or Class to buy any securities (other than Shares)
from or sell any securities (other than Shares) to, or lend any assets
belonging to any Series or Class to any Trustee or officer or employee of
the Trust or any firm of which any such Trustee or officer is a member
acting as principal unless permitted by the 1940 Act, but the Trust may
employ any such other party or any such person or firm or company in
which any such person is an interested person in any capacity not
prohibited by the 1940 Act.
Section 3. Trustees and Officers as Shareholders. Any Trustee, officer,
employee or other agent of the Trust may acquire, own and dispose of
Shares of any Series or Class to the same extent as if he were not a
Trustee, officer, employee or agent; and the Trustees may issue and sell
or cause to be issued or sold Shares of any Series or Class to and buy
such Shares from any such person or any firm or company in which he is an
interested person subject only to the general limitations herein
contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the By-Laws.
Section 4. Parties to Contract. The Trustees may enter into any contract of
the character described in Article VII or in Article IX hereof or any
other capacity not prohibited by the 1940 Act with any corporation, firm,
partnership, trust or association, although one or more of the
shareholders, Trustees, officers, employees or agents of the Trust or
their affiliates may be an officer, director, trustee, partner,
shareholder or interested person of such other party to the contract, and
no such contract shall be invalidated or rendered voidable by reason of
the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss
or expense to the Trust or any Series or Class under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, in the absence of actual fraud. The same person (including a
firm, corporation, partnership, trust or association) may be the other
party to contracts entered into pursuant to Article VII or Article IX or
any other capacity not prohibited by the 1940 Act, and any individual may
be financially interested or otherwise an interested person of persons
who are parties to any or all of the contracts mentioned in this
Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall be reimbursed from the
assets belonging to each particular Series or Class for all of such
Trustees' expenses as such expenses are allocated to and among any one or
more of the Series or Classes pursuant to Article III, Section 5(b),
including, without limitation, expenses of organizing the Trust or any
Series or Class and continuing its or their existence; fees and expenses
of Trustees and officers of the Trust; fees for investment advisory
services, administrative services and principal underwriting services
provided for in Article VII, Sections 1, 2 and 3; fees and expenses of
preparing and printing Registration Statements under the Securities Act
of 1933 and the 1940 Act and any amendments thereto; expenses of
registering and qualifying the Trust and any Series or Class and the
Shares of any Series or Class under federal and state laws and
regulations; expenses of preparing, printing and distributing
prospectuses and any amendments thereto sent to shareholders,
underwriters, broker-dealers and to investors who may be considering the
purchase of Shares; expenses of registering, licensing or other
authorization of the Trust or any Series or Class as a broker-dealer and
of its or their officers as agents and salesmen under federal and state
laws and regulations; interest expenses, taxes, fees and commissions of
every kind; expenses of issue (including cost of share certificates),
purchases, repurchases and redemptions of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, Shareholder
servicing agents and registrars; printing and mailing costs; auditing,
accounting and legal expenses; reports to Shareholders and governmental
officers and commissions; expenses of meetings of Shareholders and proxy
solicitations therefor; insurance expenses; association membership dues
and nonrecurring items as may arise, including all losses and liabilities
by them incurred in administering the Trust and any Series or Class,
including expenses incurred in connection with litigation, proceedings
and claims and the obligations of the Trust under Article XI hereof and
the By-Laws to indemnify its Trustees, officers, employees, shareholders
and agents, and any contract obligation to indemnify Principal
Underwriters under Section 3 of Article VII; and for the payment of such
expenses, disbursements, losses and liabilities, the Trustees shall have
a lien on the assets belonging to each Series or Class prior to any
rights or interests of the Shareholders of any Series or Class. This
section shall not preclude the Trust from directly paying any of the
aforementioned fees and expenses.
Section 2. Trustee Compensation. The Trustees shall be entitled to
compensation from the Trust from the assets belonging to any Series or
Class for their respective services as Trustees, to be determined from
time to time by vote of the Trustees, and the Trustees shall also
determine the compensation of all officers, employees, consultants and
agents whom they may elect or appoint. The Trust may pay out of the
assets belonging to any Series or Class any Trustee or any corporation,
firm, partnership, trust or other entity of which a Trustee is an
interested person for services rendered in any capacity not prohibited by
the 1940 Act, and such payments shall not be deemed compensation for
services as a Trustee under the first sentence of this Section 2 of
Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINCIPAL UNDERWRITER AND
TRANSFER AGENT
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Section 1. Investment Adviser. Subject to a Majority Shareholder Vote by the
relevant Series or Class to the extent such vote is required by law, the
Trustees may in their discretion from time to time enter into an
investment advisory contract whereby the other party to such contract
shall undertake to furnish the Trustees investment advisory services for
such Series or Class upon such terms and conditions and for such
compensation as the Trustees may in their discretion determine. Subject
to a Majority Shareholder Vote by the relevant Series or Class to the
extent such vote is required by law, the investment adviser may enter
into a sub-investment advisory contract to receive investment advice
and/or statistical and factual information from the sub-investment
adviser for such Series or Class upon such terms and conditions and for
such compensation as the Trustees, in their discretion, may agree.
Notwithstanding any provisions of this Declaration of Trust, the Trustees
may authorize the investment adviser or sub-investment adviser or any
person furnishing administrative personnel and services as set forth in
Article VII, Section 2 (subject to such general or specific instructions
as the Trustees may from time to time adopt) to effect purchases, sales
or exchanges of portfolio securities belonging to a Series or Class on
behalf of the Trustees or may authorize any officer, employee or Trustee
to effect such purchases, sales, or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the
Trustees). Any such purchases, sales and exchanges shall be deemed to
have been authorized by the Trustees. The Trustees may also authorize
the investment adviser to determine what firms shall be employed to
effect transactions in securities for the account of a Series or Class
and to determine what firms shall participate in any such transactions or
shall share in commissions or fees charged in connection with such
transactions.
Section 2. Administrative Services. The Trustees may in their discretion
from time to time contract for administrative personnel and services
whereby the other party shall agree to provide the Trustees
administrative personnel and services to operate the Trust or a Series or
Class on a daily basis, on such terms and conditions as the Trustees may
in their discretion determine. Such services may be provided by one or
more entities.
Section 3. Principal Underwriter. The Trustees may in their discretion from
time to time enter into an exclusive or nonexclusive contract or
contracts providing for the sale of the Shares of a Series or Class to
net such Series or Class not less than the amount provided in
Article III, Section 3 hereof, whereby a Series or Class may either agree
to sell the Shares to the other party to the contract or appoint such
other party its sales agent for such shares. In either case, the
contract shall be on such terms and conditions (including indemnification
of Principal Underwriters allowable under applicable law and regulation)
as the Trustees may in their discretion determine not inconsistent with
the provisions of this Article VII; and such contract may also provide
for the repurchase or sale of Shares of a Series or Class by such other
party as principal or as agent of the Trust and may provide that the
other party may maintain a market for shares of a Series or Class.
Section 4. Transfer Agent. The Trustees may in their discretion from time
to time enter into transfer agency and Shareholder services contracts
whereby the other party shall undertake to furnish transfer agency and
Shareholder services. The contracts shall be on such terms and
conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Declaration of Trust or of the
By-Laws. Such services may be provided by one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. Subject to the provisions set forth in
Article III, Section 5(d), the Shareholders shall have power to vote, (i)
for the election of Trustees as provided in Article IV, Section 2; (ii)
for the removal of Trustees as provided in Article IV, Section 3(d);
(iii) with respect to any investment adviser or sub-investment adviser as
provided in Article VII, Section 1; (iv) with respect to the amendment of
this Declaration of Trust as provided in Article XII, Section 7; and (v)
with respect to such additional matters relating to the Trust as may be
required by law, by this Declaration of Trust, or the By-Laws of the
Trust or any regulation of the Trust or the Securities and Exchange
Commission or any State, or as the Trustees may consider desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in
the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or
on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on
the challenger. At all meetings of Shareholders, unless inspectors of
election have been appointed, all questions relating to the qualification
of votes and the validity of proxies and the acceptance or rejection of
votes shall be decided by the chairman of the meeting. Unless otherwise
specified in the proxy, the proxy shall apply to all shares of the Trust
(or each Series or Class) owned by the Shareholder. Any proxy may be in
written form, telephonic or electronic form, including facsimile, and all
such forms shall be valid when in conformance with procedures established
and implemented by the officers of the Trust. Until Shares of a Series
or Class are issued, the Trustees may exercise all rights of Shareholders
of such Series or Class with respect to matters affecting such Series or
Class, and may take any action with respect to the Trust or such Series
or Class required or permitted by law, this Declaration of Trust or any
By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. A Shareholders' meeting shall be held as specified in
Section 2 of Article IV at the principal office of the Trust or such
other place as the Trustees may designate. Special meetings of the
Shareholders may be called by the Trustees or the Chief Executive Officer
of the Trust and shall be called by the Trustees upon the written request
of Shareholders owning at least one-tenth of the outstanding Shares of
all Series and Classes entitled to vote. Shareholders shall be entitled
to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by law,
the presence in person or by proxy of the holders of (a) one-half of the
Shares of the Trust on all matters requiring a Majority Shareholder Vote,
as defined in the Investment Company Act of 1940, or (b) one-third of the
Shares of the Trust on all other matters permitted by law, in each case,
entitled to vote without regard to Class shall constitute a quorum at any
meeting of the Shareholders, except with respect to any matter which by
law requires the separate approval of one or more Series or Classes, in
which case the presence in person or by proxy of the holders of one-half
or one-third, as set forth above, of the Shares of each Series or Class
entitled to vote separately on the matter shall constitute a quorum.
When any one or more Series or Class is entitled to vote as a single
Series or Class, one-half, or one-third, as appropriate, of the Shares of
each such Series or Class entitled to vote shall constitute a quorum at a
Shareholders' meeting of that Series or Class. If a quorum shall not be
present for the purpose of any vote that may properly come before the
meeting, the Shares present in person or by proxy and entitled to vote at
such meeting on such matter may, by plurality vote, adjourn the meeting
from time to time to such place and time without further notice than by
announcement to be given at the meeting until a quorum entitled to vote
on such matter shall be present, whereupon any such matter may be voted
upon at the meeting as though held when originally convened. Subject to
any applicable requirement of law or of this Declaration of Trust or the
By-Laws, a plurality of the votes cast shall elect a Trustee, and all
other matters shall be decided by a majority of the votes cast and
entitled to vote thereon.
Section 4. Action by Written Consent. Subject to the provisions of the 1940
Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on
the matter (or such larger proportion thereof as shall be required by
applicable law or by any express provision of this Declaration of Trust
or the By-Laws) consents to the action in writing. Such consents shall
be treated for all purposes as a vote taken at a meeting of Shareholders.
Section 5. Additional Provisions. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial and accounting services to the Trust or
any Series or Class. The contracts shall be on the terms and conditions
as the Trustees may in their discretion determine not inconsistent with
the provisions of this Declaration of Trust or of the By-Laws. Such
services may be provided by one or more entities, including one or more
sub-custodians.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends to the
Shareholders of any Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the discretion
of the Trustees. The frequency of dividends and distributions to
Shareholders may be determined by the Trustees pursuant to a
standing resolution, or otherwise. Such dividends may be accrued
and automatically reinvested in additional Shares (or fractions
thereof) of the relevant Series or Class or another Series or Class,
or paid in cash or additional Shares of the relevant Series or
Class, all upon such terms and conditions as the Trustees may
prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively, amounts
sufficient to enable any Series or Class to qualify as a regulated
investment company and to avoid any liability for federal income or
excise taxes in respect of that year.
(c) The decision of the Trustees as to what constitutes income and
what constitutes principal shall be final, and except as
specifically provided herein the decision of the Trustees as to what
expenses and charges of any Series or Class shall be charged against
principal and what against the income shall be final. Any income
not distributed in any year may be permitted to accumulate and as
long as not distributed may be invested from time to time in the
same manner as the principal funds of any Series or Class.
(d) All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of that
Series or Class in proportion to the number of Shares of that Series
or Class held by such holders and recorded on the books of the Trust
or its transfer agent at the date and time of record established for
that payment.
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of any Series or Class at any
time desires to dispose of Shares of such Series or Class recorded
in his name, he may deposit a written request (or such other form of
request as the Trustees may from time to time authorize) requesting
that the Trust purchase his Shares, together with such other
instruments or authorizations to effect the transfer as the Trustees
may from time to time require, at the office of the transfer agent,
or as otherwise provided by the Trustees and the Trust shall
purchase his Shares out of assets belonging to such Series or Class.
The purchase price shall be the net asset value of his shares
reduced by any redemption charge or deferred sales charge as the
Trustees from time to time may determine.
Payment for such Shares shall be made by the Trust to the
Shareholder of record within that time period required under the
1940 Act after the request (and, if required, such other instruments
or authorizations of transfer) is received, subject to the right of
the Trustees to postpone the date of payment pursuant to Section 4
of this Article X. If the redemption is postponed beyond the date
on which it would normally occur by reason of a declaration by the
Trustees suspending the right of redemption pursuant to Section 4 of
this Article X, the right of the Shareholder to have his Shares
purchased by the Trust shall be similarly suspended, and he may
withdraw his request (or such other instruments or authorizations of
transfer) from deposit if he so elects; or, if he does not so elect,
the purchase price shall be the net asset value of his Shares
determined next after termination of such suspension (reduced by any
redemption charge or deferred sales charge), and payment therefor
shall be made within the time period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by agreement
with the owner thereof at a purchase price not exceeding the net
asset value per Share (reduced by any redemption charge or deferred
sales charge) determined (1) next after the purchase or contract of
purchase is made or (2) at some later time.
(c) The Trust may pay the purchase price (reduced by any redemption
charge or deferred sales charge) in whole or in part by a
distribution in kind of securities from the portfolio of the
relevant Series or Class, taking such securities at the same value
employed in determining net asset value, and selecting the
securities in such manner as the Trustees may deem fair and
equitable.
Section 3. Net Asset Value of Shares. The net asset value of each Share of a
Series or Class outstanding shall be determined at such time or times as
may be determined by or on behalf of the Trustees. The power and duty to
determine net asset value may be delegated by the Trustees from time to
time to one or more of the Trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 1 or 2 of
Article VII or to the custodian or to a transfer agent or other person
designated by the Trustees.
The net asset value of each Share of a Series or Class as of any
particular time shall be the quotient (adjusted to the nearer cent)
obtained by dividing the value, as of such time, of the net assets
belonging to such Series or Class (i.e., the value of the assets
belonging to such Series or Class less the liabilities belonging to such
Series or Class exclusive of capital and surplus) by the total number of
Shares outstanding of the Series or Class at such time in accordance with
the requirements of the 1940 Act and applicable provisions of the By-Laws
of the Trust in conformity with generally accepted accounting practices
and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period in accordance with the 1940
Act.
Section 4. Suspension of the Right of Redemption. The Trustees may declare a
suspension of the right of redemption or postpone the date of payment for
the whole or any part of any period in accordance with the 1940 Act.
Section 5. Trust's Right to Redeem Shares. The Trust shall have the right to
cause the redemption of Shares of any Series or Class in any
Shareholder's account for their then current net asset value and promptly
make payment to the shareholder (which payment may be reduced by any
applicable redemption charge or deferred sales charge), if (a) at any
time the total investment in the account does not have a minimum dollar
value determined from time to time by the Trustees in their sole
discretion, (b) at any time a Shareholder fails to furnish certified
Social Security or Tax Identification Numbers, or (c) at any time the
Trustees determine in their sole discretion that failure to so redeem may
have materially adverse consequences to the other Shareholders or the
Trust or any Series or Class thereof.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the Trust
shall have no power to bind any Shareholder of any Series or Class
personally or to call upon such Shareholder for the payment of any sum of
money or assessment whatsoever, other than such as the Shareholder may at
any time agree to pay by way of subscription for any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his being or having been a Shareholder for any
debt, claim, action, demand, suit, proceeding, judgment, decree,
liability or obligation of any kind, against or with respect to the Trust
or any Series or Class arising out of any action taken or omitted for or
on behalf of the Trust or such Series or Class, and the Trust or such
Series or Class shall be solely liable therefor and resort shall be had
solely to the property of the relevant Series or Class of the Trust for
the payment or performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in
case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified
against to the full extent of such liability and the costs of any
litigation or other proceedings in which such liability shall have been
determined, including, without limitation, the fees and disbursements of
counsel if, contrary to the provisions hereof, such Shareholder or former
Shareholder of such Series or Class shall be held to be personally
liable. Such indemnification shall come exclusively from the assets of
the relevant Series or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act
or obligation of the Trust or any Series or Class and satisfy any
judgment thereon.
Section 2. Limitation of Personal Liability and Indemnification of Trustees,
Officers, Employees or Agents of the Trust. No Trustee, officer,
employee or agent of the Trust shall have the power to bind any other
Trustee, officer, employee or agent of the Trust personally. The
Trustees, officers, employees or agents of the Trust in incurring any
debts, liabilities or obligations, or in taking or omitting any other
actions for or in connection with the Trust, are, and each shall be
deemed to be, acting as Trustee, officer, employee or agent of the Trust
and not in his own individual capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee or officer, as
the case may be, and for nothing else.
Each person who is or was a Trustee, officer, employee or agent of the
Trust shall be entitled to indemnification out of the assets of the Trust
(or of any Series or Class) to the extent provided in, and subject to the
provisions of, the By-Laws, provided that no indemnification shall be
granted in contravention of the 1940 Act.
Section 3. Express Exculpatory Clauses and Instruments.
(a) All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series or Class shall only
look to the assets of the Trust or the assets of that particular
Series or Class for payment under such credit, contract or claim;
and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or
future, shall be liable therefor.
(b) The Trustees shall use every reasonable means to assure that all
persons having dealings with the Trust or any Series or Class shall
be informed that the property of the Shareholders and the Trustees,
officers, employees and agents of the Trust or any Series or Class
shall not be subject to claims against or obligations of the Trust
or any other Series or Class to any extent whatsoever. The Trustees
shall cause to be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust or any Series or
Class (including certificates for Shares of any Series or Class) an
appropriate reference to the provisions of this Declaration of
Trust, providing that neither the Shareholders, the Trustees, the
officers, the employees nor any agent of the Trust or any Series or
Class shall be liable thereunder, and that the other parties to such
instrument shall look solely to the assets belonging to the relevant
Series or Class for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any
such instrument shall not render any Shareholder, Trustee, officer,
employee or agent liable, nor shall the Trustee, or any officer,
agent or employee of the Trust or any Series or Class be liable to
anyone for such omission. If, notwithstanding this provision, any
Shareholder, Trustee, officer, employee or agent shall be held
liable to any other person by reason of the omission of such
provision from any such agreement, undertaking or obligation, the
Shareholder, Trustee, officer, employee or agent shall be
indemnified and reimbursed by the Trust.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership. It is hereby expressly declared that
a trust and not a partnership is created hereby.
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety. The
exercise by the Trustees of their powers and discretions hereunder shall
be binding upon everyone interested. Subject to the provisions of
Article XI, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or
other experts with respect to the meaning and operation of this
Declaration of Trust, and subject to the provisions of Article XI, shall
be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Section 3. Establishment of Record Dates. The Trustees may close the Share
transfer books of the Trust maintained with respect to any Series or
Class for a period not exceeding ninety (90) days preceding the date of
any meeting of Shareholders of the Trust or any Series or Class, or the
date for the payment of any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares of any Series or Class
shall go into effect or the last day on which the consent or dissent of
Shareholders of any Series or Class may be effectively expressed for any
purpose; or in lieu of closing the Share transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days
preceding the date of any meeting of Shareholders of the Trust or any
Series or Class, or the date for the payment of any dividend or the
making of any distribution to Shareholders of any Series or Class, or the
date for the allotment of rights, or the date when any change or
conversion or exchange of Shares of any Series or Class shall go into
effect, or the last day on which the consent or dissent of Shareholders
of any Series or Class may be effectively expressed for any purpose, as a
record date for the determination of the Shareholders entitled to notice
of, and, to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend or distribution, or to
any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of shares, or to exercise the right
to give such consent or dissent, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting,
or to receive payment of such dividend or distribution, or to receive
such allotment or rights, or to change, convert or exchange Shares of any
Series or Class, or to exercise such rights, as the case may be,
notwithstanding, after such date fixed aforesaid, any transfer of any
Shares on the books of the Trust maintained with respect to any Series or
Class. Nothing in the foregoing sentence shall be construed as
precluding the Trustees from setting different record dates for different
Series or Classes.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of this
Section 4.
(b) The Trustees may, by majority action, with the approval of a
Majority Shareholder Vote of each Series or Class entitled to vote
as determined by the Trustees under Section 5(d) of Article III,
sell and convey the assets of the Trust or any Series or Class to
another trust or corporation. Upon making provision for the payment
of all outstanding obligations, taxes and other liabilities, accrued
or contingent, belonging to each Series or Class, the Trustees shall
distribute the remaining assets belonging to each Series or Class
ratably among the holders of the outstanding Shares of that Series
or Class. The Trustees shall make a good faith determination that a
conveyance of a part of the assets of a Series or Class is in the
best interest of Shareholders of the relevant Series or Class.
(c) The Trustees may at any time sell and convert into money all
the assets of the Trust or any Series or Class without Shareholder
approval, unless otherwise required by applicable law. Upon making
provision for the payment of all outstanding obligations, taxes and
other liabilities, accrued or contingent, belonging to each Series
or Class, the Trustees shall distribute the remaining assets
belonging to each Series or Class ratably among the holders of the
outstanding Shares of that Series or Class.
(d) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b) and (c), the
Trust or the applicable Series or Class shall terminate and the
Trustees shall be discharged of any and all further liabilities and
duties hereunder or with respect thereto and the right, title and
interest of all parties shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies, Headings, Counterparts.
The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be c/o Donnelly, Conroy & Gelhaar, One Post
Office Square, Boston, Massachusetts 02109-2105, and shall continue to
maintain an office at such address unless changed by the Trustees to
another location in Massachusetts. The Trust may maintain other offices
as the Trustees may from time to time determine. The original or a copy
of this instrument and of each declaration of trust supplemental hereto
shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each supplemental
declaration of trust shall be filed by the Trustees with the
Massachusetts Secretary of State and the Boston City Clerk, as well as
any other governmental office where such filing may from time to time be
required. Headings are placed herein for convenience of reference only
and in case of any conflict, the text of this instrument, rather than the
headings shall control. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is created
under and is to be governed by and construed and administered according
to the laws of The Commonwealth of Massachusetts. The Trust shall be of
the type commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 7. Amendments -- General. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of
the right to amend this Declaration of Trust as herein provided, except
that no amendment shall repeal the limitations on personal liability of
any Shareholder or Trustee or repeal the prohibition of assessment upon
the Shareholders without the express consent of each Shareholder or
Trustee involved. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does
not adversely affect the rights of any Shareholder with respect to which
such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940
Act, by an instrument in writing signed by a majority of the then
Trustees (or by an officer of the Trust pursuant to the vote of a
majority of such Trustees). Any amendment to this Declaration of Trust
that adversely affects the rights of Shareholders may be adopted at any
time by an instrument signed in writing by a majority of the then
Trustees (or by any officer of the Trust pursuant to the vote of a
majority of such Trustees) when authorized to do so by the vote of the
Shareholders holding a majority of the Shares entitled to vote. Subject
to the foregoing, any such amendment shall be effective as provided in
the instrument containing the terms of such amendment or, if there is no
provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such
instrument) executed by a Trustee or officer to the effect that such
amendment has been duly adopted. Copies of the amendment to this
Declaration of Trust shall be filed as specified in Section 5 of this
Article XII. A restated Declaration of Trust, integrating into a single
instrument all of the provisions of the Declaration of Trust which are
then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall be effective upon filing as specified
in Section 5.
Section 8. Amendments -- Series and Classes. The establishment and
designation of any Series or Class of Shares in addition to those
established and designated in Section 5 of Article III hereof shall be
effective upon the execution by a majority of the then Trustees, without
the need for Shareholder approval, of an amendment to this Declaration of
Trust, taking the form of a complete restatement or otherwise, setting
forth such establishment and designation and the relative rights and
preferences of any such Series or Class, or as otherwise provided in such
instrument.
Without limiting the generality of the foregoing, the Declaration of the
Trust may be amended without the need for Shareholder approval to:
(a) create one or more Series or Classes of Shares (in addition to
any Series or Classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for
investment therein as the Trustees shall determine and reclassify
any or all outstanding Shares as Shares of particular Series or
Classes in accordance with such eligibility requirements;
(b) combine two or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall
determine;
(c) change or eliminate any eligibility requirements for investment
in Shares of any Series or Class, including without limitation the
power to provide for the issue of Shares of any Series or Class in
connection with any merger or consolidation of the Trust with
another trust or company or any acquisition by the Trust of part or
all of the assets of another trust or company;
(d) change the designation of any Series or Class of Shares;
(e) change the method of allocating dividends among the various
Series and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
Series and Classes of Shares; and
(g) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of Shares
which are preferred over all other Series or Classes of Shares in
respect of assets specifically allocated thereto or any dividends
paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting
or other rights with respect to such Series or Classes.
Section 9. Use of Name. The Trust acknowledges that Federated Investors has
reserved the right to grant the non-exclusive use of the name "Federated
Investment Trust" or any derivative thereof to any other investment
company, investment company portfolio, investment adviser, distributor,
or other business enterprise, and to withdraw from the Trust or one or
more Series or Classes any right to the use of the name "Federated
Investment Trust".
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
day and year first above written.
/s/ John F. Donahue /s/ Lawrence D. Ellis, M.D.
John F. Donahue Lawrence D. Ellis, M.D.
/s/ J. Christopher Donahue /s/ Edward L. Flaherty, Jr.
J. Christopher Donahue Edward L. Flaherty, Jr.
/s/ Thomas G. Bigley /s/ Peter E. Madden
Thomas G. Bigley Peter E. Madden
/s/ John T. Conroy, Jr. /s/ Gregor F. Meyer
John T. Conroy, Jr. Gregor F. Meyer
/s/ William J. Copeland /s/ John E. Murray, Jr.
William J. Copeland John E. Murray, Jr.
/s/ James E. Dowd /s/ Wesley W. Posvar
James E. Dowd Wesley W. Posvar
/s/ Marjorie P. Smuts
Marjorie P. Smuts
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on OCTOBER 3 , 1995, before me, the subscriber, a
- -
Notary Public of the Commonwealth of Pennsylvania, in for the County of
Allegheny, personally appeared John F. Donahue, J. Christopher Donahue,
Thomas G. Bigley, Jr., John T. Conroy, Jr., William J. Copeland, James E.
Dowd, Lawrence D. Ellis, M.D., Edward L. Flaherty, Peter E. Madden,
Gregor F. Meyer, John E. Murray, Jr, Wesley W. Posvar, Marjorie P. Smuts,
who acknowledged the foregoing Declaration of Trust to be their act.
Witness my hand and notarial seal the day and year above written.
/s/ Marie M. Hamm
Exhibit 2 under Form N-1A
Exhibit 3(b) under Item 601/Reg SK
FEDERATED INVESTMENT TRUST
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I: OFFICERS AND THEIR ELECTION.................................1
Section 1 Officers...............................................1
Section 2 Election of Officers...................................1
Section 3 Resignations and Removals and Vacancies................1
ARTICLE II: POWERS AND DUTIES OF TRUSTEES AND OFFICERS..................1
Section 1 Trustees...............................................1
Section 2 Chairman of the Trustees ("Chairman") .................1
Section 3 President .............................................1
Section 4 Vice President ........................................2
Section 5 Secretary .............................................2
Section 6 Treasurer .............................................2
Section 7 Assistant Vice President ..............................2
Section 8 Assistant Secretaries and Assistant Treasurers ........2
Section 9 Salaries ..............................................2
ARTICLE III: POWERS AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES...3
Section 1 Executive and Other Committees ........................3
Section 2 Vacancies in Executive Committee ......................3
Section 3 Executive Committee to Report to Trustees..............3
Section 4 Procedure of Executive Committee ......................3
Section 5 Powers of Executive Committee .........................3
Section 6 Compensation ..........................................3
Section 7 Action by Consent of the Board of Trustees, Executive
Committee
or Other Committee ...........................................3
ARTICLE IV: SHAREHOLDERS' MEETINGS.....................................4
Section 1 Special Meetings ......................................4
Section 2 Notices ...............................................4
Section 3 Place of Meeting ......................................4
Section 4 Action by Consent .....................................4
Section 5 Proxies ...............................................4
Page
ARTICLE V: TRUSTEES' MEETINGS.........................................4
Section 1 Number and Qualifications of Trustees ...............4
Section 2 Special Meetings ....................................5
Section 3 Regular Meetings ....................................5
Section 4 Quorum and Vote .....................................5
Section 5 Notices .............................................5
Section 6 Place of Meeting ....................................5
Section 7 Teleconference Meetings; Action by Consent ..........5
Section 8 Special Action ......................................5
Section 9 Action by Consent ...................................6
Section 10 Compensation of Trustees ............................6
ARTICLE VI: SHARES....................................................6
Section 1 Certificates ..........................................6
Section 2 Transfer of Shares ....................................6
Section 3 Equitable Interest Not Recognized .....................6
Section 4 Lost, Destroyed or Mutilated Certificates..............6
Section 5 Transfer Agent and Registrar: Regulations..............7
ARTICLE VII: INSPECTION OF BOOKS.......................................7
ARTICLE VIII: AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC............7
Section 1 Agreements, Etc .......................................7
Section 2 Checks, Drafts, Etc ...................................7
Section 3 Endorsements, Assignments and Transfer of Securities ..7
Section 4 Evidence of Authority .................................8
ARTICLE IX: INDEMNIFICATION OF TRUSTEES AND OFFICERS...................8
Section 1 General ...............................................8
Section 2 Compromise Payment ....................................8
Section 3 Indemnification Not Exclusive; Definitions ............8
ARTICLE X: SEAL........................................................9
ARTICLE XI: FISCAL YEAR................................................9
ARTICLE XII: AMENDMENTS................................................9
Page
ARTICLE XIII: WAIVERS OF NOTICE........................................9
ARTICLE XIV: REPORT TO SHAREHOLDERS....................................9
ARTICLE XV: BOOKS AND RECORDS.........................................10
ARTICLE XVI: TERMS....................................................10
FEDERATED INVESTMENT TRUST
BY-LAWS
ARTICLE I
OFFICERS AND THEIR ELECTION
Section 1. Officers. The officers of the Trust shall be elected by the
Board of Trustees, and shall be a President, one or more Vice
Presidents, a Treasurer, a Secretary and such other officers as the
Trustees may from time to time elect. The Board of Trustees, in its
discretion, may also elect a Chairman of the Board of Trustees (who
must be a Trustee). It shall not be necessary for any Trustee or
other officer to be a holder of shares in any Series or Class of the
Trust.
Section 2. Election of Officers. The President, Vice President(s),
Treasurer and Secretary shall be elected annually by the Trustees, and
serve until a successor is so elected and qualified, or until earlier
resignation or removal. The Chairman of the Trustees,if there is one,
shall be elected annually by and from the Trustees, and serve until a
successor is so elected and qualified, or until earlier resignation or
removal.
Two or more offices may be held by a single person except the offices
of President and Secretary. The officers shall hold office until
their successors are elected and qualified.
Section 3. Resignations and Removals and Vacancies. Any officer of the
Trust may resign by filing a written resignation with the President
(or Chairman, if there is one) of the Trustees or with the Trustees or
with the Secretary, which shall take effect on being so filed or at
such time as may be therein specified. The Trustees may remove any
officer, with or without cause, by a majority vote of all of the
Trustees. The Trustees may fill any vacancy created in any office
whether by resignation, removal or otherwise, subject to the
limitations of the Investment Company Act of 1940.
ARTICLE II
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
Section 1. Trustees. The business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.
Section 2. Chairman of the Trustees ("Chairman"). The Chairman, if there
be a Chairman, shall preside at the meetings of Shareholders and of
the Board of Trustees. He shall have general supervision over the
business of the Trust and policies of the Trust. He shall employ and
define the duties of all employees of the Trust, shall have power to
discharge any such employees, shall exercise general supervision over
the affairs of the Trust and shall perform such other duties as may be
assigned to him from time to time by the Trustees. The Chairman shall
appoint a Trustee or officer to preside at such meetings in his
absence.
Section 3. President. The President shall be the chief executive officer
of the Trust. The President, in the absence of the Chairman, or if
there is no Chairman, shall perform all duties and may exercise any
of the powers of the Chairman subject to the control of the Trustees.
He shall counsel and advise the Chairman and shall perform such other
duties as may be assigned to him from time to time by the Trustees,
the Chairman or the Executive Committee. The President shall have the
power to appoint one or more Assistant Secretaries or other junior
officers, subject to ratification of such appointments by the Board.
The President shall have the power to sign, in the name of and on
behalf of the Trust, powers of attorney, proxies, waivers of notice of
meeting, consents and other instruments relating to securities or
other property owned by the Trust, and may, in the name of and on
behalf of the Trust, take all such action as the President may deem
advisable in entering into agreements to purchase securities or other
property in the ordinary course of business, and to sign
representation letters in the course of buying securities or other
property.
Section 4. Vice President. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform
all duties and may exercise any of the powers of the President subject
to the control of the Trustees. Each Vice President shall perform
such other duties as may be assigned to him from time to time by the
Trustees, the Chairman, the President, or the Executive Committee.
Each Vice President shall be authorized to sign documents on behalf of
the Trust. The Vice President shall have the power to sign, in the
name of and on behalf of the Trust and subject to Article VIII,
Section 1, powers of attorney, proxies, waivers of notice of meeting,
consents and other instruments relating to securities or other
property owned by the Trust, and may, in the name of and on behalf of
the Trust, take all such action as the Vice President may deem
advisable in entering into agreements to purchase securities or other
property in the ordinary course of business, and to sign
representation letters in the course of buying securities or other
property.
Section 5. Secretary. The Secretary shall keep or cause to be kept in
books provided for that purpose the Minutes of the Meetings of
Shareholders and of the Trustees; shall see that all Notices are duly
given in accordance with the provisions of these By-Laws and as
required by law; shall be custodian of the records and of the Seal of
the Trust (if there be a Seal) and see that the Seal is affixed to all
documents, the execution of which on behalf of the Trust under its
Seal is duly authorized; shall keep directly or through a transfer
agent a register of the post office address of each shareholder of
each Series or Class of the Trust, and make all proper changes in such
register, retaining and filing his authority for such entries; shall
see that the books, reports, statements, certificates and all other
documents and records required by law are properly kept and filed; and
in general shall perform all duties incident to the Office of
Secretary and such other duties as may from time to time be assigned
to him by the Trustees, Chairman, the President, or the Executive
Committee.
Section 6. Treasurer. The Treasurer shall be the principal financial and
accounting officer of the Trust responsible for the preparation and
maintenance of the financial books and records of the Trust. He shall
deliver all funds and securities belonging to any Series or Class to
such custodian or sub-custodian as may be employed by the Trust for
any Series or Class. The Treasurer shall perform such duties
additional to the foregoing as the Trustees, Chairman, the President
or the Executive Committee may from time to time designate.
Section 7. Assistant Vice President. The Assistant Vice President or
Vice Presidents of the Trust shall have such authority and perform
such duties as may be assigned to them by the Trustees, the Executive
Committee, the President, or the Chairman.
Section 8. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers
shall perform the duties of the Secretary and of the Treasurer,
respectively, in the absence of those Officers and shall have such
further powers and perform such other duties as may be assigned to
them respectively by the Trustees or the Executive Committee, the
President, or the Chairman.
Section 9. Salaries. The salaries of the Officers shall be fixed from
time to time by the Trustees. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE III
POWERS AND DUTIES OF THE EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Trustees may elect from
their own number an Executive Committee to consist of not less than
two members. The Executive Committee shall be elected by a resolution
passed by a vote of at least a majority of the Trustees then in
office. The Trustees may also elect from their own number other
committees from time to time, the number composing such committees and
the powers conferred upon the same to be determined by vote of the
Trustees. Any committee may make rules for the conduct of its
business.
Section 2. Vacancies in Executive Committee. Vacancies occurring in the
Executive Committee from any cause shall be filled by the Trustees by
a resolution passed by the vote of at least a majority of the Trustees
then in office.
Section 3. Executive Committee to Report to Trustees. All action by the
Executive Committee shall be reported to the Trustees at their meeting
next succeeding such action.
Section 4. Procedure of Executive Committee. The Executive Committee
shall fix its own rules of procedure not inconsistent with these By-
Laws or with any directions of the Trustees. It shall meet at such
times and places and upon such notice as shall be provided by such
rules or by resolution of the Trustees. The presence of a majority
shall constitute a quorum for the transaction of business, and in
every case an affirmative vote of a majority of all the members of the
Committee present shall be necessary for the taking of any action.
Section 5. Powers of Executive Committee. During the intervals between
the Meetings of the Trustees, the Executive Committee, except as
limited by the By-Laws of the Trust or by specific directions of the
Trustees, shall possess and may exercise all the powers of the
Trustees in the management and direction of the business and conduct
of the affairs of the Trust in such manner as the Executive Committee
shall deem to be in the best interests of the Trust, and shall have
power to authorize the Seal of the Trust (if there is one) to be
affixed to all instruments and documents requiring same.
Notwithstanding the foregoing, the Executive Committee shall not have
the power to elect or remove Trustees, increase or decrease the number
of Trustees, elect or remove any Officer, declare dividends, issue
shares or recommend to shareholders any action requiring shareholder
approval.
Section 6. Compensation. The members of any duly appointed committee
shall receive such compensation and/or fees as from time to time may
be fixed by the Trustees.
Section 7. Action by Consent of the Board of Trustees, Executive
Committee or Other Committee. Subject to Article V, Section 2 of
these By-Laws, any action required or permitted to be taken at any
meeting of the Trustees, Executive Committee or any other duly
appointed Committee may be taken without a meeting if consents in
writing setting forth such action are signed by all members of the
Board or such committee and such consents are filed with the records
of the Trust. In the event of the death, removal, resignation or
incapacity of any Board or committee member prior to that Trustee
signing such consent, the remaining Board or committee members may re-
constitute themselves as the entire Board or committee until such time
as the vacancy is filled in order to fulfill the requirement that such
consents be signed by all members of the Board or committee.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. Special Meetings. A special meeting of the shareholders of the
Trust or of a particular Series or Class shall be called by the
Secretary whenever ordered by the Trustees, the Chairman or requested
in writing by the holder or holders of at least one-tenth of the
outstanding shares of the Trust or of the relevant Series or Class,
entitled to vote. If the Secretary, when so ordered or requested,
refuses or neglects for more than two days to call such special
meeting, the Trustees, Chairman or the shareholders so requesting may,
in the name of the Secretary, call the meeting by giving notice
thereof in the manner required when notice is given by the Secretary.
Section 2. Notices. Except as above provided, notices of any special
meeting of the shareholders of the Trust or a particular Series or
Class, shall be given by the Secretary by delivering or mailing,
postage prepaid, to each shareholder entitled to vote at said meeting,
a written or printed notification of such meeting, at least seven
business days before the meeting, to such address as may be registered
with the Trust by the shareholder. No notice of any meeting to
shareholders need be given to a shareholder if a written waiver of
notice, executed before or after the meeting by such shareholder or
his or her attorney that is duly authorized, is filed with the records
of the meeting. Notice may be waived as provided in Article XIII of
these By-Laws.
Section 3. Place of Meeting. Meetings of the shareholders of the Trust or
a particular Series or Class, shall be held at the principal place of
business of the Trust in Pittsburgh, Pennsylvania, or at such place
within or without The Commonwealth of Massachusetts as fixed from time
to time by resolution of the Trustees.
Section 4. Action by Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting,
if a consent in writing, setting forth such action, is signed by a
majority of the shareholders entitled to vote on the subject matter
thereof, and such consent is filed with the records of the Trust.
Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic
means including facsimile, or by proxy. Every written proxy shall be
subscribed by the shareholder or his duly authorized attorney and
dated, but need not be sealed, witnessed or acknowledged. All proxies
shall be filed with and verified by the Secretary or an Assistant
Secretary of the Trust or, the person acting as Secretary of the
Meeting.
ARTICLE V
TRUSTEES' MEETINGS
Section 1. Number and Qualifications of Trustees. The number of Trustees
can be changed from time to time by a majority of the Trustees to not
less than three nor more than twenty. The term of office of a Trustee
shall not be affected by any decrease in the number of Trustees made
by the Trustees pursuant to the foregoing authorization. Each Trustee
shall hold office for the life of the Trust, or as otherwise provided
in the Declaration of Trust.
Section 2. Special Meetings. Special meetings of the Trustees shall be
called by the Secretary at the written request of the Chairman, the
President, or any Trustee, and if the Secretary when so requested
refuses or fails for more than twenty-four hours to call such meeting,
the Chairman, the President, or such Trustee may in the name of the
Secretary call such meeting by giving due notice in the manner
required when notice is given by the Secretary.
Section 3. Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the
Trustees may from time to time determine, provided that any Trustee
who is absent when such determination is made shall be given notice of
the determination.
Section 4. Quorum and Vote. A majority of the Trustees shall constitute a
quorum for the transaction of business. The act of a majority of the
Trustees present at any meeting at which a quorum is present shall be
the act of the Trustees unless a greater proportion is required by the
Declaration of Trust or these By-Laws or applicable law. In the
absence of a quorum, a majority of the Trustees present may adjourn
the meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
Section 5. Notices. The Secretary or any Assistant Secretary shall give,
at least two days before the meeting, notice of each meeting of the
Board of Trustees, whether Annual, Regular or Special, to each member
of the Board by mail, telegram, telephone or electronic facsimile to
his last known address. It shall not be necessary to state the
purpose or business to be transacted in the notice of any meeting
unless otherwise required by law. Personal attendance at any meeting
by a Trustee other than to protest the validity of said meeting shall
constitute a waiver of the foregoing requirement of notice. In
addition, notice of a meeting need not be given if a written waiver of
notice executed by such Trustee before or after the meeting is filed
with the records of the meeting.
Section 6. Place of Meeting. Meetings of the Trustees shall be held at
the principal place of business of the Trust in Pittsburgh,
Pennsylvania, or at such place within or without The Commonwealth of
Massachusetts as fixed from time to time by resolution of the
Trustees, or as the person or persons requesting said meeting to be
called may designate, but any meeting may adjourn to any other place.
Section 7. Teleconference Meetings; Action by Consent. Except as
otherwise provided herein or from time to time in the 1940 Act or in
the Declaration of Trust, any action to be taken by the Trustees may
be taken by a majority of the Trustees within or without
Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all
persons participating in the meeting can communicate with each other
simultaneously, and participation by such means shall constitute
presence in person at a meeting. Any action by the Trustees may be
taken without a meeting if a written consent thereto is signed by all
the Trustees and filed with the records of the Trustees' meetings.
Such consent shall be treated as a vote of the Trustees for all
purposes.Written consents may be executed in counterparts, which when
taken together, constitute a validly executed consent of the Trustees.
Section 8. Special Action. When all the Trustees shall be present at any
meeting, however called, or whenever held, or shall assent to the
holding of the meeting without notice, or after the meeting shall sign
a written assent thereto on the record of such meeting, the acts of
such meeting shall be valid as if such meeting had been regularly
held.
Section 9. Compensation of Trustees. The Trustees may receive a stated
salary for their services as Trustees, and by resolution of Trustees a
fixed fee and expenses of attendance may be allowed for attendance at
each Meeting. Nothing herein contained shall be construed to preclude
any Trustee from serving the Trust in any other capacity, as an
officer, agent or otherwise, and receiving compensation therefor.
ARTICLE VI
SHARES
Section 1. Certificates. If certificates for shares are issued, all
certificates for shares shall be signed by the Chairman, President or
any Vice President and by the Treasurer or Secretary or any Assistant
Treasurer or Assistant Secretary and sealed with the seal of the
Trust, if the Trust has a seal. The signatures may be either manual
or facsimile signatures and the seal, if there is one, may be either
facsimile or any other form of seal. Certificates for shares for
which the Trust has appointed an independent Transfer Agent and
Registrar shall not be valid unless countersigned by such Transfer
Agent and registered by such Registrar. In case any officer who has
signed any certificate ceases to be an officer of the Trust before the
certificate is issued, the certificate may nevertheless be issued by
the Trust with the same effect as if the officer had not ceased to be
such officer as of the date of its issuance. Share certificates of
each Series or Class shall be in such form not inconsistent with law
or the Declaration of Trust or these By-Laws as may be determined by
the Trustees.
Section 2. Transfer of Shares. The shares of each Series and Class of the
Trust shall be transferable, so as to affect the rights of the Trust
or any Series or Class, only by transfer recorded on the books of the
Trust or its transfer agent, in person or by attorney.
Section 3. Equitable Interest Not Recognized. The Trust shall be entitled
to treat the holder of record of any share or shares of a Series or
Class as the absolute owner thereof and shall not be bound to
recognize any equitable or other claim or interest in such share or
shares of a Series or Class on the part of any other person except as
may be otherwise expressly provided by law.
Section 4. Lost, Destroyed or Mutilated Certificates. In case any
certificate for shares is lost, mutilated or destroyed, the Trustees
may issue a new certificate in place thereof upon indemnity to the
relevant Series or Class against loss and upon such other terms and
conditions as the Trustees may deem advisable.
Section 5. Transfer Agent and Registrar: Regulations. The Trustees shall
have power and authority to make all such rules and regulations as
they may deem expedient concerning the issuance, transfer and
registration of certificates for shares and may appoint a Transfer
Agent and/or Registrar of certificates for shares of each Series or
Class, and may require all such share certificates to bear the
signature of such Transfer Agent and/or of such Registrar.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and
regulations the accounts and books of the Trust maintained on behalf
of each Series and Class or any of them shall be open to the
inspection of the shareholders of any Series or Class; and no
shareholder shall have any right of inspecting any account or book or
document of the Trust except that, to the extent such account or book
or document relates to the Series or Class in which he is a
Shareholder or the Trust generally, such Shareholder shall have such
right of inspection as conferred by laws or authorized by the Trustees
or by resolution of the Shareholders of the relevant Series or Class.
ARTICLE VIII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. Agreements, Etc. The Trustees or the Executive Committee may
authorize any Officer or Agent of the Trust to enter into any
Agreement or execute and deliver any instrument in the name of the
Trust on behalf of any Series or Class, and such authority may be
general or confined to specific instances; and, unless so authorized
by the Trustees or by the Executive Committee or by the Declaration of
Trust or these By-Laws, no Officer, Agent or Employee shall have any
power or authority to bind the Trust by any Agreement or engagement or
to pledge its credit or to render it liable pecuniarily for any
purpose or for any amount.
Section 2. Checks, Drafts, Etc. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be
signed by such Officers, Employees, or Agents, as shall from time to
time be designated by the Trustees or the Executive Committee, or as
may be specified in or pursuant to the agreement between the Trust on
behalf of any Series or Class and the custodian appointed, pursuant to
the provisions of the Declaration of Trust.
Section 3. Endorsements, Assignments and Transfer of Securities. All
endorsements, assignments, stock powers, other instruments of transfer
or directions for the transfer of portfolio securities or other
property, whether or not registered in nominee form, shall be made by
such Officers, Employees, or Agents as may be authorized by the
Trustees or the Executive Committee.
Section 4. Evidence of Authority. Anyone dealing with the Trust shall be
fully justified in relying on a copy of a resolution of the Trustees
or of any committee thereof empowered to act in the premises which is
certified as true by the Secretary or an Assistant Secretary under the
seal of the Trust.
ARTICLE IX
INDEMNIFICATION OF TRUSTEES AND OFFICERS
Section 1. General. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties,
and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or
other proceeding, whether civil, criminal, administrative, or
investigative, and any appeal therefrom, before any court or
administrative or legislative body, in which such Covered Person may
be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Covered Person,
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalities), may be paid from time to time
by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article, provided that (a) such Covered Person
shall provide security for his undertaking, (b) the Trust shall be
insured against losses arising by reason of such Covered Person's
failure to fulfill his undertaking or (c) a majority of the non-party
Trustees who are not interested persons of the Trust (provided that a
majority of such Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall determine, based
on a review of readily available facts (but not a full trial-type
inquiry), that there is reason to believe such Covered Person
ultimately will be entitled to indemnification.
Section 2. Compromise Payment. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without
an adjudication in a decision on the merits by a court, or by any
other body before which the proceeding was brought, that such Covered
Person is liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disreagrd of the
duties involved in the conduct of such Covered Person's office,
indemnification shall be provided if (a) approved as in the best
interest of the Trust, after notice that it involves such
indemnification, by at least a majority of non-party Trustees who are
not interested persons of the Trust (provided that a majority of such
Trustees then in office act on the matter), upon a determination,
based upon a review of readily available facts (but not a full trial-
type inquiry) that such Covered Person is not liable to the Trust or
its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of such Covered Person's office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review
of readily available facts (but not a full trial-type inquiry) to the
effect that such indemnification would not protect such Covered Person
against any liability to the Trust to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in
accordance with this Section as indemnification if such Covered Person
is subsequently adjudicated by a court of competent jurisdiction to
have been liabile to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved inthe conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive; Definitions. The right of
indemnification hereby provided shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As
used in this Article IX, the term "Covered Person" shall include such
person's heirs, executors and administrators. For purposes of this
Article IX, the term "non-party Trustee" is a Trustee against whom
none of the actions, suits or other proceedings in question or another
action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article IX shall
affect any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of such persons.
ARTICLE X
SEAL
The seal of the Trust, if there is one, shall consist either of a flat-
faced die with the word "Massachusetts", together with the name of the
Trust and the year of its organization cut or engraved thereon, or any
other indication that the Trust has a seal that has been approved by
the Trustees, but, unless otherwise required by the Trustees, the seal
shall not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Trust and each Series or Class shall be as
designated from time to time by the Trustees.
ARTICLE XII
AMENDMENTS
These By-Laws may be amended by a majority vote of all of the Trustees.
ARTICLE XIII
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of any statute of The Commonwealth of Massachusetts, or under the
provisons of the Declaration of Trust or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, or presence
at a meeting to which such person was entitled notice of, shall be
deemed equivalent thereto. A notice shall be deemed to have been
given if telegraphed, cabled, or sent by wireless when it has been
delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled, or sent by
wireless. Any notice shall be deemed to be given if mailed at the
time when the same shall be deposited in the mail.
ARTICLE XIV
REPORT TO SHAREHOLDERS
The Trustees, so long as required by applicable law, shall at least semi-
annually submit to the shareholders of each Series or Class a written
financial report of the transactions of that Series or Class including
financial statements which shall at least annually be certified by
independent public accountants.
ARTICLE XV
BOOKS AND RECORDS
The books and records of the Trust and any Series or Class, including the
stock ledger or ledgers, may be kept in or outside the Commonwealth of
Massachusetts at such office or agency of the Trust as may from time
to time be determined by the Secretary of the Trust, as set forth in
Article II, Section 5 of these By-Laws.
ARTICLE XVI
TERMS
Terms defined in the Declaration of Trust and not otherwise defined herein
are used herein with the meanings set forth or referred to in the
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg SK
FEDERATED INVESTMENT TRUST
DISTRIBUTOR'S CONTRACT
AGREEMENT made this day of , 199 by and between Federated
-- ------ -
Investment Trust (the "Trust"), a Massachusetts business trust, and
FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and distribute shares
of the Trust which may be offered in one or more series (the "Funds")
consisting of one or more classes (the "Classes") of shares (the
"Shares"), as described and set forth on one or more exhibits to this
Agreement, at the current offering price thereof as described and set
forth in the current Prospectuses of the Trust. FSC hereby accepts such
appointment and agrees to provide such other services for the Trust, if
any, and accept such compensation from the Trust, if any, as set forth
in the applicable exhibits to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the Trust it is in its best interest to do so.
3. Neither FSC nor any other person is authorized by the Trust to give any
information or to make any representation relative to any Shares other
than those contained in the Registration Statement, Prospectuses, or
Statements of Additional Information ("SAIs") filed with the Securities
and Exchange Commission, as the same may be amended from time to time,
or in any supplemental information to said Prospectuses or SAIs approved
by the Trust. FSC agrees that any other information or representations
other than those specified above which it or any dealer or other person
who purchases Shares through FSC may make in connection with the offer
or sale of Shares, shall be made entirely without liability on the part
of the Trust. No person or dealer, other than FSC, is authorized to act
as agent for the Trust for any purpose. FSC agrees that in offering or
selling Shares as agent of the Trust, it will, in all respects, duly
conform to all applicable state and federal laws and the rules and
regulations of the National Association of Securities Dealers, Inc.,
including its Rules of Fair Practice. FSC will submit to the Trust
copies of all sales literature before using the same and will not use
such sales literature if disapproved by the Trust.
4. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the initial term
of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Trustees of the Trust including a
majority of the members of the Board of Trustees of the Trust who are
not interested persons of the Trust and have no direct or indirect
financial interest in the operation of any Distribution Plan relating to
the Trust or in any related documents to such Plan ("Disinterested
Trustees") cast in person at a meeting called for that purpose. If a
Class is added after the first annual approval by the Trustees as
described above, this Agreement will be effective as to that Class upon
execution of the applicable exhibit and will continue in effect until
the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to a particular
Fund or Class by FSC on sixty (60) days' written notice to the Trust.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the
Investment Company Act of 1940, as amended, provided, however, that FSC
may employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Trust for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed by this
Agreement.
8. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by
the Trustees of the Trust including a majority of the Disinterested
Trustees of the Trust cast in person at a meeting called for that
purpose.
9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act
of 1933 and Section 20 of the Securities Act of 1934, as amended,
against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectuses or SAIs (as from time to
time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless
such statement or omission was made in reliance upon and in
conformity with written information furnished to the Trust about
FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.
If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against the
Trust pursuant to the foregoing paragraph, FSC shall promptly
notify the Trust in writing of the institution of such action and
the Trust shall assume the defense of such action, including the
employment of counsel selected by the Trust and payment of
expenses. FSC or any such controlling person thereof shall have
the right to employ separate counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of FSC or such
controlling person unless the employment of such counsel shall have
been authorized in writing by the Trust in connection with the
defense of such action or the Trust shall not have employed counsel
to have charge of the defense of such action, in any of which
events such fees and expenses shall be borne by the Trust.
Anything in this paragraph to the contrary notwithstanding, the
Trust shall not be liable for any settlement of any such claim of
action effected without its written consent. The Trust agrees
promptly to notify FSC of the commencement of any litigation or
proceedings against the Trust or any of its officers or Trustees or
controlling persons in connection with the issue and sale of Shares
or in connection with the Registration Statement, Prospectuses, or
SAIs.
(b) FSC agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration
Statement and each other person, if any, who controls the Trust
within the meaning of Section 15 of the Securities Act of 1933, but
only with respect to statements or omissions, if any, made in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof in reliance upon, and in conformity with,
information furnished to the Trust about FSC by or on behalf of FSC
expressly for use in the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof. In case any action
shall be brought against the Trust or any other person so
indemnified based on the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof, and with respect to
which indemnity may be sought against FSC, FSC shall have the
rights and duties given to the Trust, and the Trust and each other
person so indemnified shall have the rights and duties given to FSC
by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Trust or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the duties of
such person or by reason of the reckless disregard by such person
of the obligations and duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940, as
amended, for Trustees, officers, FSC and controlling persons of the
Trust by the Trust pursuant to this Agreement, the Trust is aware
of the position of the Securities and Exchange Commission as set
forth in the Investment Company Act Release No. IC-11330.
Therefore, the Trust undertakes that in addition to complying with
the applicable provisions of this Agreement, in the absence of a
final decision on the merits by a court or other body before which
the proceeding was brought, that an indemnification payment will
not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a
majority vote of a quorum of non-party Disinterested Trustees, or
(ii) by independent legal counsel in a written opinion that the
indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties. The Trust
further undertakes that advancement of expenses incurred in the
defense of a proceeding (upon undertaking for repayment unless it
is ultimately determined that indemnification is appropriate)
against an officer, Trustee, FSC or controlling person of the Trust
will not be made absent the fulfillment of at least one of the
following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Trust is insured against losses arising by
reason of any lawful advances; or (iii) a majority of a quorum of
non-party Disinterested Trustees or independent legal counsel in a
written opinion makes a factual determination that there is reason
to believe the indemnitee will be entitled to indemnification.
11. FSC is hereby expressly put on notice of the limitation of liability as
set forth in the Declaration of Trust and agrees that the obligations
assumed by the Trust pursuant to this Agreement shall be limited in any
case to the Trust and its assets and FSC shall not seek satisfaction of
any such obligation from the shareholders of the Trust, the Trustees,
officers, employees or agents of the Trust, or any of them.
12. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.
13. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
Exhibit A
to the
Distributor's Contract
Federated Investment Trust
Federated Bond Index Fund
Institutional Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated , between Federated Investment
------- ----
Trust and Federated Securities Corp., Federated Investment Trust executes
and delivers this Exhibit on behalf of Federated Bond Index Fund, and
with respect to the Institutional Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this day of , .
--- ---- ----
ATTEST: FEDERATED INVESTMENT TRUST
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
(SEAL)
Exhibit B
to the
Distributor's Contract
FEDERATED INVESTMENT TRUST
Federated Bond Index Fund
Institutional Service Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated , , between Federated Investment
----- ----
Trust and Federated Securities Corp. with respect to the Class of shares
set forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Trust.
2. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of
0.25 of 1% of the average aggregate net asset value of the Shares held
during the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that the Agreement is in
effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class' expenses exceed such
lower expense limitation as FSC may, by notice to the Trust, voluntarily
declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated , between Federated Investment
----- ----
Trust and Federated Securities Corp., Federated Investment Trust executes
and delivers this Exhibit on behalf of the Federated Bond Index Fund, and
with respect to the Institutional Service Shares thereof, first set forth
in this Exhibit.
Witness the due execution hereof this day of , .
--- ---- ----
ATTEST: FEDERATED INVESTMENT TRUST
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
TRANSFER AGENCY SERVICES,
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of , 1995, by and between Federated Investment
Portfolios ("FIP"), on behalf of its portfolio the Bond Index Portfolio ("Hub
Fund"), and Federated Investment Trust ("FIT") on behalf of its portfolio
Federated Bond Index Fund and its classes ("Spoke Fund"), (severally and not
jointly referred to herein as "Funds" and individually as "Fund"), having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779, and FEDERATED SERVICES COMPANY, a Delaware business
trust, having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, FIP 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 ("HubInterest(s)");
WHEREAS, FIT is registered as an open-end management investment company
under the 1940 Act with authorized and issued shares of beneficial interest
("SpokeShare(s)");
WHEREAS, the Spoke Fund invests all of its investable assets in a
HubInterest in the Hub Fund, which has the same investment objective as the
Spoke Fund;
WHEREAS, each Fund desires to retain the Company to provide certain pricing
and/or accounting and recordkeeping services, and the Company is willing to
furnish such services;
WHEREAS, each Fund desires to appoint the Company as its transfer agent,
dividend disbursing agent, and agent in connection with certain other
activities, and the Company desires to accept such appointment;
WHEREAS, each Fund desires to appoint the Company as its agent to select,
negotiate and contract for custodian services from an approved list of
qualified financial institutions, and the Company desires to accept such
appointment; and
WHEREAS, from time to time on or both of the Funds 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.
ARTICLE 1. APPOINTMENT.
Each Fund hereby appoint the Company to provide certain pricing and/or
accounting services, for the period and on the terms set forth in this
Agreement. The Company accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Article 4 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES WITH REGARD TO THE HUB FUND.
Subject to the supervision and control of the Hub Fund's Board of Trustees
("Hub Board"), the Company will assist the Hub Fund with regard to fund
accounting for the Hub Fund, and in connection therewith undertakes to perform
the following specific services;
A. Value each HubInterest in the Hub 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 Hub
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 Hub Fund, 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 Hub 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 Hub Fund for potential errors in valuing each HubInterest
or calculating the net asset value of such HubInterests 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 net asset value of the Hub
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. Determine the net asset value of each HubInterest in the Hub Fund, at
the time and in the manner from time to time determined by the Hub Board
and as set forth in the Hub Fund's offering document;
C. Calculate the net income of the Hub Fund, if any;
D. Calculate realized capital gains or losses of the Hub Fund, if any,
resulting from the sale or disposition of its portfolio securities;
E. Maintain the general ledger and other accounts, books and financial
records of the Hub 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 Hub Fund are the property of
the Hub Fund and further agrees to surrender promptly to the Hub Fund
such records upon the Hub Fund's request;
G. At the request of the Hub Fund, 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 Hub
Fund.
ARTICLE 3. THE COMPANY'S DUTIES WITH REGARD TO THE SPOKE FUND.
Subject to the supervision and control of the Spoke Fund's Board of
Trustees ("Spoke Board"), the Company will assist the Spoke Fund with regard
to fund accounting for the Spoke Fund, and in connection therewith undertakes
to perform the following specific services;
A. Determine the net asset value of the SpokeShares of the Spoke Fund based
upon the assets allocated to it by the Hub Fund, at the time and in the
manner from time to time determined by the Board and as set forth in the
Spoke Fund's Prospectus and Statement of Additional Information
("Prospectus");
B. Calculate the net income of the Spoke Fund, if any;
C. Calculate capital gains or losses of the Spoke Fund, if any;
D. Maintain the general ledger and other accounts, books and financial
records of the Spoke Fund, as required under Section 31(a) of the 1940
Act and the Rules thereunder in connection with the services provided by
the Company;
E. 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 Spoke Fund are the property
of the Spoke Fund and further agrees to surrender promptly to the Spoke
Fund such records upon the Spoke Fund's request;
F. At the request of the Spoke Fund, prepare various reports or other
financial documents required by federal, state and other applicable laws
and regulations; and
G. Such other similar services as may be reasonably requested by the Spoke
Fund.
ARTICLE 4. COMPENSATION AND ALLOCATION OF EXPENSES.
A. Each Fund will compensate the Company for the services rendered to it
pursuant to Section One of this Agreement 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
appropriate Fund shall reimburse the Company upon receipt of a separate
invoice. Out-of-pocket disbursements shall include, but shall not be
limited to, the items agreed upon between the parties from time to time.
B. Each Fund, and not the Company, shall bear its respective portion of the
cost of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing offering
documents, Prospectuses, 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 Fund; independent auditors expenses; legal and audit
department expenses billed to Federated Services Company for work
performed related to the Fund; law firm expenses; or other expenses not
specified in this Article 4 which may be properly payable by the Funds.
C. The compensation and out-of-pocket expenses attributable to each Fund
shall be accrued by the appropriate Fund and shall be paid to the
Company no less frequently than monthly, and shall be paid, by the
appropriate Fund, 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 appropriate Fund and a duly authorized officer of the
Company.
E. The fee for the period from the effective date of this 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 HubInterests and SpokeShares shall be computed at the time
and in the manner specified in the Hub Fund's offering document or the
Spoke Fund's Prospectus.
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
services under this Section One. SUCH PERSON OR PERSONS MAY BE THIRD-
PARTY SERVICE PROVIDERS, OR THEY MAY BE OFFICERS AND EMPLOYEES WHO ARE
EMPLOYED BY BOTH THE COMPANY AND ONE OR BOTH OF THE FUNDS; provided,
however, that the Company shall be as fully responsible to each Fund for
the acts and omissions of any 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: TRANSFER AGENCY SERVICES.
ARTICLE 5. TERMS OF APPOINTMENT BY HUB FUND.
Subject to the terms and conditions set forth in this Agreement, the Hub Fund
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent with regard to HubInterests for the partners in the Hub Fund
(i.e., the Spoke Fund).
ARTICLE 6 TERMS OF APPOINTMENT BY SPOKE FUND.
Subject to the terms and conditions set forth in this Agreement, Spoke Fund
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent and dividend disbursing agent for the Spoke Fund's SpokeShares,
and agent in connection with any accumulation, open-end account, or similar
plans provided the shareholders of the Spoke Fund ("Shareholder(s)"),
including without limitation, any periodic investment plan or periodic
withdrawal.
ARTICLE 7. 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 Funds,
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 Funds, and
the Company are satisfied that such procedures afford adequate safeguards for
the Funds' assets. Proper Instructions may only be amended in writing.
ARTICLE 8. DUTIES OF THE COMPANY WITH REGARD TO THE HUB FUND.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Hub Fund:
A. Purchases
(1) The Company shall receive orders and payment from the Spoke Fund
for the initial purchase of and subsequent investments in
HubInterest ("Purchases") and promptly deliver payment and
appropriate documentation therefore to the custodian of the Hub
Fund (the "Hub Custodian"). The Company shall notify the Hub
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Hub
Fund's current offering document, the Company shall compute and
issue the appropriate number of Interests of the Hub Fund and hold
such Interests in the appropriate Spoke Fund accounts.
B. Full or Fractional Sale of a HubInterest
(1) The Company shall receive requests and directions from the Spoke
Fund regarding the full or fractional sale of the Spoke Fund's
HubInterest and, if such requests comply with the procedures as may
be described in the Hub Fund's offering document or set forth in
Proper Instructions, deliver the appropriate instructions therefor
to the Hub Custodian.
(2) At the appropriate time, upon receiving the proceeds from a full or
fractional sale of a HubInterest from the Hub Custodian, the
Company shall pay, or cause to be paid, the proceeds in the manner
instructed by the selling Spoke Fund, pursuant to procedures
described in the then-current offering document of the Hub Fund.
The Company shall reconcile the amounts so requested and the
amounts actually distributed by the Hub Custodian on a daily basis
with the Hub Custodian and with the Spoke Fund or its designated
agent.
(3) If any request for the full or fractional sale of an Spoke Fund's
HubInterest does not comply with the procedures for such a sale
approved by the Hub Fund, the Company shall promptly notify the
Spoke Fund of such fact, together with the reason therefor, and
shall effect such sale at the price 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
Hub Fund on a regular basis or upon reasonable request, but shall
have no obligation when recording Purchases, except as otherwise
set forth herein, to take cognizance of any laws relating to such
Purchases, which functions shall be the sole responsibility of the
Hub Fund.
(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
Hub Fund to include a record for the Spoke Fund of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Historical information regarding the Spoke Fund's HubInterest,
including the date and price for all transactions;
(c) Any correspondence relating to the current maintenance of the
Spoke Fund's HubInterest.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC 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 Hub Fund at reasonable times. The Company
may, at its option at any time, and shall forthwith upon the Hub
Fund's demand, turn over to the Hub 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 Hub 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 Hub
Fund or destroyed in accordance with Proper Instructions.
D. Confirmations/Reports
(1) The Company shall furnish to the Hub Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Investors, such notices for reporting dividends
and distributions paid as are required to be so filed and mailed
and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and
regulations.
(2) In addition to, and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
including but not limited to: maintaining all identification
and of record information for the Spoke Fund; communicating to
the Spoke Fund ???????financial reports, Form K-1, other
required tax reports and offering documents of the Hub Fund;
preparing and communicating confirmation forms and statements
of account to the Spoke Fund for all Purchases and full or
fractional sales of HubInterests and other confirmable
transactions; and preparing and mailing activity statements
for the Spoke Fund.
F. Other Duties
The Company shall answer correspondence from the Spoke Fund
relating to the duties described above and such other
correspondence as may from time to time be addressed to the
Company;
ARTICLE 9. DUTIES OF THE COMPANY WITH REGARD TO THE SPOKE FUND.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Spoke Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
SpokeShares and promptly deliver payment and appropriate
documentation therefore to the custodian of the Spoke Fund, (the
"Spoke Custodian"). The Company shall notify the Spoke Custodian
on a daily basis of the total amount of orders and payments so
delivered. If the Hub Custodian and the Spoke Custodian are not
the same bank, the Company will direct the Spoke Custodian to
transfer the payment proceeds to the Hub Custodian on a daily
basis.
(2) Pursuant to purchase orders and in accordance with the Spoke Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of SpokeShares of the Spoke Fund and hold such
SpokeShares in the appropriate Shareholder accounts.
(3) In the event that any check or other order for the purchase of
SpokeShares of the Spoke Fund is returned unpaid for any reason,
the Company shall debit the account of the Shareholder by the
number of SpokeShares that had been credited to its account upon
receipt of the order, promptly mail a debit advice to the
Shareholder, and notify the Spoke Fund. In the event that the
amount paid for such SpokeShares exceeds proceeds of the redemption
of such SpokeShares plus the amount of any dividends paid with
respect to such SpokeShares, the Spoke Fund will reimburse the
Company for the amount of such excess.
B. Distribution
(1) Upon notification by the Spoke Fund of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Spoke Fund in accordance with the
provisions of its governing document and the then-current
Prospectus of the Spoke Fund. The Company shall credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Hub Fund, or such
agent as it shall designate, of the estimated amount required to
pay any portion of said distribution which is payable in cash and
request the Hub Fund, or its designated agent, to make available
sufficient funds for the cash amount to be paid out, which amounts
will be placed in the distribution demand deposit account for the
Spoke at the Spoke Custodian. The Company shall reconcile the
amounts so requested and the amounts actually received by the Spoke
Custodian on a daily basis with the Spoke Custodian and with the
Hub Fund or its designated agent. If a Shareholder is entitled to
receive additional SpokeShares by virtue of any such distribution
or dividend, appropriate credits shall be made to the Shareholder's
account; and
(2) The Company shall maintain records of account for the Spoke Fund
and advise the Spoke Fund and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests from the
Shareholders, and if such redemption requests comply with the
procedures as may be described in the Spoke Fund Prospectus or set
forth in Proper Instructions, notify the Hub Fund, or such agent as
it shall designate, of the redemption request. The Hub Fund, or
such agent as it shall designate, shall make available sufficient
funds for the cash proceeds of such redemption to be paid out,
which amounts will be placed in the redemption demand deposit
account for the Spoke Fund maintained by the Company at the Spoke
Custodian. The Company shall notify the Spoke Fund on a daily basis
of the total amount of redemption requests processed and redemption
proceeds placed in the redemption demand deposit account . The
Company shall reconcile the amounts so requested and the amounts
actually received by the Spoke Custodian on a daily basis with the
Spoke Custodian and with the Hub Fund or its designated agent.
(2) At the appropriate time upon receiving redemption proceeds from the
Hub Fund, or such agent as it shall designate, with respect to any
redemption, the Company shall pay, or cause to be paid, the
redemption proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-current
Prospectus of the Spoke Fund.
(3) The Company shall effect transfers of SpokeShares by the registered
Shareholder owners thereof.
(4) If any request for redemption does not comply with the procedures
for redemption approved by the Spoke Fund, the Company shall
promptly notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the price
applicable to the date and time of receipt of documents complying
with said procedures.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Spoke Fund.
D. Recordkeeping
(1) The Company shall record the issuance of SpokeShares of the Spoke
Fund, and maintain pursuant to applicable rules of the Securities
and Exchange Commission ("SEC") a record of the total number of
SpokeShares of the Spoke Fund which are authorized, based upon data
provided to it by the Spoke Fund, and issued and outstanding. The
Company shall also provide the Spoke Fund on a regular basis or
upon reasonable request with the total number of SpokeShares which
are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of SpokeShares, except as
otherwise set forth herein, to monitor the issuance of such
SpokeShares or to take cognizance of any laws relating to the issue
or sale of such SpokeShares, which functions shall be the sole
responsibility of the Spoke Fund.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Spoke Fund to include a record for each Shareholder 's account of
the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of SpokeShares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance
of the account;
(g) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC 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 Spoke Fund at reasonable times. The Company
may, at its option at any time, and shall forthwith upon the Spoke
Fund's demand, turn over to the Spoke 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 Spoke 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 Spoke Fund or destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Spoke Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) Shareholder lists and statistical information;
(d) Payments to third parties relating to distribution agreements,
allocations of sales loads, redemption fees, or other
transaction- or sales-related payments;
(e) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed and
mailed and shall withhold such sums as are required to be withheld
under applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
SpokeShares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of SpokeShares of the Spoke Fund sold in each
state ("blue sky reporting"). The Spoke Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky reporting
for each state and (ii) verify the classification of
transactions for each state on the system prior to activation
and thereafter monitor the daily activity for each state. The
responsibility of the Company for the Spoke Fund's state blue
sky registration status is limited solely to the recording of
the initial classification of transactions or accounts with
regard to blue sky compliance and the reporting of such
transactions and accounts to the Spoke Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their SpokeShare accounts and such other correspondence as may
from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Spoke Fund in
connection with Shareholder Meetings of the Spoke Fund; receive,
examine and tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of, check forms and facsimile signature imprinting
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devices, if any; and for the preparation or use, and for keeping
account of, such forms and devices.
(space intentionally left bank)
ARTICLE 10. DUTIES OF THE HUB FUND
A. Compliance
The Hub 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 11. DUTIES OF THE SPOKE FUND.
A. Compliance
The Spoke Fund assumes full responsibility for the preparation, contents
and distribution of its own Prospectus and for complying with all
applicable requirements of the Securities Act of 1933, as amended (the
"1933 Act"), the 1940 Act and any laws, rules and regulations of
government authorities having jurisdiction.
B. Distributions
The Spoke Fund shall promptly inform the Company of the declaration of
any dividend or distribution.
ARTICLE 12. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, each Fund agrees to pay the Company an annual maintenance fee
for each Spoke Fund or Shareholder account as agreed upon between the
parties and as may be added to or amended from time to time. Such fees
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may be changed from time to time subject to written agreement between
each Fund and the Company.
B. Reimbursements
In addition to the fee paid under Article 12A above, each Fund agrees 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 a Fund,
will be reimbursed by the such Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
appropriate 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 such 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 appropriate Fund and a duly authorized officer of the
Company.
ARTICLE 13. ASSIGNMENT OF SHAREHOLDER RECORDKEEPING.
Except as provided below, no right or obligation under this Section Two 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. The Company may without further consent on the part of either Fund
subcontract for the performance hereof with such other provider of
services duly registered as a transfer agent under Section 17A(c)(1) as
Company shall select; provided, however, that the Company shall be as
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fully responsible to each Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
C. The Company shall upon instruction from a Fund subcontract for the
performance hereof with an Agent selected by such Fund, or a provider of
services selected by Company, as described above; provided, however,
that the Company shall in no way be responsible to such Fund for the
acts and omissions of the Agent.
SECTION THREE: CUSTODY SERVICES PROCUREMENT.
ARTICLE 14. APPOINTMENT.
Each Fund hereby appoint 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
Boards of the Funds as being eligible for selection by the Company as a
custodian (the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 15. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of each Fund's Board, the
Company shall:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ an Eligible Custodian to serve on behalf of one or both of the
Funds in accordance with the terms approved by the respective Fund's
Board;
C. negotiate and enter into an agreement with an Eligible Custodian for
the benefit of one or both of the Funds, with the appropriate Fund as a
party to such agreement. The Company shall not be a party to any
agreement with any such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Eligible Custodian;
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E. continuously monitor the nature and the quality of services provided by
the Eligible Custodians;
F. periodically provide to the appropriate Fund (i) written reports on the
activities and services of the Eligible Custodian; (ii) the nature and
amount of disbursements made on account of the respective Fund with
respect to each custodial agreement; and (iii) such other information as
each Fund's 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
G. periodically provide recommendations to each Fund's Board to enhance
Eligible Custodian's customer services capabilities and improve upon
fees being charged to the Funds by Eligible Custodian.
ARTICLE 16. FEES AND EXPENSES.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, each Fund agrees to pay the Company an annual fee as agreed
upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 16A above, the Funds agree to
reimburse the Company for their respective portion of 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 Funds, will be reimbursed by the appropriate
Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
appropriate Fund and shall be paid to the Company no less frequently
than monthly, and shall be paid daily upon request of the Company. The
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Company will maintain detailed information about such compensation and
out-of-pocket expenses.
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 appropriate Funds and a duly authorized officer of the
Company.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 17. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
each Fund shall file with the Company the following documents relating
to it:
(1) A copy of its Declaration of Trust and By-Laws and all amendments
thereto;
(2) A copy of the resolution of its Board authorizing this Agreement;
(3) All account application forms and other documents relating to Spoke
Fund or Shareholder accounts; and
(4) A copy of its current offering document or Prospectus.
B. Each Fund will also furnish from time to time the following documents
relating to it:
(1) A resolution of its Board authorizing the original issuance of its
HubInterests or SpokeShares ;
(2) A Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of
its HubInterests or SpokeShares;
(3) A certified copy of each amendment to its governing document and
its By-Laws;
(4) Certified copies of each vote of its Board authorizing officers to
give Proper Instructions to an Eligible Custodian and agent for
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fund accountant, custody services procurement, and recordkeeping or
transfer agency services;
(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 its offering document or Prospectus.
ARTICLE 18. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Funds that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its Declaration of
Trust 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 a transfer agent.
(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 FIP
FIP 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;
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(2) It is empowered under applicable laws and by its Declaration of
Trust 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.
C. Representations and Warranties of FIT
FIP and FIT each represent and warrant 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 Declaration of
Trust 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.
(5) A registration statement for the Spoke Fund under the 1933 Act will
be effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
SpokeShares of the Spoke Fund being offered for sale.
ARTICLE 19. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for
either or both of the Funds) on all matters, and shall be without
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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 each Fund
The Company shall not be responsible for and each 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 eligible custodian, adviser, sub-
adviser or other party contracted by or approved by such Fund,
(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 each Fund, its
shareholders or investors regarding account information, the
purchase, sale, redemption or transfer ownership, interests
(e.g., HubInterests in FIP or SpokeShares in FIT);
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of such Fund; or
(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;
(d) have been prepared and/or maintained by such Fund or its
affiliates or any other person or firm on behalf of such Fund.
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(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of such Fund.
(4) The offer or sale of HubInterests in violation of any requirement
under the federal securities laws or regulations; or the offer or
sale of SpokeShares in violation of such federal securities laws or
the securities laws of any state requiring that SpokeShares be
registered in such state; or in violation of any stop order or
other determination or ruling by any federal agency or any state
with respect to the offer or sale of such SpokeShares in such
state.
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 a Fund for
instructions for matters realting to such 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 realting to
such Fund, and the Company and its agents or subcontractors shall not be
liable and shall be indemnified by such 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 or state 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
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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. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should a Fund exercise its right to
terminate, all out-of-pocket expenses associated with the movement of records
and materials will be borne by such Fund. Additionally, the Company reserves
the right to charge for any other reasonable expenses associated with such
termination. The provisions of Article 20 shall survive the termination of
this Agreement.
ARTICLE 21. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by the parties.
ARTICLE 22. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and each
Fund, as to itself, 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 or state
regulations or any provision of their Declarations of Trust. No interpretive
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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 each Fund, as appropriate, 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 Trust 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 TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The execution and delivery of this Agreement have been authorized by the
Trustees of each Fund and signed by an authorized officer of each Fund, 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, Spoke Fund or
Shareholders, but bind only the appropriate property of each Fund, as provided
in the Declaration of Trust.
ARTICLE 27. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
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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 any of the Trustees
or Shareholders of the Company, but bind only the property of the Company as
provided in the Declaration of Trust.
ARTICLE 28. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to either of the Funds by any of the parties hereto except by the
specific written consent of all parties.
ARTICLE 29. 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 30. SUCCESSOR AGENT.
If a successor agent shall be appointed by for either of the Funds, the
Company shall upon termination of this Agreement deliver to such successor
agent at the office of the Company all properties of the appropriate 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.
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.
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Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 31. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to either of the Funds as a result of work
stoppage, power or other mechanical failure, natural disaster, governmental
action, communication disruption or other impossibility of performance.
ARTICLE 32. ASSIGNMENT; SUCCESSORS.
Either party may assign to a successor all of or a substantial portion of
its business, or to a party controlling, controlled by, or under common
control with such party. Nothing in this Article 32 shall prevent the Company
from delegating its responsibilities to another entity to the extent provided
herein.
ARTICLE 33. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Error! Reference source not found.Error! Reference source not found.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: FEDERATED INVESTMENT PORTFOLIOS
FEDERATED INVESTMENT TRUST
By
ATTEST: FEDERATED SERVICES COMPANY
By:
Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg SK
FEDERATED INVESTMENT TRUST
DISTRIBUTION PLAN
This Distribution Plan ("Plan") is adopted as of , , by the
----- ----
Board of Trustees of Federated Investment Trust (the "Trust"), a business
trust with respect to certain classes of shares ("Classes") of the
portfolios of the Trust (the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended ("Act"), so as to allow the Trust to make
payments as contemplated herein, in conjunction with the distribution of
Classes of the Funds ("Shares").
2. This Plan is designed to finance activities of Federated Securities
Corp. ("FSC") principally intended to result in the sale of Shares to
include: (a) providing incentives to financial institutions ("Financial
Institutions") to sell Shares; (b) advertising and marketing of Shares
to include preparing, printing and distributing prospectuses and sales
literature to prospective shareholders and with Financial Institutions;
and (c) implementing and operating the Plan. In compensation for
services provided pursuant to this Plan, FSC will be paid a fee in
respect of the following Classes set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made pursuant to
the "Distributor's Contract" entered into by the Trust and FSC. Any
payments made by FSC to Financial Institutions with funds received as
compensation under this Plan will be made pursuant to the "Financial
Institution Agreement" entered into by FSC and the Institution.
4. FSC has the right (i) to select, in its sole discretion, the Financial
Institutions to participate in the Plan and (ii) to terminate without
cause and in its sole discretion any Financial Institution Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC shall
prepare and furnish to the Board of Trustees of the Trust, and the Board
of Trustees shall review, a written report of the amounts expended under
the Plan and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class (i) after
approval by majority votes of: (a) the Trust's Board of Trustees;
(b) the members of the Board of the Trust who are not interested persons
of the Trust and have no direct or indirect financial interest in the
operation of the Trust's Plan or in any related documents to the Plan
("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding voting securities
of the particular Class , as defined in Section 2(a)(42) of the Act and
(ii) upon execution of an exhibit adopting this Plan with respect to
such Class.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to an
exhibit during the initial year of this Plan for the period of one year
from the date set forth above and may be continued thereafter if this
Plan is approved with respect to each Class at least annually by a
majority of the Trust's Board of Trustees and a majority of the
Disinterested Trustees, cast in person at a meeting called for the
purpose of voting on such Plan. If this Plan is adopted with respect to
a Class after the first annual approval by the Trust as described above,
this Plan will be effective as to that Class upon execution of the
applicable exhibit pursuant to the provisions of paragraph 6(ii) above
and will continue in effect until the next annual approval of this Plan
by the Trustees and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be approved by a vote of the
Board of Trustees of the Trust and of the Disinterested Trustees, cast
in person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the costs
which the Classes may bear for distribution pursuant to the Plan without
being approved by a majority vote of the outstanding voting securities
of the Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at any
time by: (a) a majority vote of the Disinterested Trustees; or (b) a
vote of a majority of the outstanding voting securities of the
particular Class as defined in Section 2(a)(42) of the Act; or (c) by
FSC on 60 days' notice to the Trust.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion
of the Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be
subject to termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed by the laws
of the Commonwealth of Pennsylvania.
EXHIBIT A
to the
Distribution Plan
Federated Investment Trust
Federated Bond Index Fund
Institutional Service Shares
This Distribution Plan is adopted by Federated Investment Trust with
respect to the Class of Shares of the portfolio of the Trust set forth
above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of
the average aggregate net asset value of the Institutional Service Shares
of Federated Bond Index Fund held during the month.
Witness the due execution hereof this day of , .
--- ----- -----
Federated Investment Trust
By:
Exhibit 19(ii) on Form N-1A
Exhibit No. 24 under Item 601/Reg SK
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 Investors, 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 Chairman and Trustee October 18, 1995
John F. Donahue (Chief Executive Officer)
/s/ J. Christopher Donahue President and Trustee October
18, 1995
J. Christopher Donahue
/s/ David M. Taylor Treasurer October 18, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Trustee October 18, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Trustee October 18, 1995
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/ William J. Copeland Trustee October 18, 1995
William J. Copeland
/s/ James E. Dowd Trustee October 18, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee October 18, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee October 18, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee October 18, 1995
Peter E. Madden
/s/ Gregor F. Meyer Trustee October 18, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Trustee October 18, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee October 18, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee October 18, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 18th day of October, 1995
/s/ Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996
Exhibit 19(i) on Form N-1A
Exhibit No. 24 under Item 601/Reg SK
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED INVESTMENT TRUST and the
Deputy General Counsel of Federated Investors, 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 Chairman and Trustee December 18, 1995
John F. Donahue (Chief Executive Officer)
/s/ J. Christopher Donahue President and Trustee December
18, 1995
J. Christopher Donahue
/s/ David M. Taylor Treasurer December 18, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Trustee December 18, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Trustee December 18, 1995
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/ William J. Copeland Trustee December 18, 1995
William J. Copeland
/s/ James E. Dowd Trustee December 18, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee December 18, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee December 18, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee December 18, 1995
Peter E. Madden
/s/ Gregor F. Meyer Trustee December 18, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Trustee December 18, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee December 18, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee December 18, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 18th day of December, 1995
/s/ Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996
