1933 Act File No. 2-10415
1940 Act File No. 811-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ......................
Post-Effective Amendment No. 94 ......................X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 34 .....................................X__
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FEDERATED STOCK AND BOND FUND, INC.
(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, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b).
on pursuant to paragraph (b).
_ 60 days after filing pursuant to paragraph (a)(i). X on DECEMBER
31, 1997 pursuant to paragraph (a)(i).
75 days after filing pursuant to paragraph (a)(ii). on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Copies to:
Matthew J. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FEDERATED
STOCK AND BOND FUND, INC.(the "Fund"), consists of one investment
portfolio with three classes of shares: (1) Class A Shares, (2) Class
B Shares, and (3) Class C Shares, and is comprised of the following:
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
PROSPECTUS HEADING
(RULE 404(C) CROSS-REFERENCE)
<S> <C> <C>
Item 1. Cover Page..................................(1-3) Cover Page.
Item 2. Synopsis Not applicable.
Item 3. Condensed Financial
Information................................(1-3) Financial Highlights; (1-3) Net Asset Value;
(1-3) Performance Information.
Item 4. General Description of
Registrant.................................(1-3) General Information; (1-3) Investment Information;
(1-3) Investment Objective; (1-3) Investment Policies;
(1-3) Investment Limitations.
Item 5. Management of the Fund......................(1-3) Fund Information; (1-3) Management of the Fund;
(1-3) Distribution of Shares; (1-3) Administration of the Fund;
(1-3) Brokerage Transactions;
(1-3) Expenses of the Fund and Shares.
Item 6. Capital Stock and Other
Securities.................................(1-3) Investing in the Fund; (1-3) Account and Share Information;
(1-3) Dividends; (1-3) Capital Gains;
(1-3) Shareholder Information; (1-3) Voting Rights;
(1-3) Tax Information;
(1-3) Federal Income Tax; (1-3) State and Local Taxes.
Item 7. Purchase of Securities Being
Offered....................................(1-3)
How to
Purchase
Shares;
(1)
Investing
in Class
A
Shares;
(2)
Investing
in Class
B
Shares;
(3)
Investing
in Class
C
Shares;
(1-3)
Purchasing
Shares
through
a
Financial
Institution;
(1-3)
Purchasing
Shares
by Wire;
(1-3)
Purchasing
Shares
by
Check;
(1-3)
Special
Purchase
Features;
(1-3)
Exchange
Privilege;
(1-3)
Net
Asset
Value.
Item 8. Redemption or Repurchase....................(1-3) How to Redeem Shares; (1-3) Redeeming Shares through your
Financial Institution; (1-3) Redeeming Shares by Telephone;
(1-3) Redeeming Shares by Mail; (1-3) Special Redemption Features;
(1-3) Contingent Deferred Sales Charge;
(1-3) Elimination of Contingent Deferred Sales Charge;
(1-3) Accounts with low Balances.
Item 9. Pending Legal Proceedings None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page..................................(1-3) Cover Page.
Item 11. Table of Contents (1-3) Table of Contents.
Item 12. General Information and
History....................................(1-3) General Information About the Fund;
(1-3) About Federated Investors.
Item 13. Investment Objectives and
Policies...................................(1-3) Investment Objective and Policies;
(1-3) Investment Limitations.
Item 14. Management of the Fund......................(1-3) Federated Stock and Bond Fund, Inc. Management.
Item 15. Control Persons and Principal
Holders of Securities (1-3) Fund Ownership.
Item 16. Investment Advisory and Other
Services...................................(1-3) Investment Advisory Services; (1-3) Other Services;
(1-3) Purchasing Shares.
Item 17. Brokerage Allocation (1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered..............................(1-3) Purchasing Shares;
(1-3) Determining Net Asset Value; (1-3) Redeeming Shares.
Item 20 Tax Status (1-3) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data.......................................(1-3) Total Return; (1-3) Yield;
(1-3) Performance Comparisons.
Item 23. Financial Statements To be filed by Amendment.
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS
The shares of Federated Stock and Bond Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment
company (a mutual fund).
The investment objective of the Fund is to provide relative
safety of capital with the possibility of long-term growth of
capital and income. Consideration is also given to current
income. The Fund pursues this objective by investing in a
professionally managed, diversified portfolio of common and
preferred stocks and other equity securities, bonds, notes,
and short-term obligations.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and
know before you invest in the Class A Shares, Class B Shares, and
Class C Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional
Information for Class A Shares, Class B Shares, and Class C
Shares dated December 31, 1997, with the Securities and
Exchange Commission ("SEC"). 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 1-800-341-7400. To
obtain other information or to make inquiries about the Fund,
contact your financial institution. The Statement of
Additional Information, material incorporated by reference
into this document, and other information regarding the Fund
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
<PAGE>
TABLE OF CONTENTS
<PAGE>
SUMMARY OF FUND EXPENSES
FINANCIAL HIGHLIGHTS
GENERAL INFORMATION
The Fund was incorporated under the laws of the state of
Maryland on October 31, 1934. At a meeting of the Board of
Directors ("Directors") held on February 26, 1996, the
Directors approved an amendment to the Articles of
Incorporation to change the name of Stock and Bond Fund, Inc.
to Federated Stock and Bond Fund, Inc. The Articles of
Incorporation permit the Fund to offer separate series of
shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of
this prospectus, the Directors have established three classes
of shares, known as Class A Shares, Class B Shares, and Class
C Shares (individually and collectively referred to as
"Shares" as the context may require).
Shares of the Fund are designed for institutions, pension
plans, and individuals as a convenient means of accumulating
an interest in a professionally managed, diversified portfolio
of common and preferred stocks and other equity securities,
bonds, notes and short-term obligations. The minimum initial
investment for Class A Shares is $500. The minimum initial
investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any
class must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
The Fund's current net asset value and offering price may be
found in the mutual funds section of local newspapers under
"Federated" and the appropriate class designation listing.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES
The investment objective of the Fund is to provide relative
safety of capital with the possibility of long-term growth of
capital and income. Consideration is also given to current
income. The Fund pursues this investment objective by
investing in a professionally managed, diversified portfolio
of common and preferred stocks and other equity securities,
bonds, notes, and short-term obligations. While there is no
assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies
described in this prospectus. The investment objective cannot
be changed without approval of shareholders.
INVESTMENT POLICIES
The Fund invests in a diversified portfolio of domestic and
foreign securities as described below. Under normal
circumstances, the Fund will invest at least 65% of its total
assets in stocks and bonds. Unless indicated otherwise, the
investment policies and limitations described below may be
changed by the Directors without shareholder approval.
Shareholders will be notified before any material change
becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in
securities of larger, well-established companies which have a
history of lower volatility in earnings. Therefore, the
corporate bonds in which the Fund invests, including those
purchased through and collateralizing repurchase agreements,
will generally be rated in one of the top four rating
categories by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P"), or
Fitch Investors Service, L.P. ("Fitch") or unrated, but
determined by the Fund's investment adviser ("Adviser") to be
of comparable quality. The Fund may invest no more than 35% of
its assets in corporate bonds rated below the top four
categories or which are unrated but determined to be of
comparable quality by the Adviser. Bonds rated BBB by S&P or
Fitch, or Baa by Moody's have speculative characteristics. A
description of the ratings categories is contained in the
Appendix to this prospectus. Permitted investments include:
o common stocks;
o preferred stocks;
o corporate bonds;
o convertible securities;
o obligations of the United States;
o notes, bonds, and discount notes of U.S. government
agencies or instrumentalities;
o taxable municipal debt obligations rated BBB or better by an
NRSRO, or which are or comparable quality in the judgment of
the Adviser;
o asset-backed securities;
o commercial paper that matures in 270 days or less
and is rated A-1 or A-2 by S&P, P-1 or P-2 by
Moody's, or F-1 or F-2 by Fitch;
o time and savings deposits;
o bankers' acceptances;
o other securities; and
o repurchase agreements collateralized by acceptable
investments.
COMMON STOCKS. The domestic and foreign common stocks in
which the Fund invests are selected by the Fund's Adviser on
the basis of traditional research techniques, including
assessment of earnings and dividend growth, prospects and the
risk and volatility of the company's industry. However, other
factors, such as product position, market share, or
profitability, will also be considered by the Fund's Adviser.
CORPORATE BONDS. Although the corporate bonds in which the
Fund will invest primarily are rated as investment grade by an
NRSRO, or of comparable quality in the judgment of the
Adviser, the Fund may, under normal circumstances, invest as
much as 35% of its net assets in such bonds that are rated
below investment grade or are of comparable quality ("junk
bonds"). Although there is a percentage limitation, there is
no minimum rating applicable to corporate bonds purchased or
held by the Fund, and the Fund may, from time to time,
purchase or hold such bonds in the lowest category, including
bonds in default.
Bonds that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater
market fluctuations and greater risk of loss of income and
principal due to an issuer's default. To a greater extent than
investment grade bonds, lower-rated bonds tend to reflect
short-term corporate, economic, and market developments, as
well as investor perceptions of the issuer's credit quality.
In addition, lower-rated bonds may be more difficult to
dispose of or to value than higher-rated, lower-yielding
bonds. Changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make
principal and interest payments than higher-rated bonds.
The Fund may, from time to time, own zero coupon bonds or
pay-in-kind securities. A zero coupon bond makes no periodic
interest payments and the entire obligation becomes due only
upon maturity. Pay-in-kind securities make periodic payments
in the form of additional securities (as opposed to cash). The
price of zero coupon bonds and pay-in-kind securities are
generally more sensitive to fluctuations in interest rates
than are conventional bonds. Additionally, federal tax law
requires that interest on zero coupon bonds and paid-in-kind
securities be reported as income to the Fund even though the
Fund received no cash interest until the maturity or payment
date of such securities. To maintain its qualification as a
regulated investment company and avoid liability of federal
income taxes, the Fund will be required to distribute income
accrued from zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at
disadvantageous times) in order to generate cash to satisfy
these distribution requirements.
The Fund may invest in the High Yield Bond Portfolio, a
portfolio of Federated Core Trust, as an efficient means of
investing in high-yield debt obligations. Federated Core Trust
is a registered investment company advised by Federated
Research Corp., an affiliate of the Fund's adviser. The High
Yield Bond Portfolio's investment objective is to seek high
current income and its primary investment policy is to invest
in lower-rated, high-yield debt securities. Federated Core
Trust currently is not charged an advisory fee and is sold
without any sales charge. Any administrative fee charged to
Federated Core Trust by an affiliate of the Fund's adviser
will be for services provided in addition to the
administrative services provided to the Fund. The Fund's
adviser anticipates that the High Yield Bond Portfolio will
provide the Fund broad diversity and exposure to all aspects
of the high-yield bond sector of the market while at the same
time providing greater liquidity than if high-yield debt
obligations were purchased separately for the Fund.
The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
REDUCING RISKS OF LOWER-RATED SECURITIES. The Adviser believes
that the risks of investing in lower-rated securities can be
reduced. The professional portfolio management techniques
used by the Fund to attempt to reduce these risks include:
CREDIT RESEARCH. The Adviser will perform its own
credit analysis in addition to using NRSROs and other
resources, including discussions with the issuer's
management, the judgment of other investment analysts,
and its own informed judgment. The Adviser's credit
analysis will consider the issuer's financial soundness,
its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow,
interest or dividend coverage and earnings. In
evaluating an issuer, the Adviser places special
emphasis on the estimated current value of the issuer's
assets rather than historical costs.
DIVERSIFICATION. The Fund invests in securities of
many different issuers, industries, and economic sectors to reduce
portfolio risk.
ECONOMIC ANALYSIS. The Adviser will analyze current developments
and trends in the economy and in the financial markets. When
investing in lower-rated securities, timing and selection
are critical, and analysis of the business cycle can be
important.
CONVERTIBLE SECURITIES. Convertible securities include a
spectrum of securities which can be exchanged for or converted
into common stock of the issuer or a related financial entity
(for example, a merged or acquired company or partner).
Convertible securities may include, but are not limited to:
convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds, and warrants; or, securities
which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible
Stock, or Debt Exchangeable for Common Stock when issued as a
debt security), LYONS- (Liquid Yield Option Notes. A corporate
bond which is purchased at prices below par with no coupons,
and are convertible into stock), PERCS- (Preferred Equity
Redemption Cumulative Stock, which is an equity issue that
pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), PRIDES- (Preferred
Redeemable Increased Dividend Securities, which are
essentially the same as DECS; the difference is little more
than who initially underwrites the issue).
Convertible securities are often rated below investment grade
or not rated because they fall below debt obligations and just
above common equity in order of preference or priority on the
issuer's balance sheet. Hence, an issuer with investment grade
senior debt may issue convertible securities with ratings less
than investment grade or not rated. The Fund does not limit
convertible securities by rating, and there is no minimal
acceptance rating for a convertible security to be purchased
or held in the Fund. Therefore, the Fund invests in
convertible securities irrespective of their ratings. This
could result in the Fund purchasing and holding, without
limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they
have acquired a rating below investment grade after the Fund
has purchased it.
U.S. GOVERNMENT OBLIGATIONS. The U.S. government obligations in
which the Fund invests are either issued or guaranteed by
the U.S. government, its agencies, or instrumentalities.
These securities include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes, and bonds;
o notes, bonds, and discount notes issued or guaranteed by
U.S. government agencies and instrumentalities supported by
the full faith and credit of the United States; and
o notes, bonds, and discount notes of other U.S. government
agencies or instrumentalities which receive or have access
to federal funding.
Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the
U.S. government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These agencies
and instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
MUNICIPAL SECURITIES. Municipal securities are generally
issued to finance public works such as airports, bridges,
highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also
issued to repay outstanding obligations, to raise funds for
general operating expenses, and to make loans to other public
institutions and facilities. Municipal securities include
industrial development bonds issued by or on behalf of public
authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities
and thereby increases local employment.
ASSET-BACKED SECURITIES. Asset-backed securities are created
by the grouping of certain governmental, government-related
and private loans, receivables and other lender assets,
including vehicle installment purchase obligations and credit
card receivables, into pools. Interests in these pools are
sold as individual securities and are not backed or guaranteed
by the U.S. government and may not be secured. Payments from
the asset pools may be divided into several different tranches
of debt securities, with some tranches entitled to receive
regular installments of principal and interest, other tranches
entitled to receive regular installments of interest, with
principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified
call dates. Different tranches of securities will bear
different interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be
prepaid without penalty or premium, asset-backed securities
are generally subject to higher prepayment risks than most
other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates.
Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any
scheduled principal payments, may be lower than the yield on
the original mortgage security. As a consequence, mortgage
securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the
same stated maturity and may also have less potential for
capital appreciation. For certain types of asset pools, such
as collateralized mortgage obligations ("CMOs"), prepayments
may be allocated to one tranch of securities ahead of other
tranches, in order to reduce the risk of prepayment for the
other tranches.
Prepayments may result in a capital loss to the Fund to
the extent that the prepaid mortgage securities were purchased
at a market premium over their stated amount. Conversely, the
prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate
the recognition of interest income by the Fund, which would be
taxed as ordinary income when distributed to the shareholders.
The credit characteristics of asset-backed securities also
differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the
securities is insulated from the credit risk of the originator
or any other affiliated entities, and the amount and quality
of any credit enhancement to such securities.
NON-MORTGAGE-RELATED ASSET-BACKED SECURITIES. The Fund may
invest in non-mortgage-related asset-backed securities
including, but not limited to, interests in pools of
receivables, such as credit card and accounts receivable and
motor vehicle and other installment purchase obligations and
leases. These securities may be in the form of pass-through
instruments or asset-backed obligations. The securities, all
of which are issued by non-governmental entities and carry no
direct or indirect government guarantee, are structurally
similar to CMOs and mortgage pass-through securities, which
are described below.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The Fund may also
invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate
mortgage securities ("ARMS"), CMOs, real estate mortgage
investment conduits ("REMICs"), or other securities
collateralized by or representing an interest in real estate
mortgages (collectively, "mortgage securities"). Many mortgage
securities are issued or guaranteed by government agencies.
ADJUSTABLE RATE MORTGAGE SECURITIES. ARMS are pass-through
mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. The ARMS in which
the Fund invests are issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The underlying
mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration (FHA) or
Veterans Administration (VA), while those collateralizing ARMS
issued by FHLMC or FNMA are typically conventional residential
mortgages conforming to strict underwriting size and maturity
constraints.
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of
financial institutions, government agencies, investment bankers, or
companies related to the construction industry. CMOs purchased by the
Fund may be:
o collateralized by pools of mortgages in which each mortgage
is guaranteed as to payment of principal and interest by an
agency or instrumentality of the U.S. government;
o collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities;
or
o securities in which the proceeds of the issuance are
invested in mortgage securities and payment of the principal
and interest is supported by the credit of an agency or
instrumentality of the U.S. government.
All CMOs purchased by the Fund are investment grade, as rated
by a NRSRO or are of comparable quality as determined by the Adviser.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS. REMICs are
offerings of multiple class real estate mortgage-backed
securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). Issuers of REMICs may take several forms, such
as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is
taxed to the person or persons who hold interests in the
REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates
of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity
must be in assets directly or indirectly secured principally
by real property.
RESETS OF INTEREST. The interest rates paid on the ARMS,
CMOs, and REMICs in which the Fund invests generally are
readjusted at intervals of one year or less to an increment
over some predetermined interest rate index. There are two
main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such
as a cost of funds index or a moving average of mortgage
rates. Commonly utilized indices include the one-year and
five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill
rate, rates on longer-term Treasury securities, the National
Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific
bank, or commercial paper rates. Some indices, such as the
one-year constant maturity Treasury Note rate, closely mirror
changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less
volatile.
To the extent that the adjusted interest rate on the
mortgage security reflects current market rates, the market
value of an ARMS will tend to be less sensitive to interest
rate changes than a fixed rate debt security of the same
stated maturity. Hence, ARMS which use indices that lag
changes in market rates should experience greater price
volatility than ARMS that closely mirror the market. Certain
residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing
market rates, even after the interest rate is reset, and are
subject to correspondingly increased price volatility. In the
event the Fund purchases such residual interest mortgage
securities, it will factor in the increased interest and price
volatility of such securities when determining its
dollar-weighted average duration.
CAPS AND FLOORS. The underlying mortgages which
collateralize the ARMS, CMOs, and REMICs in which the Fund
invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential
borrower may change up or down: (1) per reset or adjustment
interval; and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest
payments rather than limiting interest rate changes.
These payment caps may result in negative amortization. The
value of mortgage securities in which the Fund invests may be
affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Fund invests to be shorter than the maturities
stated in the underlying mortgages.
BANK INSTRUMENTS. The Fund only invests in bank instruments
either issued by an institution having capital, surplus and
undivided profits over $100 million or insured by BIF or SAIF.
Bank instruments may include Eurodollar Certificates of
Deposit (ECDs), Yankee Certificates of Deposit (Yankee CDs)
and Eurodollar Time Deposits (ETDs). Due to the fact that
institutions issuing such instruments are not necessarily
subject to the same regulatory requirements that apply to
domestic banks, such as the reserve requirements, loan
limitations, examination, accounting, auditing, recordkeeping,
and the public availability of information, these investments
may present additional risks to investors.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to
invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject
to restriction on resale under federal securities law.
However, the Fund will limit investments in illiquid
securities, including certain restricted securities determined
by the Directors to be illiquid, non-negotiable time deposits,
unlisted options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its
net assets.
The Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under the federal securities
laws, and is generally sold to institutional investors, such
as the Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold
to other institutional investors like the Fund through or with
the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing
liquidity. The Fund believes that Section 4(2) commercial
paper, and possibly certain other restricted securities which
meet the criteria for liquidity established by the Directors,
are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity
established by the Directors, including Section 4(2)
commercial paper, as determined by the Adviser, as liquid and
not subject to the investment limitations applicable to
illiquid securities.
FOREIGN SECURITIES AND INVESTMENT RISKS. The Fund may invest
in American Depositary Receipts, and may invest more than 10% of its
total assets in foreign securities.
Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic securities.
These considerations include the possibility of expropriation,
the unavailability of financial information or the difficulty
of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social,
or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more
difficult to enforce contractual obligations abroad than would
be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be
higher. The Adviser will consider these and other factors
before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet
the Fund's standards and objective. The Fund's investments in
foreign securities may include securities of issuers in
emerging markets.
With respect to foreign governmental securities, the Fund
reserves the right to invest up to 25% of its total assets in
fixed income securities of foreign governmental units located
within an individual foreign nation and to purchase or sell
various currencies on either a spot or forward basis in
connection with these investments. The Adviser will allocate
investments among securities of particular issuers on the
basis of its views as to the best values then currently
available in the marketplace. Such values are a function of
yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the
economy, movements in the general level and term of interest
rates, currency values, political developments and variations
in the supply of funds available for investment in the world
bond market relative to the demands placed upon it.
This policy would enable the Fund to concentrate its investments
in the securities of foreign governmental and non-governmental issuers
which would have the effect of magnifying the investment risks
disclosed above.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The
Fund may invest its assets in securities of other investment
companies as an efficient means of carrying out its investment
policies. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the
Fund may invest up to 100% of its total assets in cash and
cash items including: short-term money market instruments;
securities issued and/or guaranteed as to payment of
principal and interest by the U.S. government, its agencies
or instrumentalities; and repurchase agreements.
The Fund may also hold the instruments described above in such
amounts as necessary: to provide funds for the settlement of
portfolio transactions; pending investment of cash receipts in
the ordinary course of business; and to meet requests for
redemption of Fund shares.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements
in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other
securities of deposit to the Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete the transaction
may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement
if the Adviser deems it appropriate to do so. In addition, the
Fund may enter in transactions to sell its purchase
commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term
profits or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may lend portfolio securities on a
short-term or long-term basis up to one-third of the value of
its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only
enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are
creditworthy under guidelines established by the Directors and
will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the
securities loaned.
PUT AND CALL OPTIONS. The Fund may purchase put options on
financial futures contracts and put options on portfolio
securities. Financial futures may include index futures. These
options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value.
For the immediate future, the Fund will enter into futures
contracts directly only when it desires to exercise a
financial futures put option in its portfolio rather than
either closing out the option or allowing it to expire. The
Fund will only purchase puts on financial futures contracts
which are traded on a nationally recognized exchange.
The Fund will generally purchase over-the-counter put
options on portfolio securities in negotiated transactions
with the writers of the options since options on the portfolio
securities held by the Fund are typically not traded on an
exchange. The Fund purchases options only from investment
dealers and other financial associations (such as commercial
banks or savings associations) deemed creditworthy by the
Adviser.
In general, over-the-counter put options differ from
exchange traded put options in the following respects.
Over-the-counter put options are two party contracts with
price and terms negotiated between buyer and seller, and such
options are endorsed and/or guaranteed by third parties (such
as a New York Stock Exchange member). Additionally,
over-the-counter strike prices are adjusted to reflect
dividend payments, initial strike prices are generally set at
market, and option premiums (which are all time premiums) are
amortized on a straight line basis over the life of the
option. In contrast, exchange traded options are third-party
contracts with standardized strike prices and expiration dates
and are purchased from the Clearing Corporation. Strike prices
are not adjusted for dividends, and options are marked to
market, thereby obviating the need to amortize the time
premium. Exchange traded options have a continuous liquid
market while over-the-counter options do not.
The Fund may also write call options on all or any portion of
its portfolio in an effort to generate income for the Fund.
The Fund will write call options on securities either held in
its portfolio or which it has the right to obtain without
payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.
The call options which the Fund writes and sells must be
listed on a recognized options exchange. Although the Fund
reserves the right to write covered call options on its entire
portfolio, it will not write such options on more than 25% of
its total assets unless a higher limit is authorized by the
Directors.
The Fund may attempt to hedge the portfolio by entering into
financial futures contracts and to write calls on financial futures
contracts.
RISKS. When the Fund writes a call option, the Fund
risks not participating in any rise in the value of the
underlying security. In addition, when the Fund
purchases puts on financial futures contracts to protect
against declines in prices of portfolio securities,
there is a risk that the prices of the securities
subject to the futures contracts may not correlate
perfectly with the prices of the securities in the
Fund's portfolio of investments. This may cause the
futures contract and its corresponding put to react
differently than the portfolio securities to market
changes. In addition, the Adviser could be incorrect in
its expectations about the direction or extent of market
factors such as interest rate movements. In such an
event, the Fund may lose the purchase price of the put
option. Finally, it is not certain that a secondary
market for options will exist at all times. Although the
Adviser will consider liquidity before entering into
option transactions, there is no assurance that a liquid
secondary market on an exchange will exist for any
particular option or at any particular time. The Fund's
ability to establish and close out option positions
depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including,
futures, forward, option and swap contracts) that "derive"
their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of
securities that incorporate the performance characteristics of
these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the
cash flows from underlying securities, mortgages or other
obligations.
Derivative contracts and securities can be used to reduce
or increase the volatility of an investment portfolio's total
performance. While the response of certain derivative
contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives
do not necessarily present greater market risks than
traditional investments. The Fund will only use derivative
contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests
in securities that could be characterized as derivatives, such
as asset-backed securities and mortgage-backed securities,
including ARMS, CMOs, and REMICs, it will only do so in a
manner consistent with its investment objective, policies and
limitations.
INVESTMENT LIMITATIONS
The following investment limitations cannot be changed without
shareholder approval. The Fund will not:
o borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for at least a percentage of its
cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund
may borrow up to one-third of the value of its net
assets;
o invest more than 5% of its total assets in securities of one
issuer (except U.S. government securities); invest in more
than 10% of the voting securities of one issuer; or invest in
more than 10% of any class of securities of one issuer.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset
value for Shares is determined by adding the interest of each
class of Shares in the market value of all securities and
other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those
attributable to each class of Shares, and dividing the
remainder by the total number of each class of Shares
outstanding. The net asset value for each class of Shares may
differ due to the variance in daily income realized by each
class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
The net asset value is determined as of the close of
trading (normally 4:00 p.m., Eastern 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
Fund's portfolio securities 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,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry
sales charges and contingent deferred sales charges in different forms
and amounts and which bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum
sales charge of 5.50% at the time of purchase. As a result,
Class A Shares are not subject to any charges when they are
redeemed. Certain purchases of Class A Shares qualify for
reduced sales charges. See "Reducing or Eliminating the Sales
Charge." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge of up to
5.50% if redeemed within six full years following purchase.
Class B Shares also bear a 0.75% 12b-1 fee. Class B Shares
will automatically convert into Class A Shares, based on
relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares
provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio
and pay lower dividends than Class A Shares due to the higher
12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales charge, but
are subject to a 1.00% contingent deferred sales charge on
assets redeemed within the first 12 months following purchase.
Class C Shares also bear a 0.75% 12b-1 fee. Class C Shares
provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the 12b-1 fee. Class C
Shares have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York
Stock Exchange is open. Shares of the Fund may be purchased,
as described below, either through a financial institution
(such as a bank or broker/dealer which has a sales agreement
with the distributor) or by wire or by check directly to the
Fund, with a minimum initial investment of $500 for Class A
Shares and $1,500 for Class B Shares and Class C Shares.
Additional investments can be made for as little as $100. The
minimum initial and subsequent investment for retirement plans
is only $50. (Financial institutions may impose different
minimum investment requirements on their customers).
In connection with any sale, Federated Securities Corp. may,
from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject
any purchase request. An account must be established at a
financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can
be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION AS
A PERCENTAGE OF A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE
--------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
*See sub-section entitled "Dealer Concession."
</TABLE>
No sales charge is imposed for Class A Shares purchased
through financial intermediaries that do not receive a
reallowance of the sales charge. However, investors who
purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a
service fee or other fee by the financial intermediary.
Additionally, no sales charge is imposed on shareholders
designated as Liberty Life Members or on Class A Shares
purchased through "wrap accounts" or similar programs, under
which clients pay a fee for services.
DEALER CONCESSION. For sales of Class A Shares, a dealer will
normally receive up to 90% of the applicable sales charge. Any
portion of the sales charge which is not paid to a dealer will
be retained by the distributor. However, the distributor may
offer to pay dealers up to 100% of the sales charge retained
by it. Such payments may take the form of cash or promotional
incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational
meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In
some instances, these incentives will be made available only
to dealers whose employees have sold or may sell a significant
amount of Shares. On purchases of $1 million or more, the
investor pays no sales charge; however, the distributor will
make twelve monthly payments to the dealer totaling 0.25% of
the public offering price over the first year following the
purchase. Such payments are based on the original purchase
price of Shares outstanding at each month end.
The sales charge for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the
sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and
purchases of Shares.
REDUCING OR ELIMINATING THE SALES CHARGE
The sales charge can be reduced or eliminated on the
purchase of Class A Shares through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent; or
o using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in
the table above, larger purchases reduce the sales charge
paid. The Fund will combine purchases of Class A Shares made
on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the
sales charge. In addition, the sales charge, if applicable, is
reduced or eliminated for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single
fiduciary account.
If an additional purchase of Class A Shares is made, the Fund
will consider the previous purchases still invested in the
Fund. For example, if a shareholder already owns Class A
Shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 3.75%, not
4.50%.
To receive the sales charge reduction, Federated Securities
Corp. must be notified by the shareholder in writing or by his
financial institution at the time the purchase is made that
Class A Shares are already owned or that purchases are being
combined. The Fund will reduce the sales charge after it
confirms the purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales
charge reduction, a shareholder has the privilege of combining
concurrent purchases of Class A Shares of two or more funds
for which affiliates of Federated Investors serve as
investment adviser or principal underwriter (the "Federated
Funds"), the purchase price of which includes a sales charge.
For example, if a shareholder concurrently invested $80,000 in
one of the Class A Shares in the Federated Funds with a sales
charge, and $20,000 in the Class A Shares of this Fund, the
sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial
institution at the time the concurrent purchases are made. The Fund
will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at
least $50,000 of Class A Shares of Federated Funds (excluding
money market funds) over the next 13 months, the sales charge
may be reduced by signing a letter of intent to that effect.
This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within
the 13-month period and a provision for the custodian to hold
up to 5.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be
released upon fulfillment of the letter of intent or the end
of the 13-month period, whichever comes first. If the amount
specified in the letter of intent is not purchased, an
appropriate number of escrowed Shares may be redeemed in order
to realize the difference in the sales charge.
While this letter of intent will not obligate the shareholder
to purchase Shares, each purchase during the period will be at
the sales charge applicable to the total amount intended to be
purchased. At the time a letter of intent is established,
current balances in accounts in any Class A Shares of any
Federated Funds, excluding money market accounts, will be
aggregated to provide a purchase credit towards fulfillment of
the letter of intent. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE. If Class A Shares in the Fund have
been redeemed, the shareholder has the privilege, within 120
days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder
in writing or by his financial institution of the reinvestment
in order to eliminate a sales charge. If the shareholder
redeems his Class A Shares in the Fund, there may be tax
consequences.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next
determined after an order is received. While Class B Shares
are sold without an initial sales charge, under certain
circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge
may be applied by the distributor at the time Class B Shares
are redeemed.
CONVERSION OF CLASS B SHARES. Class B Shares will
automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase
date, except as noted below, and will no longer be subject to
a fee under the Fund's Distribution Plan (see "Distribution of
Shares"). Such conversion will be on the basis of the relative
net asset values per Share, without the imposition of any
sales charge, fee or other charge. Class B Shares acquired by
exchange from Class B Shares of another Federated Fund will
convert into Class A Shares based on the time of the initial
purchase. For purposes of conversion to Class A Shares, Shares
purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be
held in a separate sub-account. Each time any Class B Shares
in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also
convert to Class A Shares. The conversion of Class B Shares to
Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable
events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur
if such ruling or opinion is not available. In such event,
Class B Shares would continue to be subject to higher expenses
than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will
automatically be invested in Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined
after an order is received. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first
full 12 months following purchase. For a complete description
of this charge see "Contingent Deferred Sales Charge-- Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank
or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered
received when the Fund is notified of the purchase order or
when payment is converted into federal funds. Purchase orders
through a registered broker/dealer must be received by the
broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase
orders through other financial institutions must be received
by the financial institution and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
Financial institutions may charge additional fees for their
services.
The financial institution which maintains investor accounts in
Class B Shares or Class C Shares with the Fund must do so on a
fully disclosed basis unless it accounts for share ownership
periods used in calculating the contingent deferred sales
charge (see "Contingent Deferred Sales Charge"). In addition,
advance payments made to financial institutions may be subject
to reclaim by the distributor for accounts transferred to
financial institutions which do not maintain investor accounts
on a fully disclosed basis and do not account for share
ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be
purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the
order is considered received when State Street Bank and Trust
Company receives payment by wire. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o
State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: (Fund Name) (Share Class); Fund
Number (this number can be found on the account statement or
by contacting the Fund); Group Number or 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 client service representative at the telephone number
listed on your account statement.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased
by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Orders by mail are considered received when
payment by check is converted into federal funds (normally the
business day after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been
opened, shareholders may add to their investment on a regular
basis in a minimum amount of $100. Under this program, funds
may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House
("ACH") member and invested in the Fund at the net asset value
next determined after an order is received by the Fund, plus
the sales charge, if applicable. Shareholders should contact
their financial institution or the Fund to participate in this
program.
RETIREMENT PLANS. Fund Shares can be purchased as an investment for
retirement plans or for Individual Retirement Accounts ("IRAs").
For further details contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES. Class A shareholders may exchange all or some
of their Shares for Class A Shares of other Federated Funds at
net asset value. Neither the Fund nor any of the Federated
Funds imposes any additional fees on exchanges. Shareholders
in certain other Federated Funds may exchange all or some of
their shares for Class A Shares.
CLASS B SHARES. Class B shareholders may exchange all or some
of their Shares for Class B Shares of other Federated Funds.
(Not all Federated Funds currently offer Class B Shares.
Contact your financial institution regarding the availability
of Class B Shares of the Federated Funds). Exchanges are made
at net asset value without being assessed a contingent
deferred sales charge on the exchanged Shares. To the extent
that a shareholder exchanges Shares for Class B Shares in
other Federated Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the
applicable holding period.
CLASS C SHARES. Class C shareholders may exchange all or some
of their Shares for Class C Shares of other Federated Funds at
net asset value without a contingent deferred sales charge.
(Not all Federated Funds currently offer Class C Shares.
Contact your financial institution regarding the availability
of Class C Shares of the Federated Funds). To the extent that
a shareholder exchanges Shares for Class C Shares of other
Federated Funds, the time for which the exchanged-for Shares
are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see
"Contingent Deferred Sales Charge."
Please contact your financial institution directly or Federated
Securities Corp. at 1-800-341-7400 for information on and prospectuses
for the Federated Funds into which your Shares may be exchanged free of
charge.
Shareholders of Class A Shares who have been designated as Liberty
Life Members are exempt from sales charges on future purchases in and
exchanges between the Class A Shares of any Federated Funds, as long
as they maintain a $500 balance in one of the Federated Funds.
REQUIREMENTS FOR EXCHANGE. Shareholders using this privilege
must exchange Shares having a net asset value equal to the
minimum investment requirements of the fund into which the
exchange is being made. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange
is being made.
This privilege is available to shareholders resident in any
state in which the Shares being acquired may be sold. Upon
receipt of proper instructions and required supporting
documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of shares of the other
fund. The exchange privilege may be modified or terminated at
any time. Shareholders will be notified of the modification or
termination of the exchange privilege.
TAX CONSEQUENCES. An exercise of the exchange privilege is treated as a
sale for federal income tax purposes. Depending upon the circumstances,
a capital gain or loss may be realized.
MAKING AN EXCHANGE. Instructions for exchanging may be given
in writing or by telephone. Written instructions may require a
signature guarantee. Shareholders of the Fund may have
difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact
his broker or financial institution by telephone, it is
recommended that an exchange request be made in writing and
sent by overnight mail to: Federated Shareholder Services
Company, 1099 Hingham Street, Rockland, Massachusetts
02370-3317.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the
investor may be carried out only if a telephone authorization
form completed by the investor is on file with the Fund. If
the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file
with the Fund. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged
between two funds by telephone only if the two funds have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by
telephone but must be forwarded to Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions are recorded
and will be binding upon the shareholder. Such instructions
will be processed as of 4:00 p.m. (Eastern time) and must be
received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a Fund
will begin receiving dividends the following business day.
This privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any
applicable contingent deferred sales charge, next determined
after the Fund receives the redemption request. Redemptions
will be made on days on which the Fund computes its net asset
value. Investors who redeem Class A Shares through a financial
intermediary may be charged a service fee by that financial
intermediary. Redemption requests must be received in proper
form and can be made as described below.
REDEEMING SHARES THROUGH YOUR FINANCIAL INSTITUTION. Shares of
the Fund may be redeemed by calling your financial institution
to request the redemption. Shares will be redeemed at the net
asset value, less any applicable contingent deferred sales
charge, next determined after the Fund receives the redemption
request from the financial institution. Redemption requests
through a registered broker/dealer must be received by the
broker before 4:00 p.m. (Eastern time) and must be transmitted
by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value.
Redemption requests through other financial institutions (such
as banks) must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly
submitting redemption requests and providing proper written
redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any
amount by calling the Fund provided the Fund has a properly
completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form
of a check, to the shareholder's address of record or
wire-transferred to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through
ACH will not be wired until that method of payment has
cleared. 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 client service representative at the telephone number
listed on your account statement.
Telephone instructions will be recorded. If reasonable
procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone
instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming
by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine
it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any
amount by mailing a written request to: Federated Shareholder
Services Company, Fund Name, Share Class, P.O. Box 8600,
Boston, MA 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: Fund Name and the Share
Class name; the account name as registered with the Fund; 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 is 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 Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM. Shareholders who desire to receive
payments of a predetermined amount not less than $100 may
take advantage of the Systematic Withdrawal Program. Under
this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the
shareholder.
Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value
of Shares redeemed under this program, redemptions may reduce,
and eventually deplete, the shareholder's investment in the
Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000,
other than retirement accounts subject to required minimum
distributions. A shareholder may apply for participation in
this program through his financial institution. Due to the
fact that Class A Shares are sold with a sales charge, it is
not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent
deferred sales charge may be imposed on Class B Shares and
Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales
charge upon redemption of their Shares under the following
circumstances:
o CLASS A SHARES
Class A Shares purchased under a periodic special offering
with the proceeds of a redemption of Shares of an unaffiliated
investment company purchased or redeemed with a sales charge
and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50% for
redemptions made within one full year of purchase. Any
applicable contingent deferred sales charge will be imposed on
the lesser of the net asset value of the redeemed Shares at
the time of purchase or the net asset value of the redeemed
Shares at the time of redemption.
o CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares
will be charged a contingent deferred sales charge by the
Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of redemption in accordance
with the following schedule:
<PAGE>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First..................................................... 5.50%
Second................................................ 4.75%
Third................................................... 4.00%
Fourth................................................. 3.00%
Fifth..................................................... 2.00%
Sixth.................................................... 1.00%
Seventh and thereafter..................... 0.00%
oCLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts
within one full year of the purchase date of those Shares will
be charged a contingent deferred sales charge by the Fund's
distributor of 1.00%. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset
value of the redeemed Shares at the time of redemption.
o CLASS A SHARES, CLASS B SHARES , AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and
will be retained by the distributor. The contingent deferred
sales charge will not be imposed with respect to: (1) Shares
acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held
for more than six full years from the date of purchase with
respect to Class B Shares and one full year from the date of
purchase with respect to Class C Shares and applicable Class A
Shares. Redemptions will be processed in a manner intended to
maximize the amount of redemption which will not be subject to
a contingent deferred sales charge. In computing the amount of
the applicable contingent deferred sales charge, redemptions
are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term
capital gains; (2) Shares held for more than six full years
from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class
C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and for
less than one full year from the date of purchase with respect
to Class C Shares and applicable Class A Shares on a first-in,
first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund Shares for
Shares of other Federated Funds in the same class (see
"Exchange Privilege"). Any contingent deferred sales charge
imposed at the time the exchanged-for Shares are redeemed is
calculated as if the shareholder had held the Shares from the
date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see
"Elimination of Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated
with respect to the following redemptions: (1) redemptions
following the death or disability, as defined in Section
72(m)(7) of the Code, of the last surviving shareholder; (2)
redemptions representing minimum required distributions from
an IRA or other retirement plan to a shareholder who has
attained the age of 70 1/2; (3) involuntary redemptions by the
Fund of Shares in shareholder accounts that do not comply with
the minimum balance requirements; and (4) qualifying
redemptions for Class B Shares under a Systematic Withdrawal
Program. To qualify for elimination of the contingent deferred
sales charge through a Systematic Withdrawal Program, the
redemptions of Class B Shares must be from an account: that is
at least 12 months old, has all Fund distributions reinvested
in Fund Shares, and has a value of at least $10,000 when the
Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value
as periodically determined by the Fund. For more information
regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program contact your
financial intermediary or the Fund. No contingent deferred
sales charge will be imposed on redemptions of Shares held by
Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, and
their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under
the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the
Investment Advisers Act of 1940 or retirement plans where the
third party administrator has entered into certain
arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent
that no payments were advanced for purchases made through such
entities. The Fund reserves the right to discontinue or modify
the elimination of the contingent deferred sales charge.
Shareholders will be notified of a discontinuation. Any Shares
purchased prior to the termination of such waiver would have
the contingent deferred sales charge eliminated as provided in
the Fund's prospectus at the time of the purchase of the
Shares. If a shareholder making a redemption qualifies for an
elimination of the contingent deferred sales charge, the
shareholder must notify Federated Securities Corp. or the
transfer agent in writing that the shareholder is entitled to
such elimination.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of
transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements
reporting all account activity, including dividends paid. The
Fund will not issue share certificates.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders
invested in the Fund on the record date. Dividends and
distributions are automatically reinvested in additional
Shares of the Fund on payment dates at the ex-dividend date
net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to
the transfer agent. All shareholders on the record date are
entitled to the dividend. If Shares are redeemed or exchanged
prior to the record date or purchased after the record date,
those Shares are not entitled to that quarter's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will
be distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low
balances, the Fund may redeem Shares in any account, except
retirement plans, and pay the proceeds to the shareholder if
the account balance falls below the Class A Shares required
minimum value of $500 or the required minimum value of $1,500
for Class B Shares and Class C Shares. This requirement does
not apply, however, if the balance falls below the required
minimum value because of changes in the net asset value of the
respective Share class. 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.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of
Directors. The Directors are responsible for managing the
Fund's business affairs and for exercising all the Fund's
powers except those reserved for the shareholders. An
Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made
by Federated Management, the Fund's investment adviser,
subject to direction by the Directors. The Adviser continually
conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Adviser receives an annual
investment advisory fee equal to 0.55% of the Fund's
average daily net assets plus 4.50% of the Fund's annual
gross income, excluding any capital gains or losses. Gross
income includes interest accrued, including discount
earned on U.S. Treasury bills and agency discount notes,
interest received or receivable on all interest-bearing
obligations and dividend income. Under the investment
advisory contract which provides for the voluntary waiver
and reimbursement of expenses by the Adviser, the Adviser
may voluntarily choose to waive a portion of its fee or
reimburse the Fund for certain operating expenses. The
Adviser can terminate this voluntary reimbursement of
expenses at any time at its sole discretion.
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 $110 billion
invested across over 300 funds under management and/or
administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the
management who founded the company in 1955. Federated
funds are presently at work in and through 4,500 financial
institutions nationwide.
Both the Fund and the Adviser have adopted strict codes of
ethics governing the conduct of all employees who manage the
Fund and its portfolio securities. These codes recognize that
such persons owe a fiduciary duty to the Fund's shareholders
and must place the interests of shareholders 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; 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 Directors and could result
in severe penalties.
PORTFOLIO MANAGERS' BACKGROUND.
Scott B. Schermerhorn has been
a portfolio manager of the Fund since July 1996 and is responsible for
managing the equity portion of the Fund. Mr. Schermerhorn joined
Federated Investors in 1996 as a Vice President of the Fund's
investment adviser and Federated Research Corp. From 1990 through
1996, Mr. Schermerhorn was a Senior Vice President and Senior
Investment Officer at J W Seligman & Co., Inc. Mr. Schermerhorn
received his M.B.A. in Finance and International Business from Seton
Hall University.
Michael P. Donnelly is a portfolio manager of the Fund, effective
December 1997 and is responsible for managing the equity portion of
the Fund. Mr. Donnelly joined Federated in 1989 as an Investment
Analyst and has been a Vice President of the Fund's adviser and
Federated Research Corp. since 1994. He served as an Assistant Vice
President of the Fund's adviser and Federated Research Corp. from 1992
to 1994. Mr. Donnelly is a Chartered Financial Analyst and received
his M.B.A. from the University of Virginia.
Joseph M. Balestrino has been a portfolio manager of the Fund
since May 1994 and is responsible for managing the overall allocation
of the Fund's assets within the corporate sector. Mr. Balestrino also
manages the investment grade portion of the Fund. Mr. Balestrino
joined Federated Investors in 1986 and has been a Vice President of
the Fund's investment adviser and Federated Research Corp. since 1995.
Mr. Balestrino served as an Assistant Vice President of the investment
adviser and Federated Research Corp. from 1991 to 1995. Mr. Balestrino
is a Chartered Financial Analyst and received his Master's Degree in
Urban and Regional Planning from the University of Pittsburgh.
Mark E. Durbiano has been a portfolio manager of the Fund since
September 1996 and is responsible for managing the high yield portion
of the Fund. Mr. Durbiano joined Federated Investors in 1982 and has
been a Senior Vice President of the Fund's investment adviser and
Federated Research Corp. since January 1996. From 1988 through 1995,
Mr. Durbiano was a Vice President of the Fund's investment adviser and
Federated Research Corp. Mr. Durbiano is a Chartered Financial Analyst
and received his M.B.A. in Finance from the University of Pittsburgh.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for
Shares of the Fund. Federated Securities Corp. is located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. 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.
The distributor may offer to pay financial institutions an
amount up to 1.00% of the net asset value of Class C Shares
purchased by their clients or customers at the time of
purchase. These payments will be made directly by the
distributor from its assets, and will not be made from assets
of the Fund. Financial institutions may elect to waive the
initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.50%
of the net asset value of Class B Shares purchased by their
clients or customers. These payments will be made directly by
the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of
all or any portion of these payments. The distributor may pay
a portion of the distribution fee discussed below to financial
institutions that waive all or any portion of the advance
payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a
distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), Class A
Shares, Class B Shares, and Class C Shares may pay a fee to
the distributor in an amount computed at an annual rate of
0.25%, 0.75%, and 0.75%, respectively, of the average daily
net assets of each class of Shares to finance any activity
which is principally intended to result in the sale of Shares
subject to the Distribution Plan. For Class C Shares, 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. With respect to Class B Shares, because
distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of 0.75% of each class of
Shares' average daily net assets, it will take the distributor
a number of years to recoup the expenses it has incurred for
its distribution and distribution-related services pursuant to
the Plan. The Fund is not currently making payments for Class
A Shares under the Distribution Plan, nor does it anticipate
doing so in the immediate future.
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 Shares 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 Class A Shares, Class B Shares, and Class C Shares to
obtain certain personal services for shareholders and for the
maintenance of shareholder accounts ("Shareholder Services
Agreement"). 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
such fees will be paid will be determined from time to time by
the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated
Securities Corp. will pay financial institutions, at the time
of purchase of Class A Shares, an amount equal to 0.50% of the
net asset value of Class A Shares purchased by their clients
or customers under certain qualified retirement plans as
approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the
assets leave the program within 12 months after purchase).
Furthermore, with respect to Class A Shares, Class B Shares,
and Class C Shares, 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 offer to pay to financial
institutions supplemental fees for the performance of
substantial sales services, distribution-related support
services, or shareholder services. The support may include
sponsoring sales, educational and training seminars for their
employees, 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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a
subsidiary of Federated Investors, provides administrative
personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated
Services Company provides these at an annual rate which
relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors as specified
below:
MAXIMUM ADMINISTRATIVE FEE AVERAGE AGGREGATE DAILY NET ASSETS
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall
be at least $125,000 per portfolio and $30,000 per each additional
class of Shares. Federated Services Company may choose voluntarily to
waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with
dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms
which have sold or are selling shares of the Fund and other
funds distributed by Federated Securities Corp. The Adviser
makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Directors.
EXPENSES OF THE FUND AND SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares
pay their allocable portion of Fund and portfolio expenses.
The Fund expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion
include, but are not limited to: the cost of organizing the
Fund and continuing its existence; registering the Fund with
federal and state securities authorities; Directors' fees;
auditors' fees; the cost of meetings of Directors; legal fees
of the Fund; association membership dues; and such
non-recurring and extraordinary items as may arise from time
to time.
The portfolio expenses for which holders of Class A Shares,
Class B Shares, and Class C Shares pay their allocable portion
include, but are not limited to: registering the portfolio and
Shares of the portfolio; 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 which are allocated
specifically to Class A Shares, Class B Shares, and Class C
Shares as classes are expenses under the Fund's Distribution
Plan and fees for Shareholder Services. However, the Directors
reserve the right to allocate certain other expenses to
holders of Class A Shares, Class B Shares, and Class C Shares
as they deem 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
Class A Shares, Class B Shares, and Class C 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
SEC and registration fees paid to state securities
commissions; expenses related to administrative personnel and
services as required to support holders of Class A Shares,
Class B Shares, and Class C Shares; legal fees relating solely
to Class A Shares, Class B Shares, and Class C Shares and
Directors' fees incurred as a result of issues relating solely
to Class A Shares, Class B Shares, and Class C Shares.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in
Director elections and other matters submitted to shareholders
for vote. All Shares of each portfolio in the Fund have equal
voting rights, except that in matters affecting only a
particular portfolio or class, only shares of that portfolio
or class are entitled to vote.
As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Fund's operation and for the election of
Directors under certain circumstances.
Directors may be removed by Directors or by shareholders at a
special meeting. A special meeting of shareholders shall be called by
the Directors upon the request of shareholders owning at least 25% of
the Fund's outstanding Shares of all series entitled to vote.
As of October 14, 1997, Merrill Lynch Pierce Fenner &
Smith, Jacksonville, FL (as record owner holding Class C
Shares for its clients), owned 26.67% of voting securities of
the Fund's Class C Shares and, therefore, may for certain
purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to
meet requirements of the Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies.
Unless otherwise exempt, shareholders are required to pay
federal income tax on any dividends and other distributions,
including capital gains distributions, received. This applies
whether dividends and distributions are received in cash or as
additional Shares. Distributions representing long-term
capital gains, if any, will be taxable to shareholders as
long-term capital gains no matter how long the shareholders
have held their Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until
distributed, so long as such IRA or qualified retirement plan
meets the applicable requirements of the Code.
STATE AND LOCAL TAXES
Shares are exempt from personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and
yield for each class of Shares.
Total return represents the change, over a specified period of
time, in the value of an investment in each class of Shares
after reinvesting all income and capital gains distributions.
It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing
the net investment income per share (as defined by the SEC)
earned by each class of Shares over a thirty-day period by the
maximum offering price per share of each class 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 each class of Shares, and,
therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of
non-recurring charges such as the maximum sales charge or contingent
deferred sales charge, which, if excluded, would increase the total
return and yield.
Total return and yield will be calculated separately for Class
A Shares, Class B Shares, and Class C Shares.
From time to time, advertisements for Class A Shares, Class B
Shares, and Class C Shares of the Fund may refer to ratings,
rankings, and other information in certain financial
publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
<PAGE>
APPENDIX
STANDARD & POOR'S RATINGS SERVICES CORPORATE BOND RATING DEFINITIONS
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.
BB, B, CCC, CC-Debt rated BB, B, CCC, and CC is regarded, on
balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
of major risk exposures to adverse conditions.
CI-The rating CI is reversed for income bonds on which no
interest is being paid.
D-Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
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 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 near
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.
BA-Bonds which are Ba are judged to have speculative elements;
their future cannot be considered well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
CAA-Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
CA-Bonds which are Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
FITCH INVESTORS SERVICE, L.P. INVESTMENT GRADE BOND RATING DEFINITIONS
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 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. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor
in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC-Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C-Bonds are in imminent default in payment of interest or
principal.
DDD, DD, AND D-Bonds are in default on interest and/or
principal payments. Such bonds are extremely speculative and
should be valued on the basis of their ultimate recovery value
in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
<PAGE>
ADDRESSES
Federated Stock and Bond Fund, Inc.
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, Pennsylvania 15222-3779
Class C Shares
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
F Shares
PROSPECTUS
An Open-End, Diversified Management
Investment Company
December 31, 1997
Cusip 313911109
Cusip 313911208
Cusip 313911307
8012905 (12/97)
FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with
the prospectus for Class A Shares, Class B Shares, and Class C
Shares of Federated Stock and Bond Fund, Inc. (the "Fund"),
dated December 31, 1997. This Statement is not a prospectus
itself. You may request a copy of a prospectus or a paper copy
of this Statement of Additional Information, if you have
received it electronically, free of charge by calling
1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1997
<PAGE>
[GRAPHIC OMITTED]
Cusip 313911109
Cusip 313911208
Cusip 313911307
8012905B (12/97)
<PAGE>
I
TABLE OF CONTENTS
<PAGE>
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Convertible Securities 1
Investments in Mortgage-Backed and Asset-Backed
Securities 2
Futures and Options Transactions 2
Investing in Foreign Currencies 4
When-Issued and Delayed Delivery Transactions 5
Lending Portfolio Securities 5
Repurchase Agreements 5
Reverse Repurchase Agreements 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 6
FEDERATED STOCK AND BOND FUND, INC. MANAGEMENT 8
Fund Ownership 12
Directors Compensation 13
Director Liability 14
INVESTMENT ADVISORY SERVICES 14
Adviser to the Fund 14
Advisory Fees 14
BROKERAGE TRANSACTIONS 14
OTHER SERVICES 15
Fund Administration 15
Custodian and Portfolio Accountant 15
Transfer Agent 15
Independent Auditors 15
PURCHASING SHARES 15
Distribution Plan and Shareholder Services 15
Purchases by Sales Representatives, Fund
Directors, and Employees 16
Exchanging Securities for Fund Shares 16
DETERMINING NET ASSET VALUE 16
Determining Market Value of Securities 16
REDEEMING SHARES 17
Redemption in Kind 17
Elimination of the Contingent Deferred Sales
Charge 17
TAX STATUS 17
The Fund's Tax Status 17
Shareholders' Tax Status 17
TOTAL RETURN 18
YIELD 18
PERFORMANCE COMPARISONS 18
Economic and Market Information 20
Duration 20
ABOUT FEDERATED INVESTORS 20
Mutual Fund Market 21
Institutional Clients 21
Bank Marketing 21
Broker/Dealer and Bank Broker/Dealer
Subsidiaries 21
<PAGE>
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the state of Maryland on
October 31, 1934. On April 16, 1993, the shareholders voted to permit
the Fund to offer separate series and classes of shares. During the
fiscal year ended October 31, 1994, the Fund offered Class A Shares
and Class C Shares. On August 31, 1994, a reorganization of the Fund
was completed to eliminate the separate classes of shares. At a
meeting of the Board of Directors (the "Directors") held on February
26, 1996, the Directors approved an amendment to the Articles of
Incorporation to change the name of Stock and Bond Fund, Inc. to
Federated Stock and Bond Fund, Inc., and to re-establish the Fund's
offering of separate classes of shares by approving Class B Shares and
Class C Shares.
Shares of the Fund are currently offered in three classes known
as Class A Shares, Class B Shares, and Class C Shares (individually
and collectively referred to as "Shares" as the context may require).
This Statement of Additional Information relates to all classes of
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide relative safety of
capital with the possibility of long-term growth of capital and
income. Consideration is also given to current income. The investment
objective cannot be changed without approval of shareholders. As a
matter of investment policy, under normal circumstances, the Fund will
invest at least 65% of its total assets in stocks and bonds. Unless
otherwise noted, investment policies and limitations may be changed by
the Directors without shareholder approval. Shareholders will be
notified before any material change occurs.
TYPES OF INVESTMENTS
The Fund invests in a diversified portfolio of domestic and foreign
common and preferred stocks and other equity securities, convertible
securities, domestically-issued and foreign-issued corporate and
government debt obligations, mortgage-backed and asset-backed
securities, obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities, taxable municipal debt obligations
and repurchase agreements.
CONVERTIBLE SECURITIES
Dividend Enhanced Convertible Stock or Debt Exchangeable for Common
Stock ("DECS") offer a substantial dividend advantage with the
possibility of unlimited upside potential if the price of the
underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the
price of the common at the time of maturity. DECS contain two call
options at different strike prices. The DECS participate with the
common up to the first call price. They are effectively capped at that
point unless the common rises above a second price point, at which
time they participate with unlimited upside potential. Preferred
Equity Redemption Cumulative Stock ("PERCS") offer a substantial
dividend advantage, but capital appreciation potential is limited to a
predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates
declines when the common falls, while the cap price limits gains when
the common rises. As with all securities, various market forces
influence the market value of convertible securities, including
changes in the level of interest rates. As the level of interest rates
increases, the market value of convertible securities may decline and,
conversely, as interest rates decline, the market value of convertible
securities may increase. The unique investment characteristic of
convertible securities, the right to be exchanged for the issuer's
common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since
securities prices fluctuate, there can be no assurance of capital
appreciation, and most convertible securities will not reflect quite
as much capital appreciation as their underlying common stocks. When
the underlying common stock is experiencing a decline, the value of
the convertible security tends to decline to a level approximating the
yield-to-maturity basis of straight nonconvertible debt of similar
quality, often called "investment value," and may not experience the
same decline as the underlying common stock. Many convertible
securities sell at a premium over their conversion values (i.e., the
number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege. If this appreciation
potential is not realized, the premium may not be recovered.
<PAGE>
INVESTMENTS IN MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then re-registered because the owner
and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase
its current income. The Fund currently does not intend to invest more
than 5% of its total assets in options transactions. FINANCIAL FUTURES
CONTRACTS
A futures contract is a firm commitment by two parties: the
seller who agrees to make delivery of the specific type of security
called for in the contract ("going short") and the buyer who agrees to
take delivery of the security ("going long") at a certain time in the
future.
In the fixed income securities market, price generally moves inversely
to interest rates. Thus, a rise in rates generally means a drop in
price. Conversely, a drop in rates generally means a rise in price. In
order to hedge its holdings of fixed income securities against a rise
in market interest rates, the Fund could enter into contracts to
deliver securities at a predetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed
income securities may decline during the Fund 's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at
a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before
a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and
the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale
of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the
option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the
Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium
paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio
against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the
option is exercised. As market interest rates rise, causing the prices
of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below
the strike price, the buyer of the option has no reason to exercise
the call, so that the Fund keeps the premium received for the option.
This premium can offset the drop in value of the Fund's fixed income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash
or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that
futures contract initial margin does not involve the borrowing of
funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to
protect against price movements in particular securities in its
portfolio. A put option gives the Fund, in return for a premium, the
right to sell the underlying security to the writer (seller) at a
specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities
which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
OBLIGATIONS OF FOREIGN ISSUERS
Obligations of a foreign issuer may present greater risks than
investments in U.S. securities, including higher transaction costs as
well as the imposition of additional taxes by foreign governments. In
addition, investments in foreign issuers may include additional risks
associated with less complete financial information about the issuers,
less market liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding taxes on
interest income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions might adversely affect the
payment of principal and interest on obligations of foreign issuers.
As a matter of investment practice, the Fund will not invest in the
obligations of a foreign issuer if any such risk appears to the Fund's
investment adviser, Federated Management (the "Adviser"), to be
substantial.
INVESTING IN FOREIGN CURRENCIES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
in order to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a
foreign currency involved in an underlying transaction. However,
forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency
relationships. The Fund's Adviser believes that it is important to
have the flexibility to enter into forward foreign currency exchange
contracts whenever it determines that it is in the Fund's best
interest to do so. The Fund will not speculate in foreign currency
exchange.
There is no limitation as to the percentage of the Fund's assets that
may be committed to such contracts.
The Fund does not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when the Fund
would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge",
denominated in a currency or currencies that the Adviser believes will
tend to be closely correlated with the currency with regard to price
movements. Generally, the Fund does not enter into a forward foreign
currency exchange contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price
on a specified date or during the option period. The owner of a call
option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the
obligation to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option
is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its
position during the option period at any time prior to expiration. A
call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency
depreciates in value. Although purchasing a foreign currency option
can protect the Fund against an adverse movement in the value of a
foreign currency, the option will not limit the movement in the value
of such currency. For example, if the Fund were holding securities
denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the
value of the currency, the Fund would not have to exercise its put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency
call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise
its call. Instead, the Fund could acquire, in the spot market, the
amount of foreign currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally.
There are certain additional risks associated with foreign currency
options. The markets in foreign currency options are relatively new,
and the Fund's ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
Although the Fund will not purchase or write such options unless and
until, in the opinion of the Adviser, the market for them has
developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the
price of the option position may vary with changes in the value of
either or both currencies and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign
currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis.
Available quotation information is generally representative of very
large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e. less than $1 million) where
rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market. To the extent that
the U.S. option markets are closed while the markets for the
underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets until they re-open.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must
be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower
or placing broker. The Fund does not have the right to vote securities
on loan, but would terminate the loan and regain the right to vote if
that were considered important with respect to the investment. There
is a risk that when lending portfolio securities, the securities may
not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities
may be delayed pending court action.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the
securities subject to repurchase agreements, and these securities are
marked to market daily. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities. In the
event that a defaulting seller files for bankruptcy or becomes
insolvent, disposition of securities by the Fund might be delayed
pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser
to be creditworthy pursuant to guidelines established by the
Directors.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not
ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. When effecting reverse
repurchase agreements, liquid assets of the Fund, in a dollar amount
sufficient to make payment for the obligations to be purchased, are
segregated at the trade date. The securities are marked to market
daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund normally holds or disposes of portfolio securities in
order to achieve its investment objective. Securities held by the Fund
are selected because they are considered to represent real value and
will be held or disposed of accordingly. The Adviser will not
generally seek profits through short-term trading. The Fund will not
attempt to set or meet a portfolio turnover rate since any turnover
would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objective. For the fiscal years ended
October 31, 1997 and 1996, the portfolio turnover rates were xx% and
74%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as
permitted by its investment objective and policies, and
except that the Fund may enter into reverse repurchase
agreements and otherwise borrow up to one-third of the value
of its net assets including the amount borrowed, as a
temporary, extraordinary or emergency measure or to
facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. This
practice is not for investment leverage. The Fund will not
purchase any portfolio instruments while any borrowings
(including reverse repurchase agreements) are outstanding.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its
total assets in the securities of any one issuer, except
U.S. government securities; invest in more than 10% of the
voting securities of one issuer; or invest in more than 10%
of any class of securities of one issuer.
SELLING SECURITIES
The Fund may not sell any security or evidence of interest
therein unless it is owned by the Fund and available for delivery.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts,
or real estate.
UNDERWRITING
The Fund will not engage in underwriting or agency
distribution of securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio
securities. The purchase of corporate or government bonds,
debentures, notes or other evidences of indebtedness shall
not be considered a loan for purposes of this limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its
total assets in securities of companies in any one industry.
However, with respect to foreign governmental securities, the
Fund reserves the right to invest up to 25% of its total
assets in fixed income securities of foreign governmental
units located within an individual foreign nation and to
purchase or sell various currencies on either a spot or
forward basis in connection with these investments.
The above limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will limit investments in illiquid securities,
including certain restricted securities determined by the
Directors to be illiquid non-negotiable time deposits,
unlisted options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of
its net assets.
ACQUIRING SECURITIES
The Fund will not invest in securities issued by any other
investment company or investment trust except in regular
open-market transactions or as part of a plan of merger or
consolidation. It will not invest in securities of a company
for the purpose of exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in
warrants, including those acquired in units or attached to
other securities. For purposes of this investment
restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
If a percentage limitation is adhered to at the time of investment, a
later increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such
restriction. The Fund did not borrow money or lend portfolio
securities in excess of 5% of the value of its net assets during the
last fiscal year and has no present intent to do so in the coming
fiscal year. For purposes of its policies and limitations, the Fund
considers certificates of deposit and demand and time deposits issued
by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at
the time of investment to be "cash items." Cash items may include
short-term obligations such as:
o obligations of the U.S. government or its agencies or
instrumentalities; and
o repurchase agreements.
<PAGE>
FEDERATED STOCK AND BOND FUND, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates,
present positions with Federated Stock And Bond Fund, Inc., and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
President and Director
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh;
formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc.; Director, Member of Executive Committee, University of
Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior
Vice-President, John R. Wood and Associates, Inc., Realtors; Partner
or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N
Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A.,
Western Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Retired from the law firm of Miller, Ament, Henny & Kochuba; Director
or Trustee of the Funds.
<PAGE>
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica & Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, President and Director of the Company.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some 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.
* This Director is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board between
meeting of the Board.
As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Arrow Funds;
Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
As of October 14, 1997, officers and Directors as a group owned
approximately xxx,xxx shares (x.xx%) of the Fund's outstanding Class A
Shares. As of October 14, 1997, no shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund. As of October14,
1997, the following shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class B Shares for its clients),
Jacksonville, FL, owned 13,192 Shares (6.65%). As of October 14, 1997,
the following shareholders of record owned 5% or more of the
outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients),
Jacksonville, FL, owned 12,209 Shares (26.67%); Eva R. Spencer and
Judy B. Crumley, Virginia Beach, VA, owned approximately 5,813 Shares
(12.70%); and Edward D. Jones & Co., Maryland Heights, MO, owned
approximately 4,930 Shares (10.77%).
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM FUND*# TOTAL COMPENSATION PAID
FUND FROM FUND COMPLEX +
<S> <C> <C>
John F. Donahue $0 $0 for the Fund and
Director and President 56 other investment companies in the Fund Complex
Thomas G. Bigley $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $ x,xxx.xx $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex
William J. Copeland $ x,xxx.xx $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex
James E. Dowd $ x,xxx.xx $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ x,xxx.xx $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex
Peter E. Madden $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
Gregor F. Meyer $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
John E. Murray, Jr. $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $ x,xxx.xx $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31,
1997.
# The aggregate compensation is provided for the Fund which is
comprised of one portfolio.
+ The information is provided for the last calendar year.
<PAGE>
DIRECTOR LIABILITY
The Fund's Articles of Incorporation provide that the Directors 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.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All 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. The
Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or 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 upon it by its contract
with the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. During the
fiscal years ended October 31, 1997, 1996, and 1995, the Adviser
earned $xxxxxx, $1,028,943, and $979,379, respectively, of which
$xxxxxx, $206,429, and $215,192, respectively, were voluntarily waived
because of undertakings to limit the Fund's expenses. All advisory
fees were computed on the same basis as described in the prospectus.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the
Fund or to the Adviser and may include: advice as to the advisability
of investing in securities; security analysis and reports; economic
studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by
brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of
these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research services
provided. During the fiscal years ended October 31, 1997, 1996, and
1995, the Fund paid total brokerage commissions of $xxxxxx, $142,462,
and $84,056, respectively. As of October 31, 1997, the Fund owned
$xxx,xxx of securities of Travelers Inc. (Smith Barney) and $xxx,xxx
of securities of Dean Witter, two of its regular brokers that derive
more than 15% of gross revenues from securities- related activities.
Although investment decisions for the Fund are made independently
from those of the other accounts managed by the Adviser, investments
of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the
Adviser are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed
of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions
will be to the benefit of the Fund.
<PAGE>
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
as described in the prospectus. From March 1, 1994 to March 1, 1996,
Federated Administrative Services, a subsidiary of Federated
Investors, served as the Fund's Administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $xxxxxx,
$135,000 and $125,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), Boston, MA,
is custodian for the securities and cash of the Fund. Federated
Services Company, Pittsburgh, PA, provides certain accounting and
recordkeeping services with respect to the Fund's portfolio
investments. 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
Federated Services Company, through its registered transfer
agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the size, type and number of transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
PURCHASING SHARES
Shares are sold at their net asset value (plus a sales charge on
Class A Shares only) on days the New York Stock Exchange is open for
business. The procedure for purchasing Shares is explained in the
prospectus under "How to Purchase Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
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. By adopting the Distribution Plan, the
Directors 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 objective. By
identifying potential investors whose needs are served by the Fund's
objective, 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. For the fiscal year ended
October 31, 1997, the Fund paid shareholder services fees in the
amount of $xxxxxx, of which $xxxxx was waived, all of which where paid
to financial institutions.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Management, Federated Securities Corp. or their affiliates and their
immediate family members, or any investment dealer who has a sales
agreement with Federated Securities Corp., and their spouses and
children under 21, may buy Class A Shares at net asset value without a
sales charge. Shares may also be sold without a sales charge to trusts
or pension or profit-sharing plans for these people. These sales are
made with the purchaser's written assurance that the purchase is for
investment purposes and that the securities will not be resold except
through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange qualifying securities they already own for
Shares, or they may exchange a combination of qualifying securities
and cash for Shares. Any qualifying securities to be exchanged must
meet the investment objective and policies of the Fund, must have
readily ascertainable market value, must be liquid, and must not be
subject to restrictions on resale. The Fund will prepare a list
of securities which are eligible for acceptance and furnish this list
to brokers upon request. The Fund reserves the right to reject any
security, even though it appears on the list, and the right to amend
the list of acceptable securities at any time without notice to
brokers or investors. An investment broker acting for an investor
should forward the securities in negotiable form with an authorized
letter of transmittal to Federated Securities Corp. Federated
Securities Corp. will determine that transmittal papers are in good
order and forward to the Fund's custodian, State Street Bank. The Fund
will notify the broker of its acceptance and valuation of the
securities within five business days of their receipt by State Street
Bank. The Fund values such securities in the same manner as the
Fund values its portfolio securities. The basis of the exchange will
depend upon the net asset value of Shares on the day the securities
are valued. One Share will be issued for each equivalent amount of
securities accepted. Any interest earned on the securities prior to
the exchange will be considered in valuing the securities. All
interest, dividends, subscription, conversion, or other rights
attached to the securities become the property of the Fund, along with
the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
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
prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a
national securities exchange, if available;
o in the absence of recorded sales for equity securities, according
to the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale
price on a national securities exchange if available, otherwise
as determined by an independent pricing service;
o for short-term obligations, according to the mean between the bid
and asked prices as furnished by an independent pricing service;
or
o for all other securities, at fair value as determined in good
faith by the Directors.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may reflect
institutional trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and
other market data.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after
the Fund receives the redemption request. Shareholder redemptions may
be subject to a contingent deferred sales charge. Redemption
procedures are explained in the prospectus under "How to Redeem
Shares." Although the transfer agent 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
Although the Fund intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission ("SEC") rules, taking such
securities at the same value employed in determining net asset value
and selecting the securities in a manner the Directors determine to be
fair and equitable. The Fund has elected to be governed by Rule
18f-1 of the Investment Company Act of 1940 under which the Fund is
obligated to redeem Shares for any shareholder in cash up to the
lesser of $250,000 or 1% of the Fund's net asset value during any
90-day period. 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.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic
Withdrawal Program that qualify for elimination of the contingent
deferred sales charge may not exceed 12.00% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the fiscal
year end. Redemptions on a qualifying Systematic Withdrawal Program
can be made at a rate of 1.00% monthly, 3.00% quarterly, or 6.00%
semi-annually with reference to the applicable account valuation
amount. Amounts that exceed the 12.00% annual limit for redemption, as
described, may be subject to the contingent deferred sales charge. To
the extent that a shareholder exchanges Shares for Class B Shares of
other Federated funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the 12 month holding requirement.
However, for purposes of meeting the $10,000 minimum account value
requirement, Class B Share account values will not be aggregated.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and
capital gains received as cash or additional Shares. The dividends
received deduction for corporations will apply to ordinary income
distributions to the extent the distribution represents amounts that
would qualify for the dividends received deduction to the Fund if the
Fund were a regular corporation and to the extent designated by the
Fund as so qualifying. These dividends and any short-term capital
gains are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be
treated as long-term capital gains regardless of how long shareholders
have held the Shares.
TOTAL RETURN
The Class A Shares' average annual total returns for the one-year,
five-year, and ten-year periods ended October 31, 1997, were xxx%,
xxx% and xxx%, respectively. The Class B Shares' average annual total
returns for the one-year period ended October 31, 1997 and for the
period from August 30, 1996 (date of initial public offering) to
October 31, 1997, were xxx% and xxx%, respectively. The Class C
Shares' average annual total returns for the one-year period ended
October 31, 1997 and for the period from August 30, 1996 (date of
initial public offering) to October 31, 1997, were xxx% and xxx%,
respectively. Average annual total return for each class 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 charge, adjusted over the period by
any additional Shares, assuming the quarterly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investment based on
the lesser of the original purchase price or the offering price of
Shares redeemed. Occasionally, total return which does not reflect the
effect of the sales charge, may be quoted in advertising. YIELD The
Class A Shares', Class B Shares' and Class C Shares' yields for the
thirty-day period ended October 31, 1997, were xxx%, xxx% and xxx%,
respectively. The yield for each class of Shares is determined by
dividing the net investment income per Share (as defined by the SEC)
earned by each class of Shares over a thirty-day period by the maximum
offering price per Share of the respective class on the last day of
the period. This value is then 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 the Fund because of
certain adjustments required by the SEC 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 Fund's 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 Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net
earnings and offering price 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:
STANDARD & POOR'S RATING SERVICES ("S&P") DAILY STOCK
PRICE INDEX OF 500 COMMON STOCKS is an unmanaged composite
index of common stocks in industrial, transportation, and
financial and public utility companies, and compares total
returns of funds whose portfolios are invested primarily in
common stocks. In addition, the index assumes reinvestment
of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included nor are
brokerage or other fees calculated in these figures.
SALOMON BROTHERS AAA-AA CORPORATES calculates total returns
of approximately 775 issues, which include long-term,
high-grade domestic corporate taxable bonds, rated AAA-AA,
with maturities of twelve years or more. It also includes
companies in industry, public utilities, and finance.
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various
fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all
capital gains distributions and income dividends and takes
into account any change in offering price over a specific
period of time. From time to time, the Fund will quote its
Lipper ranking in advertising and sales literature.
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is
comprised of approximately 5,000 issues which include
non-convertible bonds publicly issued by the U.S. government
or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years.
Tracked by Lehman Brothers, Inc., the index calculates total
returns for one-month, three-month, twelve-month, and
ten-year periods and year-to-date.
S&P 500/LEHMAN BROTHERS GOVERNMENT/CORPORATE (WEIGHTED
INDEX) AND THE S&P 500/ LEHMAN BROTHERS GOVERNMENT (WEIGHTED
INDEX) combine the components of a stock-oriented index and
a bond-oriented index to obtain results which can be
compared to the performance of a managed fund. The indices'
total returns will be assigned various weights depending
upon the Fund's current asset allocation.
MORNINGSTAR, INC., an independent rating service, is the
publisher of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES
rates more than 1,000 NASDAQ listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five
stars, and ratings are effective for two weeks.
Investors may also consult the fund evaluation consulting universe
listed below. Consulting universes may be composed of pension,
profit-sharing, commingled, endowment/foundation and mutual funds.
SEI BALANCED UNIVERSE is composed of 916 portfolios managed by
390 managers representing $86 billion in assets. To be included in the
universe, a portfolio must contain a 5% minimum commitment in both
equity and fixed income securities.
Advertisements and other sales literature for all three classes of
Shares may quote total returns which are calculated on
non-standardized base periods. These total returns also represent the
historic change in the value of an investment in each class of Shares
based on quarterly reinvestment of dividends over a specified period
of time. From time to time , as it deems appropriate, the Fund may
advertise the performance of a class of Shares, using charts, graphs,
and descriptions, compared to federally insured bank products,
including certificates of deposits and time deposits, and to money
market funds using the Lipper Analytical Services, Inc. money market
instruments average. Advertisements may quote performance
information which does not reflect the effect of various sales charges
on Class A Shares, Class B Shares, and Class C Shares. Advertising and
other promotional literature may include charts, graphs and other
illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment. In
addition, the Fund can compare its performance, or performance for the
types of securities in which it invests, to a variety of other
investments, such as bank savings accounts, certificates of deposit,
and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include
discussions of economic, financial and political developments and
their effect on the securities market. Such discussions may take the
form of commentary on these developments by Fund portfolio managers
and their views and analysis on how such developments could affect the
funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund
industry, including the growth of the industry, from sources such as
the Investment Company Institute ("ICI").
DURATION
Duration is a commonly used measure of the potential volatility in the
price of a bond, other fixed income security, or in a portfolio of
fixed income securities, prior to maturity. Volatility is the
magnitude of the change in the price of a bond relative to a given
change in the market rate of interest. A bond's price volatility
depends on three primary variables: the bond's coupon rate; maturity
date; and the level of market yields of similar fixed-income
securities. Generally, bonds with lower coupons or longer maturities
will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values
of the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows. When the
Fund invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding
future capital prepayments. A more complete description of this
calculation is available upon request from the Fund.
ABOUT FEDERATED INVESTORS
Federated Investors is 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. These traders handle trillions of dollars in
annual trading volume. In the equity sector, Federated Investors has
more than 26 years experience. As of December 31, 1996, Federated
managed 31 equity funds totaling approximately $7.6 billion in assets
across growth, value, equity income, international, index and sector
(i.e. utility) styles. Federated's value-oriented management style
combines quantitative and qualitative analysis and features a
structured, computer-assisted composite modeling system that was
developed in the 1970's. In the corporate bond sector, as of
December 31, 1996, Federated Investors managed 12 money market funds,
and 17 bond funds with assets approximating $17.2 billion, and $4.0
billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by
over 21 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high yield bond funds in the
industry. In 1983, Federated was one of the first fund managers to
participate in the asset-backed securities market, a market totaling
more than $200 billion. J. Thomas Madden, Executive Vice
President, oversees Federated Investors' equity and high yield
corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international and global
portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:
INSTITUTIONAL CLIENTS
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.
BANK MARKETING
Other institutional clients include close relationships with
more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
*source: Investment Company Institute
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (To be filed by Amendment).
(b) Exhibits:
(1) Conformed copy of the Charter of the Registrant
as amended; (14)
(2) Copies of the By-Laws of the Registrant as amended;
(14) (3) Not applicable; (4) (i) Copy of Specimen
Certificate for Shares of Capital
Stock of the Registrant; (15) (ii) Copy of
Specimen Certificate for Shares of Capital Stock
for Class B Shares of the Registrant; (16) (iii)
Copy of Specimen Certificate for Shares of
Capital Stock for Class C Shares of the
Registrant; (16)
(5) Conformed copy of the Investment Advisory Contract of the
Registrant; (13)
(6) (i) Conformed copy of Distributors Contract; (12)
(ii) Conformed copy of Exhibit B to the Distributor's
Contract; (15)
(iii) The Registrant hereby
incorporates the conformed copy of
the specimen Mutual Funds Sales
and Service Agreement; Mutual
Funds 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 Numbers
33-38550 and 811-6269)
(7) Not applicable;
(8) (i) Conformed copy of the
Custodian Contract; (13) (ii)
Conformed copy of Custodian Fee
Schedule; +
(9) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; +
(ii) Conformed copy of Agreement
for Fund Accounting Services,
Administrative Services, Transfer
Agency Services, and Custody
Services Procurement; + (iii) The
responses described in Item 24 (b)
(6) are hereby incorporated by
reference.
- ----------------------------
+ All exhibits have been filed electronically.
12. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 83 filed on Form N-1A December 28,
1993.(File Nos. 2-10415 and 811-1)
13. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 85 filed on Form N-1A December 29,
1994.(File Nos. 2-10415 and 811-1)
14. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 87 filed on Form N-1A December 27,
1995. (File Nos. 2-10415 and 811-1)
15. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 88 filed on Form N-1A July 1, 1996.
(File Nos. 2-10415 and 811-1)
16. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 91 filed on Form N-1A December 23,
1996. (File Nos. 2-10415 and 811-1)
<PAGE>
(iv) The Registrant hereby
incorporates the conformed copy of the
Shareholder Services Sub- Contract between
Fidelity and Federated Shareholder Services from
Item 24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with
the Commission on March 25, 1996. (File Nos.
2-75670 and 811-3375)
(10) Not applicable;
(11) Conformed copy of Consent of Independent
Public Accountants; (16)
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Conformed copy of Distribution Plan
including Exhibit A; (15)
(16) Copy of Schedule for Computation of Fund
Performance Data; (7)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates by
reference the conformed copy of the
specimen Multiple Class Plan from
Item 24(b)(18) of the World Investment
Series, Inc. Registration Statement on
Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and
811-07141);
(19) (i) Conformed copy of Power of Attorney;
(16)
(ii) Conformed copy of Limited Power of
Attorney. (16)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
TITLE OF CLASS AS OF OCTOBER 14, 1997
-------------- ----------------------
Shares of Capital Stock
($0.001 per share par value)
Class A Shares 4,096
Class B Shares 578
Class C Shares 365
- -----------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 49 filed on Form N-1A December 21,
1979. (File Nos. 2-10415 and 811-1)
15. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 88 filed on Form N-1A July 1, 1996.
(File Nos. 2-10415 and 811-1)
16. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 91 filed on Form N-1A December 23,
1996. (File Nos. 2-10415 and 811-1)
<PAGE>
Item 27. Indemnification (13)
- -----------------------
+ All exhibits have been filed electronically.
13. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 85 filed on Form N-1A December
29, 1994.
(File Nos. 2-10415 and 811-1)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the
investment adviser, see the section entitled "Fund
Information - Management of the Fund" in Part A. The
affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under
"Federated Stock and Bond Fund, Inc. Management." The
remaining Trustee of the investment adviser, his
position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson
(Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
<PAGE>
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Michael P. Donnelly
Alexandre de Bethmann
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the
investment adviser is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. These individuals
are also officers of a majority of the investment
advisers to the Funds listed in Part B of this
Registration Statement.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; 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; 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.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
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 Vice Executive
Federated Investors Tower President, Federated, Vice President
Pittsburgh, PA 15222-3779 Securities Corp.
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Laura M. Deger 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
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk 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
R. Leonard Corton, 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 Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle 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
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
John K. Goettlicher 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
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy 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
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III 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
Richard A. Recker 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
George D. Riedel 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 Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith 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
John A. Staley 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
Richard Suder 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
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant 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
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company P.O. Box 8600
("Transfer Agent, and Dividend Boston, MA 02266-8600
Disbursing Agent ")
Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank
and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 31. Management Services: Not applicable
<PAGE>
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 Directors and the calling of special shareholder meetings
by shareholders.
Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, FEDERATED STOCK
AND BOND FUND, INC., has duly caused this Amendment to its
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 31st day of October 1997.
FEDERATED STOCK AND BOND FUND, INC.
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
October 31, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact October 31, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* President and Director
(Chief Executive Officer)
John W. McGonigle* Treasurer, Executive
Vice President and Secretary
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDED AND RESTATED
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of
September, 1995, (originally made and enterered into as of the first
day of March, 1994), by and between those investment companies listed
on Exhibit 1, as may be amended from time to time, having their
principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
(individually referred to herein as a "Fund" and collectively as
"Funds") and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be
rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby
appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby
accepts such appointments. FSS agrees to provide or cause to
be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or
Directors, as applicable), are necessary or desirable for
shareholders of the Funds. FSS further agrees to provide the
Funds, upon request, a written description of the Services
which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and
FSS agrees to accept as full compensation for its services
rendered hereunder a fee at an annual rate, calculated daily
and payable monthly, up to 0.25% of 1% of average net assets
of each Fund.
For the payment period in which this Agreement becomes
effective or terminates with respect to any Fund, there shall
be an appropriate proration of the monthly fee on the basis
of the number of days that this Agreement is in effect with
respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the
date of its execution, and thereafter for successive periods
of one year only if the form of this Agreement is approved at
least annually by the Board of each Fund, including a
majority of the members of the Board of the Fund who are not
interested persons of the Fund ("Independent Board Members")
cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the
vote of a majority of the Independent Board Members of
any Fund or by a vote of a majority of the outstanding
voting securities of any Fund as defined in the
Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of
1940; and
(c) by any party to the Agreement without cause by giving
the other party at least sixty (60) days' written
notice of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it
provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury
regulations, and to provide each Fund or its designee with
timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by any Fund in connection
with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties
under this Agreement. FSS shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for such
Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of
such Fund's Board, officer, employee or agent of any Fund,
shall be deemed, when rendering services to such Fund or
acting on any business of such Fund (other than services or
business in connection with the duties of FSS hereunder) to
be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or
one under the control or direction of FSS even though paid by
FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in
writing signed by the party against which an enforcement of
the change, waiver, discharge or termination is sought.
8. FSS is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust of each Fund that is
a Massachusetts business trust and agrees that the
obligations assumed by each such Fund pursuant to this
Agreement shall be limited in any case to such Fund and its
assets and that FSS shall not seek satisfaction of any such
obligations from the shareholders of such Fund, the Trustees,
Officers, Employees or Agents of such Fund, or any of them.
9. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized
officer of FSS, 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 FSS,
but bind only the trust property of FSS as provided in the
Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given
if delivered to any Fund and to such Fund at the following
address: Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President.
11. 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. If any
provision of this Agreement shall be held or made invalid by
a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Sections 3 and
4, hereof, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their
respective successors and shall be governed by Pennsylvania
law; provided, however, that nothing herein shall be
construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by
the Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts
shall together constitute one and the same instrument.
13. This Agreement shall not be assigned by any party without the
prior written consent of FSS in the case of assignment by any
Fund, or of the Funds in the case of assignment by FSS,
except that any party may assign to a successor all of or a
substantial portion of its business to a party controlling,
controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating
its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the
day and year first above written.
Investment
Companies (listed on Exhibit 1)
Attest: /S/JOHN W. MCGONIGLE By: /S/ JOHN F. DONAHUE
John W. McGonigle John F. Donahue
Secretary Chairman
Federated Shareholder Services
Attest: /S/ JOSEPH M HUBER By: /S/ JOHN W. MCGONIGLE
Secretary President
<PAGE>
Exhibit 1 Exhibit 1
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
AUTOMATED GOVERNMENT MONEY TRUST
CASH TRUST SERIES, INC.:
Government Cash Series
Municipal Cash Series
Prime Cash Series
Treasury Cash Series
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
FEDERATED AMERICAN LEADERS FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED ARMS FUND
Institutional Service Shares
Institutional Shares
FEDERATED EQUITY FUNDS:
Federated Aggressive Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated Capital Appreciation Fund
Class A Shares
Class B Shares
Class C Shares
Federated Growth Strategies Fund
Class A Shares
Class B Shares
Class C Shares
Federated Small Cap Strategies Fund
Class A Shares
Class B Shares
Class C Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED EQUITY INCOME FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED GNMA TRUST
Institutional Service Shares
Institutional Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED GOVERNMENT TRUST"
Automated Government Cash Reserves
Automated Treasury Cash Reserves
U.S. Treasury Cash Reserves
Institutional Service Shares
Institutional Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED HIGH YIELD TRUST
FEDERATED INCOME SECURITIES TRUST:
Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Federated Income Trust
Institutional Service Shares
Institutional Shares
FEDERATED INDEX TRUST:
Federated Max-Cap Fund
Class C Shares
Institutional Service Shares
Institutional Shares
Federated Mid-Cap Fund
Federated Mini-Cap Fund
Class C shares
Institutional Shares
FEDERATED INSTITUTIONAL TRUST:
Federated Institutional Short-Term Government Fund
FEDERATED INVESTMENT TRUST:
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Federated Master Trust
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class A Shares
Class B Shares
Class C Shares
<PAGE>
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED MUNICIPAL TRUST:
Alabama Municipal Cash Trust
California Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Connecticut Municipal Cash Trust
Institutional Service Shares
Florida Municipal Cash Trust
Cash II Shares
Institutional Shares
Georgia Municipal Cash Trust
Maryland Municipal Cash Trust
Massachusetts Municipal Cash Trust
Institutional Service Shares
Boston 1784 Funds Shares
Michigan Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Minnesota Municipal Cash Trust
Cash Series Shares
Institutional Shares
New Jersey Municipal Cash Trust
Institutional Service Shares
Institutional Shares
New York Municipal Cash Trust
Cash II Shares
Institutional Service Shares
North Carolina Municipal Cash Trust
Ohio Municipal Cash Trust
Cash II Shares
Institutional Shares
Institutional Service Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Pennsylvania Municipal Cash Trust
Cash Series Shares
Institutional Service Shares
Institutional Shares
Tennessee Municipal Cash Trust
Institutional Shares
Institutional Service Shares
Virginia Municipal Cash Trust
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM MUNICIPAL TRUST
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
FEDERATED STOCK AND BOND FUND, INC.
Class A Shares
Class B Shares
Class C Shares
FEDERATED STOCK TRUST
FEDERATED TAX-FREE TRUST
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FEDERATED U.S. GOVERNMENT BOND FUND
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U. S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
Institutional Service Shares
Institutional Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
FIXED INCOME SECURITIES, INC.:
Federated Limited Term Fund
Class A Shares
Class F Shares
Federated Limited Term Municipal Fund
Class A Shares
Class F Shares
Federated Strategic Income Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
FEDERATED TOTAL RETURN SERIES, INC.:
Federated Limited Duration Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Bond Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Limited Duration Fund
Institutional Shares
Institutional Service Shares
FEDERATED UTILITY FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
INTERMEDIATE MUNICIPAL TRUST:
Federated Intermediate Municipal Trust
Federated Ohio Intermediate Municipal Trust
Federated Pennsylvania Intermediate Municipal Trust
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
INTERNATIONAL SERIES, INC.:
Federated International Equity Fund
Class A Shares
Class B Shares
Class C Shares
Federated International Income Fund
Class A Shares
Class B Shares
Class C Shares
INVESTMENT SERIES FUNDS, INC.:
Federated Bond Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
EDWARD D. JONES & CO. DAILY PASSPORT CASH TRUST
LIBERTY TERM TRUST, INC. -- 1999
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class A Shares
Class B Shares
LIQUID CASH TRUST
MANAGED SERIES TRUST:
Federated Aggressive Growth Fund
Institutional Shares
Select Shares
Federated Managed Growth and Income Fund
Institutional Shares
Select Shares
Federated Managed Growth Fund
Institutional Shares
Select Shares
Federated Managed Income Fund
Institutional Shares
Select Shares
MONEY MARKET MANAGEMENT, INC.
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
MONEY MARKET OBLIGATIONS TRUST:
Automated Cash Management Trust
Cash II Shares
Institutional Shares
Government Obligations Fund
Institutional Shares
Institutional Service Shares
Government Obligations Tax-Managed Fund
Institutional Shares
Institutional Service Shares
Prime Obligations Fund
Institutional Shares
Institutional Service Shares
Tax-Free Obligations Fund
Institutional Shares
Institutional Service Shares
Treasury Obligations Fund
Institutional Capital Shares
Institutional Shares
Institutional Service Shares
MONEY MARKET OBLIGATIONS TRUST II:
Municipal Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Cash Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Value Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
MONEY MARKET TRUST
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
MUNICIPAL SECURITIES INCOME TRUST:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan IntermediateMunicipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Class B Shares
TAX-FREE INSTRUMENTS TRUST
Institutional Service Shares
Investment Shares
TRUST FOR GOVERNMENT CASH RESERVES
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
TRUST FOR U.S. TREASURY OBLIGATIONS
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
WORLD INVESTMENT SERIES, INC.:
Federated Asia Pacific Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class B Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class B Shares
Class C Shares
AMENDED AND RESTATED SHAREHOLDER SERVICES AGREEMENT
Federated International Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated International High Income Fund
Class A Shares
Class B Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class B Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class B Shares
Class C Shares
Federated World Utility Fund
Class A Shares
Class B Shares
Class C Shares
Class F Shares
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
DOMESTIC CUSTODY
FEE SCHEDULE
FEDERATED FUNDS
I. Custody Services
Maintain custody of fund assets. Settle portfolio purchases
and sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash
transactions.
Monitor corporate actions.
ANNUAL FEES
ASSET
Per Fund .25 Basis Points
Wire Fees $3.00 per wire
Settlements:
oEach DTC Transaction $5.00
oEach Federal Reserve Book Entry Transaction $3.75
oEach Repo Transaction (All Repo) $3.75
oEach Physical Transaction (NY/Boston, Private Placement) $15.00
oEach Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
oGovernment Paydowns $5.00
oMaturity Collections $8.00
oPTC Transactions $6.00
II. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments and
the preparation of special reports will be subject to negotiation.
III. Balance Credit
MUNICIPAL FUNDS
A balance credit equal to 75% of the average demand deposit
account balance in the custodian account for the month billed
times the 30 day T-Bill Rate on the last Monday of the month
billed, will be applied against the month's custodian bill.
TRANSFER AGENT
A balance credit equal to 100% of the average balance in the
transfer agent demand deposit accounts, less the reserve requirement
and applicable related expenses, times 75% of the 30 average Fed Funds
Rate.
IV. Payment
The above fees will be charged against the funds' custodian
checking account thirty (30) days after the invoice is mailed
to the funds' offices.
V. Term of Contract
The parties agree that this fee schedule shall become
effective January 1, 1997.
FEDERATED SERVICES COMPANY STATE STREET
BY: /S/ DOUGLAS L. HEIN BY: /S/ MICHAEL E. HAGERTY
TITLE: SENIOR VICE PRESIDENT TITLE: VICE PRESIDENT
DATE: APRIL 15, 1997 DATE: APRIL 8, 1997
------------------------------ -------------
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, by and between those
investment companies listed on Exhibit 1 as may be amended from time
to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment
Company"), on behalf of the portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") of the Investment
Company, and FEDERATED SERVICES COMPANY, a Pennsylvania corporation,
having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf of
itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), with authorized and issued shares
of capital stock or beneficial interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company
as fund accountant to provide fund accounting services (as herein
defined) including certain pricing, accounting and recordkeeping
services for each of the Funds, including any classes of shares issued
by any Fund ("Classes") if so indicated on Exhibit 1, and the Company
desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company
as its administrator to provide it with administrative services (as
herein defined), if so indicated on Exhibit, and the Company desires
to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company
as its transfer agent and dividend disbursing agent to provide it with
transfer agency services (as herein defined) if so indicated on
Exhibit 1, and agent in connection with certain other activities, and
the Company desires to accept such appointment; and
WHEREAS, the Investment Company may desire to appoint the Company
as its agent to select, negotiate and subcontract for custodian
services from an approved list of qualified banks if so indicated on
Exhibit 1, and the Company desires to accept such appointment; and
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.
The Investment Company hereby appoints the Company to provide
certain pricing and accounting services to the Funds, and/or the
Classes, 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 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment
Company's Board of Trustees or Directors ("Board"), the Company will
assist the Investment Company with regard to fund accounting for the
Investment Company, and/or the Funds, and/or the Classes, and in
connection therewith undertakes to perform the following specific
services;
A. Value the assets of the Funds using: primarily, market
quotations, including the use of matrix pricing, supplied by
the independent pricing services selected by the Company in
consultation with the adviser, or sources selected by the
adviser, and reviewed by the board; secondarily, if a
designated pricing service does not provide a price for a
security which the Company believes should be available by
market quotation, the Company may obtain a price by calling
brokers designated by the investment adviser of the fund
holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own
to find brokers to price those securities; thirdly, for
securities for which no market price is available, the
Pricing Committee of the Board will determine a fair value
in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The
Company's obligations with regard to the prices received
from outside pricing services and designated brokers or
other outside sources, is to exercise reasonable care in the
supervision of the pricing agent. The Company is not the
guarantor of the securities prices received from such agents
and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net
asset value per share of such Fund or Class 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 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 per share of each Fund and/or
Class, at the time and in the manner from time to time
determined by the Board and as set forth in the Prospectus
and Statement of Additional Information ("Prospectus") of
each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the
Funds resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and
financial records of the Investment Company, including for
each Fund, and/or Class, as required under Section 31(a) of
the 1940 Act and the Rules thereunder in connection with the
services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records to be maintained by Rule 31a-1 under
the 1940 Act in connection with the services provided by the
Company. The Company further agrees that all such records it
maintains for the Investment Company are the property of the
Investment Company and further agrees to surrender promptly
to the Investment Company such records upon the Investment
Company's request;
G. At the request of the Investment Company, prepare various
reports or other financial documents in accordance with
generally accepted accounting principles as required by
federal, state and other applicable laws and regulations;
and
H. Such other similar services as may be reasonably requested
by the Investment Company.
The foregoing, along with any additional services that the
Company shall agree in writing to perform for the Investment Company
under this Section One, shall hereafter be referred to as "Fund
Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting
Services in accordance with the fees agreed upon from time
to time between the parties hereto. Such fees do not
include out-of-pocket disbursements of the Company for
which the Funds shall reimburse the Company. Out-of-pocket
disbursements shall include, but shall not be limited to,
the items agreed upon between the parties from time to
time.
B. The Fund and/or the Class, and not the Company, shall bear
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 stock certificates,
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 or Directors of the Investment
Company; independent auditors expenses; legal and audit
department expenses billed to the Company for work
performed related to the Investment Company, the Funds, or
the Classes; law firm expenses; organizational expenses; or
other expenses not specified in this Article 3 which may be
properly payable by the Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to
the Fund shall be accrued by the Fund and shall be paid to
the Company no less frequently than monthly, and shall be
paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and
out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Investment Company and/or the
Funds and a duly authorized officer of the Company.
E. The fee for the period from the effective date of this
Agreement with respect to a Fund or a Class 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 the Fund's net assets shall be
computed at the time and in the manner specified in the
Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person
or persons as the Company may believe to be particularly
suited to assist it in performing Fund Accounting Services.
Such person or persons may be affiliates of the Company,
third-party service providers, or they may be officers and
employees who are employed by both the Company and the
Investment Company; provided, however, that the Company
shall be as fully responsible to each Fund for the acts and
omissions of any such subcontractor as it is for its own
acts and omissions. The compensation of such person or
persons shall be paid by the Company and no obligation
shall be incurred on behalf of the Investment Company, the
Funds, or the Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as
Administrator for the period on the terms and conditions set forth in
this Agreement. The Company hereby accepts such appointment and agrees
to furnish the services set forth in Article 5 of this Agreement in
return for the compensation set forth in Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of
the Board and in accordance with Proper Instructions (as defined
hereafter) from the Investment Company, the Company will provide
facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and affairs of
the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's
governing documents and any amendments thereto, including
the Charter (which has already been prepared and filed), the
By-laws and minutes of meetings of the Board and
Shareholders;
B. prepare and file with the Securities and Exchange
Commission and the appropriate state securities authorities
the registration statements for the Investment Company and
the Investment Company's shares and all amendments thereto,
reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents
all as may be necessary to enable the Investment Company to
make a continuous offering of its shares;
C. prepare, negotiate, and administer contracts (if any) on
behalf of the Investment Company with, among others, the
Investment Company's investment advisers and distributors,
subject to any applicable restrictions of the Board or the
1940 Act;
D. calculate performance data of the Investment Company for
dissemination to information services covering the
investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a
charter to be adopted by the Company and the Investment
Company;
H. assist with the design, development, and operation of the
Investment Company and the Funds;
I. provide individuals reasonably acceptable to the Board for
nomination, appointment, or election as officers of the
Investment Company, who will be responsible for the
management of certain of the Investment Company's affairs
as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.
The foregoing, along with any additional services that the
Company shall agree in writing to perform for the Investment Company
under this Section Two, shall hereafter be referred to as
"Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and
records in accordance with all applicable laws, rules and regulations,
including but not limited to records required by Section 31(a) of the
Investment Company act of 1940 and the rules thereunder, as the same
may be amended from time to time, pertaining to the Administrative
Services performed by it and not otherwise created and maintained by
another party pursuant to contract with the Investment Company. Where
applicable, such records shall be maintained by the Company for the
periods and in the places required by Rule 31a-2 under the 1940 Act.
The books and records pertaining to the Investment Company which are
in the possession of the Company shall be the property of the
Investment Company. The Investment Company, or the Investment
Company's authorized representatives, shall have access to such books
and records at all times during the Company's normal business hours.
Upon the reasonable request of the Investment Company, copies of any
such books and records shall be provided promptly by the Company to
the Investment Company or the Investment Company's authorized
representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation,
contents and distribution of its own offering document and for
complying with all applicable requirements the 1940 Act, the Internal
Revenue Code, and any other laws, rules and regulations of government
authorities having jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in
providing office space, equipment, and personnel as may be necessary
or convenient to provide the Administrative Services to the Investment
Company, including the compensation of the Company employees who serve
as trustees or directors or officers of the Investment Company. The
Investment Company shall be responsible for all other expenses
incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses,
travel expenses, registration fees, filing fees, fees of outside
counsel and independent auditors, or other professional services,
organizational expenses, insurance premiums, fees payable to persons
who are not the Company's employees, trade association dues, and other
expenses properly payable by the Funds and/or the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company
hereby agrees to pay and the Company hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee
at an annual rate per Fund, as specified below.
The compensation and out of pocket expenses attributable to the
Fund shall be accrued by the Fund and paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out of pocket expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)
However, in no event shall the administrative fee received during
any year of the Agreement be less than, or be paid at a rate less than
would aggregate $125,000 per Fund and $30,000 per Class. The minimum
fee set forth above in this Article 9 may increase annually upon each
March 1 anniversary of this Agreement over the minimum fee during the
prior 12 months, as calculated under this agreement, in an amount
equal to the increase in Pennsylvania Consumer Price Index (not to
exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such
anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Investment Company in connection with the matters to which
this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this
Agreement. The Company shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for the
Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an
officer, director, trustee, partner, employee or agent of
the Company, who may be or become an officer, director,
trustee, partner, employee or agent of the Investment
Company, shall be deemed, when rendering services to the
Investment Company or acting on any business of the
Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be
rendering such services to or acting solely for the
Investment Company and not as an officer, director,
trustee, partner, employee or agent or one under the
control or direction of the Company even though paid by the
Company.
B. The Company shall be kept indemnified by the Investment
Company and be without liability for any action taken or
thing done by it in performing the Administrative Services
in accordance with the above standards. In order that the
indemnification provisions contained in this Article 10
shall apply, however, it is understood that if in any case
the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and
promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the
Company will use all reasonable care to identify and notify
the Investment Company promptly concerning any situation
which presents or appears likely to present the probability
of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to
defend the Company against any claim which may be the
subject of this indemnification. In the event that the
Investment Company so elects, it will so notify the Company
and thereupon the Investment Company shall take over
complete defense of the claim, and the Company shall in such
situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The
Company shall in no case confess any claim or make any
compromise in any case in which the Investment Company will
be asked to indemnify the Company except with the Investment
Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement,
the Investment Company hereby appoints the Company to act as, and the
Company agrees to act as, transfer agent and dividend disbursing agent
for each Fund's Shares, and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic
investment plan or periodic withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance
with Proper Instructions as may be provided from time to time by the
Investment Company as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund and the 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
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the purchase
of Shares of the Fund and/or Class is returned unpaid for
any reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited
to its account upon receipt of the check or other order,
promptly mail a debit advice to the Shareholder, and notify
the Fund and/or Class of its action. In the event that the
amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any dividends
paid with respect to such Shares, the Fund and/the Class or
its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration
of any distribution to Shareholders, the Company
shall act as Dividend Disbursing Agent for the
Funds in accordance with the provisions of its
governing document and the then-current Prospectus
of the Fund. The Company shall prepare and mail or
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 Custodian of
the estimated amount required to pay any portion
of said distribution which is payable in cash and
request the Custodian to make available sufficient
funds for the cash amount to be paid out. The
Company shall reconcile the amounts so requested
and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of
any such distribution or dividend, appropriate
credits shall be made to the Shareholder's
account, for certificated Funds and/or Classes,
delivered where requested; and
(2) The Company shall maintain records of account for
each Fund and Class and advise the Investment
Company, each Fund and Class and its Shareholders
as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and
redemption directions and, if such redemption
requests comply with the procedures as may be
described in the Fund Prospectus or set forth in
Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The
Company shall notify the Funds on a daily basis of
the total amount of redemption requests processed
and monies paid to the Company by the Custodian
for redemptions.
(2) At the appropriate time upon receiving redemption
proceeds from the Custodian 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 Fund.
(3) If any certificate returned for redemption or
other request for redemption does not comply with
the procedures for redemption approved by the
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.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(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 Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of
each Fund, and/or Class, and maintain pursuant to
applicable rules of the Securities and Exchange
Commission ("SEC") a record of the total number of
Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Company
shall also provide the Fund on a regular basis or
upon reasonable request with the total number of
Shares which are authorized and issued and
outstanding, but shall have no obligation when
recording the issuance of Shares, except as
otherwise set forth herein, to monitor the
issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such
Shares, which functions shall be the sole
responsibility of the Funds.
(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 Investment
Company or the 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 Shares 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) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) 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 Fund at reasonable
times. The Company may, at its option at any time,
and shall forthwith upon the Fund's demand, turn
over to the Fund and cease to retain in the
Company's files, records and documents created and
maintained by the Company pursuant to this
Agreement, which are no longer needed by the
Company in performance of its services or for its
protection. If not so turned over to the Fund,
such records and documents will be retained by the
Company for six years from the year of creation,
during the first two of which such documents will
be in readily accessible form. At the end of the
six year period, such records and documents will
either be turned over to the Fund or destroyed in
accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and
outstanding in each state for "blue sky"
purposes as determined according to
Proper Instructions delivered from time
to time by the Fund to the
Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to
distribution agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) 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
Shares 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
Shares of each Fund (and/or Class) sold
in each state ("blue sky reporting"). The
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 each Fund's (and/or Class'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 Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from
Shareholders relating to their Share 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 Fund in connection with Shareholder meetings of
each 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 stock certificates, check
forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
The foregoing, along with any additional services that the
Company shall agree in writing to perform for the Investment Company
under this Section Three, shall hereafter be referred to as "Transfer
Agency Services."
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility
for the preparation, contents and distribution of their own
and/or their classes' 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. Share Certificates
The Investment Company shall supply the Company with a
sufficient supply of blank Share certificates and from time
to time shall renew such supply upon request of the
Company. Such blank Share certificates shall be properly
signed, manually or by facsimile, if authorized by the
Investment Company and shall bear the seal of the
Investment Company or facsimile thereof; and
notwithstanding the death, resignation or removal of any
officer of the Investment Company authorized to sign
certificates, the Company may continue to countersign
certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Investment
Company.
C. Distributions
The Fund shall promptly inform the Company of the
declaration of any dividend or distribution on account of any Fund's
shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of
this Agreement, the Investment Company and/or the Fund
agree to pay the Company an annual maintenance fee for each
Shareholder account as agreed upon between the parties and
as may be added to or amended from time to time. Such fees
may be changed from time to time subject to written
agreement between the Investment Company and the Company.
Pursuant to information in the Fund Prospectus or other
information or instructions from the Fund, the Company may
sub-divide any Fund into Classes or other sub-components
for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the
same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the
Investment Company and/or Fund agree to reimburse the
Company for out-of-pocket expenses or advances incurred by
the Company for the items agreed upon between the parties,
as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the
request or with the consent of the Investment Company
and/or the Fund, will be reimbursed by the appropriate
Fund.
C. Payment
The compensation and out-of-pocket expenses shall be
accrued by the Fund and shall be paid to the Company no
less frequently than monthly, and shall be paid daily upon
request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Investment Company and/or
the Funds and a duly authorized officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to
evaluate and obtain custody services from a financial institution that
(i) meets the criteria established in Section 17(f) of the 1940 Act
and (ii) has been approved by the Board as eligible for selection by
the Company as a custodian (the "Eligible Custodian"). The Company
accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the
Company shall:
A. evaluate and obtain custody services from a financial
institution that meets the criteria established in Section
17(f) of the 1940 Act and has been approved by the Board as
being eligible for selection by the Company as an Eligible
Custodian;
B. negotiate and enter into agreements with Eligible Custodians
for the benefit of the Investment Company, with the
Investment Company as a party to each such agreement. The
Company may, as paying agent, be a party to any agreement
with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality
of the services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services
provided by Eligible Custodians;
E. periodically provide to the Investment Company (i) written
reports on the activities and services of Eligible
Custodians; (ii) the nature and amount of disbursements made
on account of the each Fund with respect to each custodial
agreement; and (iii) such other information as the Board
shall reasonably request to enable it to fulfill its duties
and obligations under Sections 17(f) and 36(b) of the 1940
Act and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance
Eligible Custodian's customer services capabilities and
improve upon fees being charged to the Fund by Eligible
Custodian; and
The foregoing, along with any additional services that Company
shall agree in writing to perform for the Fund under this Section
Four, shall hereafter be referred to as "Custody Services
Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the
Company pursuant to Section Four of this Agreement, the
Investment Company and/or the Fund agree to compensate the
Company in accordance with the fees agreed upon from time
to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the
Investment Company and/or Fund agree to reimburse the
Company for out-of-pocket expenses or advances incurred by
the Company for the items agreed upon between the parties,
as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the
request or with the consent of the Investment Company
and/or the Fund, will be reimbursed by the appropriate
Fund.
C. Payment
The compensation and out-of-pocket expenses shall be
accrued by the Fund and shall be paid to the Company no
less frequently than monthly, and shall be paid daily upon
request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Investment Company and/or
the Funds and a duly authorized officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the services
contemplated in Section Four of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the
Board shall have from time to time authorized. Each such writing shall
set forth the specific transaction or type of transaction involved.
Oral instructions will be deemed to be Proper Instructions if (a) the
Company reasonably believes them to have been given by a person
previously authorized in Proper Instructions to give such instructions
with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Investment Company, or the Fund,
and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the
rights or obligations under this Agreement may be assigned by either
party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
B. With regard to Transfer Agency Services, the Company may
without further consent on the part of the Investment
Company subcontract for the performance of Transfer Agency
Services with
(1) its subsidiary, Federated Shareholder Service Company,
a Delaware business trust, which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"); or
(2) such other provider of services duly registered as a
transfer agent under Section 17A(c)(1) as Company shall
select.
The Company shall be as fully responsible to the Investment
Company for the acts and omissions of any subcontractor as it is for
its own acts and omissions.
C. With regard to Fund Accounting Services, Administrative
Services and Custody Procurement Services, the Company may
without further consent on the part of the Investment
Company subcontract for the performance of such services
with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment
Company subcontract for the performance of services under
this Agreement with an Agent selected by the Investment
Company, other than as described in B. and C. above;
provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and
omissions of the Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:
(1) A copy of the Charter and By-Laws of the Investment
Company and all amendments thereto;
(2) A copy of the resolution of the Board of the Investment
Company authorizing this Agreement;
(3) Specimens of all forms of outstanding Share
certificates of the Investment Company or the Funds in
the forms approved by the Board of the Investment
Company with a certificate of the Secretary of the
Investment Company as to such approval;
(4) All account application forms and other documents
relating to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's,
and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in
effect with respect to the sale of Shares of any Fund,
and/or Class;
(3) A certified copy of each amendment to the governing
document and the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian
and agents for fund accountant, custody services
procurement, and shareholder recordkeeping or transfer
agency services;
(5) Specimens of all new Share certificates representing
Shares of any Fund, accompanied by Board resolutions
approving such forms; (6) Such other certificates,
documents or opinions which the Company may, in its
discretion, deem necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in
good standing under the laws of the Commonwealth of
Pennsylvania;
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires
such qualification, and in the Commonwealth of
Pennsylvania;
(3) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and
perform this Agreement;
(4) all requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement;
(5) it has and will continue to have access to the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement;
(6) it is in compliance with federal securities law
requirements and in good standing as an administrator
and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the
Company that:
(1) It is an investment company duly organized and existing
and in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform its
obligations under this Agreement;
(3) All corporate proceedings required by said Charter and
By-Laws have been taken to authorize it to enter into
and perform its obligations under this Agreement;
(4) The Investment Company is an open-end investment
company registered under the 1940 Act; and
(5) A registration statement 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 Shares of each Fund being offered for
sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, 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 the Investment Company) on all matters,
and shall be without liability for any action reasonably
taken or omitted pursuant to such advice, provided that
such action is not in violation of applicable federal or
state laws or regulations, and is in good faith and without
negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment
Company or Fund shall indemnify and hold the Company,
including its officers, directors, shareholders and their
agents, employees and affiliates, harmless against any and
all losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian, Adviser,
Sub-adviser or other party contracted by or approved by
the Investment Company or 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 the Fund, its Shareholders or investors
regarding the purchase, redemption or transfer of
Shares and Shareholder account information;
(b) are received by the Company from independent
pricing services or sources for use in valuing the
assets of the Funds; 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
the Investment Company of Fund for use in the
performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund
or its affiliates or any other person or firm on
behalf of the Investment Company.
(3) The reliance on, or the carrying out by the
Company or its agents or subcontractors of Proper
Instructions of the Investment Company or the
Fund.
(4) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations
of any state that such Shares 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 Shares in such state.
Provided, however, that the Company shall not be
protected by this Article 23.B. from liability for
any act or omission resulting from the Company's
willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to
meet the standard of care set forth in 23.A.
above.
C. Reliance
At any time the Company may apply to any officer of the
Investment Company or Fund for instructions, and may
consult with legal counsel with respect to any matter
arising in connection with the services to be performed by
the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate
Fund for any action reasonably taken or omitted by it in
reliance upon such instructions or upon the opinion of such
counsel provided such action is not in violation of
applicable federal or state laws or regulations. The
Company, its agents and subcontractors shall be protected
and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Investment Company or the
Fund, and the proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or
co-registrar.
D. Notification
In order that the indemnification provisions contained in
this Article 23 shall apply, upon the assertion of a claim
for which either party may be required to indemnify the
other, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep
the other party advised with respect to all developments
concerning such claim. The party who may be required to
indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall
continue until February 28, 2003 (`Term"). Thereafter, the Agreement
will continue for 18 month terms. The Agreement can be terminated by
either party upon 18 months notice to be effective as of the end of
such 18 month period. In the event, however, of willful misfeasance,
bad faith, negligence or reckless disregard of its duties by the
Company, the Investment Company has the right to terminate the
Agreement upon 60 days written notice, if Company has not cured such
willful misfeasance, bad faith, negligence or reckless disregard of
its duties within 60 days. The termination date for all original or
after-added Investment companies which are, or become, a party to this
Agreement. shall be coterminous. Investment Companies that merge or
dissolve during the Term, shall cease to be a party on the effective
date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate,
all out-of-pocket expenses associated with the movement of records and
materials will be borne by the Investment Company or the appropriate
Fund. Additionally, the Company reserves the right to charge for any
other reasonable expenses associated with such termination. The
provisions of Articles 10 and 23 shall survive the termination of this
Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company
and the Investment Company may from time to time agree on such
provisions interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional
provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or
additional provisions made as provided in the preceding sentence shall
be deemed to be an amendment of this Agreement.
ARTICLE 27. 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 28. NOTICES.
Except as otherwise specifically provided herein, Notices and
other writings delivered or mailed postage prepaid to the Investment
Company at Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779, or to the Company at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, or to such other address as the
Investment Company or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the
respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original. ARTICLE 30.
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, 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 appropriate property of the Fund, or
Class, as provided in the Declaration of Trust.
ARTICLE 31. 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 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be
appointed by the Investment Company, the Company shall upon
termination of this Agreement deliver to such successor agent at the
office of the Company all properties of the Investment Company 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. Thereafter, such
bank or trust company shall be the successor of the Company under this
Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result
of work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility
of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either party may
assign all of or a substantial portion of its business to a successor,
or to a party controlling, controlled by, or under common control with
such party. Nothing in this Article 34 shall prevent the Company from
delegating its responsibilities to another entity to the extent
provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal,
void or unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Investment Company and signed by an authorized
officer of the Investment Company, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees
or Shareholders of the Investment Company, but bind only the property
of the Fund, or Class, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by
and through their duly authorized officers, as of the day and year
first above written.
INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)
By: /S/ S. ELLIOTT COHAN
S. Elliott Cohan
Assistant Secretary
FEDERATED SERVICES COMPANY
By: /S/ THOMAS J. WARD
Thomas J. Ward
Secretary
<PAGE>
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes
March 1, 1997 Federated Equity Funds
Federated Growth Strategies Fund
Class A Shares
Class B Shares
Class C Shares
Federated Small Cap Strategies Fund
Class A Shares
Class B Shares
Class C Shares
Federated Capital Appreciation Fund
Class A Shares
Class B Shares
Class C Shares
Federated Aggressive Growth Fund
Class A Shares
Class B Shares
Class C Shares
FEDERATED SERVICES COMPANY provides the following services:
Fund Accounting
Administrative Services
Transfer Agency Services
Custody Services Procurement
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated Stock and Bond Fund, Inc.
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-END> Oct-31-1996
<INVESTMENTS-AT-COST> 113,151,191
<INVESTMENTS-AT-VALUE> 130,000,142
<RECEIVABLES> 2,605,323
<ASSETS-OTHER> 4,928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,610,393
<PAYABLE-FOR-SECURITIES> 1,033,126
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 788,341
<TOTAL-LIABILITIES> 1,821,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,362,341
<SHARES-COMMON-STOCK> 6,891,406
<SHARES-COMMON-PRIOR> 7,327,906
<ACCUMULATED-NII-CURRENT> 282,059
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,295,575
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,848,951
<NET-ASSETS> 130,693,561
<DIVIDEND-INCOME> 1,775,008
<INTEREST-INCOME> 4,418,288
<OTHER-INCOME> 0
<EXPENSES-NET> 1,495,229
<NET-INVESTMENT-INCOME> 4,698,067
<REALIZED-GAINS-CURRENT> 13,222,540
<APPREC-INCREASE-CURRENT> 246,245
<NET-CHANGE-FROM-OPS> 18,166,852
<EQUALIZATION> (105,828)
<DISTRIBUTIONS-OF-INCOME> 4,746,649
<DISTRIBUTIONS-OF-GAINS> 9,454,029
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,010,466
<NUMBER-OF-SHARES-REDEEMED> 3,082,912
<SHARES-REINVESTED> 635,946
<NET-CHANGE-IN-ASSETS> (3,879,870)
<ACCUMULATED-NII-PRIOR> 2,534,003
<ACCUMULATED-GAINS-PRIOR> 9,527,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,028,943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,932,197
<AVERAGE-NET-ASSETS> 135,760,100
<PER-SHARE-NAV-BEGIN> 18.380
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> 1.790
<PER-SHARE-DIVIDEND> 0.630
<PER-SHARE-DISTRIBUTIONS> 1.210
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.960
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated Stock and Bond Fund, Inc.
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-END> Oct-31-1996
<INVESTMENTS-AT-COST> 113,151,191
<INVESTMENTS-AT-VALUE> 130,000,142
<RECEIVABLES> 2,605,323
<ASSETS-OTHER> 4,928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,610,393
<PAYABLE-FOR-SECURITIES> 1,033,126
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 788,341
<TOTAL-LIABILITIES> 1,821,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,362,341
<SHARES-COMMON-STOCK> 4,930
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 282,059
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,295,575
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,848,951
<NET-ASSETS> 93,507
<DIVIDEND-INCOME> 1,775,008
<INTEREST-INCOME> 4,418,288
<OTHER-INCOME> 0
<EXPENSES-NET> 1,495,229
<NET-INVESTMENT-INCOME> 4,698,067
<REALIZED-GAINS-CURRENT> 13,222,540
<APPREC-INCREASE-CURRENT> 246,245
<NET-CHANGE-FROM-OPS> 18,166,852
<EQUALIZATION> (105,828)
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,930
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,879,870)
<ACCUMULATED-NII-PRIOR> 2,534,003
<ACCUMULATED-GAINS-PRIOR> 9,527,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,028,943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,932,197
<AVERAGE-NET-ASSETS> 135,760,100
<PER-SHARE-NAV-BEGIN> 17.890
<PER-SHARE-NII> 0.020
<PER-SHARE-GAIN-APPREC> 1.050
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.960
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Federated Stock and Bond Fund, Inc.
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-END> Oct-31-1996
<INVESTMENTS-AT-COST> 113,151,191
<INVESTMENTS-AT-VALUE> 130,000,142
<RECEIVABLES> 2,605,323
<ASSETS-OTHER> 4,928
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,610,393
<PAYABLE-FOR-SECURITIES> 1,033,126
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 788,341
<TOTAL-LIABILITIES> 1,821,467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,362,341
<SHARES-COMMON-STOCK> 98
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 282,059
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,295,575
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,848,951
<NET-ASSETS> 1,858
<DIVIDEND-INCOME> 1,775,008
<INTEREST-INCOME> 4,418,288
<OTHER-INCOME> 0
<EXPENSES-NET> 1,495,229
<NET-INVESTMENT-INCOME> 4,698,067
<REALIZED-GAINS-CURRENT> 13,222,540
<APPREC-INCREASE-CURRENT> 246,245
<NET-CHANGE-FROM-OPS> 18,166,852
<EQUALIZATION> (105,828)
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,879,870)
<ACCUMULATED-NII-PRIOR> 2,534,003
<ACCUMULATED-GAINS-PRIOR> 9,527,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,028,943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,932,197
<AVERAGE-NET-ASSETS> 135,760,100
<PER-SHARE-NAV-BEGIN> 17.890
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 1.030
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.960
<EXPENSE-RATIO> 2.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
