-xxxiii-
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Federated Stock Trust
(Name of Registrant as Specified In Its Charter)
Federated Investors
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------
4) Date Filed:
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<PAGE>
-ii-
FEDERATED STOCK TRUST
Proxy Statement - Please Vote!
TIME IS OF THE ESSENCE ...VOTING ONLY TAKES A FEW MINUTES AND YOUR PARTICIPATION
IS IMPORTANT! ACT NOW TO HELP THE TRUST AVOID ADDITIONAL EXPENSE.
Federated Stock Trust (the "Trust") will hold a special meeting of shareholders
on November 17, 1999. It is important for you to vote on the issues described in
this Proxy Statement. We recommend that you read the Proxy Statement in its
entirety; the explanations will help you to decide on the issues.
Following is an introduction to the proposals and the process.
Why am I being asked to vote?
Mutual funds are required to obtain shareholders' votes for certain types of
changes, like those included in this Proxy Statement. As a shareholder, you have
a right to vote on these changes.
What issues am I being asked to vote on?
The proposals include the election of Trustees, changes to the Trust's
fundamental investment policies, an amendment to the Trust's Declaration of
Trust and a clarifying amendment to the Trust's investment advisory agreement.
Why are individuals recommended for election to the Board of Trustees?
The Trust is devoted to serving the needs of its shareholders, and the Board is
responsible for managing the Trust's business affairs to meet those needs. The
Board represents the shareholders and can exercise all of the Trust's powers,
except those reserved only for shareholders.
Trustees are selected on the basis of their education and professional
experience. Candidates are chosen based on their distinct interest in, and
capacity for understanding the complexities of, the operation of a mutual fund.
These individuals bring considerable experience to the impartial oversight of a
fund's operation.
The Proxy Statement includes a brief description of each nominee's history and
current position with the Trust, if applicable.
Why are the Trust's "fundamental policies" being changed or eliminated?
Every mutual fund has certain investment policies that can be changed only with
the approval of its shareholders. These are referred to as "fundamental"
investment policies.
In some cases, these policies were adopted to reflect regulatory, business, or
industry conditions that no longer exist or no longer are necessary. In other
cases, advances in the securities markets and the economy have created different
procedures and techniques that affect the Trust's operations.
By reducing the number of "fundamental policies," the Trust may be able to
minimize the costs and delays associated with frequent shareholder meetings.
Also, the investment adviser's ability to manage the Trust's assets may be
enhanced and investment opportunities increased.
The proposed amendments will:
o reclassify as operating policies those fundamental policies that are not
required to be fundamental by the Investment Company Act of 1940, as
amended ("1940 Act");
o simplify and modernize the policies that are required to be "fundamental"
by the 1940 Act; and
o eliminate fundamental policies that are no longer required by the
securities laws of individual states.
Federated is a conservative money manager. Our highly trained professionals are
dedicated to making investment decisions in the best interest of the Trust and
their shareholders. The Board believes that the proposed changes will be applied
responsibly by the Trust's investment adviser.
Why are some "fundamental policies" being reclassified as "operating policies?"
As noted above, some "fundamental policies" have been redefined as "operating
policies." Operating policies do not require shareholder approval to be changed.
This gives the Trust's Board additional flexibility to determine whether to
participate in new investment opportunities and to meet industry changes
promptly.
Why is the Board recommending an amendment to the Declaration of Trust?
The Declaration organizing the Trust was prepared many years ago. Since then,
developments in the investment company industry and changes in the law have
resulted in many improvements. The Board is recommending a change to the
Declaration of Trust that permits the Trust to benefit from these developments.
How do I vote my shares?
You may vote in person at the special meeting of shareholders or complete and
return the enclosed Proxy Card. If you sign and return the Proxy Card without
indicating a preference, your vote will be cast "for" all the proposals.
Who do I call if I have questions about the Proxy Statement?
Call your Investment Professional or a Federated Client Service Representative.
Federated's toll-free number is
1-800-341-7400.
After careful consideration, the Board of Trustees has
unanimously approved these proposals. The Board recommends
that you read the enclosed materials
carefully and vote for all proposals.
<PAGE>
-3-
PRELIMINARY
FEDERATED STOCK TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 17, 1999
A special meeting of the shareholders of Federated Stock Trust
(the "Trust") will be held at 5800 Corporate Drive, Pittsburgh, Pennsylvania
15237-7000, at 2:00 p.m. (Eastern time), on November 17, 1999 to consider
proposals:
(1) To elect seven Trustees.
(2) To make changes to the Trust's fundamental investment
policies:
(a) To amend the Trust's fundamental investment
policy regarding diversification;
(b) To amend the Trust's fundamental investment
policy regarding borrowing money and issuing
senior securities;
(c) To amend the Trust's fundamental investment
policy regarding investments in real estate;
(d) To amend the Trust's fundamental investment
policy regarding investments in commodities;
(e) To amend the Trust's fundamental investment
policy regarding underwriting securities;
(f) To amend the Trust's fundamental investment
policy regarding lending by the Trust;
(g) To amend the Trust's fundamental investment
policy regarding concentration of the Trust's
investments in the securities of companies in
the same industry;
(h) To amend, and to make non-fundamental, the
Trust's fundamental investment policy regarding
buying securities on margin;
(i) To amend, and to make non-fundamental, the
Trust's fundamental investment policy regarding
investing in securities of other investment
companies;
(j) To amend, and to make non-fundamental, the
Trust's fundamental investment policy relating
to pledging assets;
(k) To amend, and to make non-fundamental, the
Trust's fundamental investment policies
regarding investing in the common stock of
high-quality companies;
(l) To amend, and to make non-fundamental, the
Trust's fundamental investment policies
regarding investing in restricted securities and
illiquid securities;
(m) To amend, and to make non-fundamental, the
Trust's fundamental investment policies relating
to investing in money market instruments and
entering into repurchase agreements; and
(n) To amend, and to make non-fundamental, the
Trust's fundamental investment policy relating
to engaging in when-issued and delayed delivery
transactions.
(3) To eliminate certain of the Trust's fundamental
investment policies:
(a) To remove the Trust's fundamental investment
policy regarding selling securities short;
(b) To remove the Trust's fundamental investment
policy regarding investing in securities of new
issuers;
(c) To remove the Trust's fundamental investment
policy regarding investing in issuers whose
securities are owned by officers and Trustees;
(d) To remove the Trust's fundamental investment
policy regarding investing for the purpose of
exercising control;
(e) To remove the Trust's fundamental investment
policy regarding dealing in puts and calls;
(f) To remove the Trust's fundamental investment
policies regarding engaging in short-term
trading and portfolio turnover;
(g) To remove the Trust's fundamental investment
policies relating to permissible investments;
and
(h) To remove the Trust's fundamental investment
policy on investing in oil, gas and minerals.
(4) To approve a clarifying amendment to the Trust's
Investment Advisory Agreement to exclude Rule 12b-1
fees and shareholder service fees from the expense
limitation provisions of the Agreement.
(5) To approve an amendment to the Trust's Declaration of
Trust to permit the Board to liquidate the assets of
the Trust, its series or classes, and distribute the
proceeds of such assets to the holders of such shares
representing such interests, without seeking
shareholder approval.
To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Trustees has fixed September 20, 1999 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
October 7, 1999
<PAGE>
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
4
TABLE OF CONTENTS
About the Proxy Solicitation and the Special Meeting...........................
Election of Seven Trustees.....................................................
About the Election of Trustees.................................................
Trustees Standing for Election.................................................
Nominees Not Presently Serving as
Trustees.......................................................................
Approval of Changes to the Trust's Fundamental Investment
Policies..................................................................
Approval of the Elimination of Certain of the Trust's Fundamental Investment
Policies...................................................................
Approval of an Amendment to the Trust's
Declaration of Trust.......................................................
Approval of a Clarifying Amendment to the Trust's Investment Advisory Agreement
to Exclude Certain Fees from the Expense Limitation Provisions of the
Agreement..................................................................
Information About the Trust.....................................................
Proxies, Quorum and Voting at the Special Meeting...............................
Share Ownership of the Trustees.................................................
Trustee Compensation............................................................
Officers and Incumbent Trustees of the Trust....................................
Other Matters and Discretion of Attorneys Named in the Proxy....................
<PAGE>
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5
PRELIMINARY
PROXY STATEMENT
FEDERATED STOCK TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
About the Proxy Solicitation and the Special Meeting
The enclosed proxy is solicited on behalf of the Board of Trustees of
the Trust (the "Board" or "Trustees"). The proxies will be voted at the special
meeting of shareholders of the Trust to be held on November 17, 1999, at 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (such special
meeting and any adjournment or postponement thereof are referred to as the
"Special Meeting").
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Trust. In addition to solicitations
through the mails, proxies may be solicited by officers, employees, and agents
of the Trust or, if necessary, a communications firm retained for this purpose.
Such solicitations may be by telephone, telegraph, through the Internet or
otherwise. Any telephonic solicitations will follow procedures designed to
ensure accuracy and prevent fraud, including requiring identifying shareholder
information, recording the shareholder's instructions, and confirming to the
shareholder after the fact. The Trust may reimburse custodians, nominees, and
fiduciaries for the reasonable costs incurred by them in connection with
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons.
The Board has reviewed the proposed changes recommended in the
investment policies of the Trust, the amendment to the Declaration of Trust, and
the clarification of the Investment Advisory Agreement, and has approved them,
subject to shareholder approval. The purposes of the Special Meeting are set
forth in the accompanying Notice. The Trustees know of no business other than
that mentioned in the Notice that will be presented for consideration at the
Special Meeting. Should other business properly be brought before the Special
Meeting, proxies will be voted in accordance with the best judgment of the
persons named as proxies. This Proxy Statement and the enclosed proxy card are
expected to be mailed on or about October 7, 1999, to shareholders of record at
the close of business on September 20, 1999 (the "Record Date"). On the Record
Date, the Trust had outstanding ____________ shares of beneficial interest.
The Trust's annual report, which includes audited financial statements
for the Trust for the fiscal year ended October 31, 1998, was previously mailed
to shareholders. The Trust's Semi-Annual Report, which contains unaudited
financial statements for the period ended April 30, 1999, was also previously
mailed to shareholders. The Trust will promptly furnish, without charge and upon
request, to each person to whom this Proxy Statement is delivered, a copy of the
Trust's annual report and/or semi-annual report. Requests for an annual or
semi-annual report for the Trust may be made by writing to the Trust's principal
executive offices or by calling the Trust. The Trust's principal executive
offices are located at Federated Investors Funds, 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000. The Trust's toll-free telephone number is
1-800-341-7400.
PROPOSAL #1: ELECTION OF SEVEN TRUSTEES
The persons named as proxies intend to vote in favor of the election of
Thomas G. Bigley, Nicholas P. Constantakis, John F. Cunningham, J. Christopher
Donahue, Charles F. Mansfield, Jr., John E. Murray, Jr. and John S. Walsh
(collectively, the "Nominees") as Trustees of the Trust. Messrs. Bigley,
Constantakis, Cunningham and Murray are presently serving as Trustees. If
elected by shareholders, it is anticipated that Messrs. Donahue, Mansfield and
Walsh will assume their responsibilities as Trustees on January 1, 2000. Please
see "About the Election of Trustees" below for current information about the
Nominees, and "Officers and Incumbent Trustees of the Trust" in this Proxy
Statement for information about the Trustees who have previously been elected by
shareholders. It is anticipated that each of the incumbent Trustees will
continue to serve as a Trustee following the Special Meeting.
Messrs. Murray and Bigley were appointed Trustees on February 14, 1995
and October 1, 1995, respectively, to fill vacancies created by the decision to
expand the size of the Board. Messrs. Constantakis and Cunningham were appointed
Trustees on February 23, 1998 and January 1, 1999, respectively, also to fill
vacancies resulting from the decision to expand the size of the Board. Messrs.
Donahue, Mansfield and Walsh are also being proposed for election as Trustees as
a result of the decision to expand the size of the Board.
All Nominees have consented to serve if elected. If elected, the
Trustees will hold office without limit in time until death, resignation,
retirement, or removal or until the next meeting of shareholders to elect
Trustees and the election and qualification of their successors. Election of a
Trustee is by a plurality of the votes cast by shareholders of the Trust at the
Special Meeting. The seven individuals receiving the greatest number of votes at
the Special Meeting will be deemed to be elected Trustees.
If any Nominee for election as a Trustee named above shall by reason of
death or for any other reason become unavailable as a candidate at the Special
Meeting, votes pursuant to the enclosed proxy will be cast for a substitute
candidate by the proxies named on the proxy card, or their substitutes, present
and acting at the Special Meeting. Any such substitute candidate for election as
a Trustee who is an "interested person" (as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust shall
be nominated by the Executive Committee. The selection of any substitute
candidate for election as a Trustee who is not an "interested person" shall be
made by a majority of the Trustees who are not "interested persons" of the
Trust. The Board has no reason to believe that any Nominee will become
unavailable for election as a Trustee.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE TO ELECT AS TRUSTEES THE NOMINEES FOR ELECTION
TO THE BOARD OF TRUSTEES OF THE TRUST
About the Election of Trustees
Massachusetts law does not require the election of the Trust's Trustees
each year, and shareholders should anticipate that, prior to election of
successor Trustees, incumbent Trustees will hold office during the lifetime of
the Trust, except that: (a) any Trustee may resign; (b) any Trustee may be
removed by written instrument signed by at least two-thirds of the number of
Trustees prior to such removal; (c) any Trustee who requests to be retired or
who has become mentally or physically incapacitated may be retired by written
instrument signed by a majority of the other Trustees; and (d) a Trustee may be
removed at any special meeting of the shareholders by a vote of two-thirds of
the outstanding shares of the Trust. In case a vacancy shall exist for any
reason, the remaining Trustees will fill such vacancy by appointment of another
Trustee. The Trustees will not fill any vacancy by appointment if, immediately
after filling such vacancy, less than two-thirds of the Trustees then holding
office would have been elected by the shareholders. If, at any time, less than a
majority of the Trustees holding office have been elected by the shareholders,
the Trustees then in office will call a shareholders' meeting for the purpose of
electing Trustees to fill vacancies. Otherwise, there will normally be no
meeting of shareholders called for the purpose of electing Trustees.
Set forth below is a listing of: (i) the Trustees standing for
election, and (ii) the Nominees standing for election who are not presently
Trustees, along with their addresses, birth dates, present positions with the
Trust, if applicable, and principal occupations during the past five years:
Trustees Standing for Election
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birth Date: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of the
Executive Committee, Children's Hospital of Pittsburgh; Director, Robroy
Industries, Inc. (coated steel conduits/computer storage equipment); formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of Executive Committee, University of
Pittsburgh.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birth Date: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC.
John F. Cunningham
353 El Brillo Way
Palm Beach, FL
Birth Date: March 5, 1943
Trustee
Director or Trustee of some of the Funds in the Federated Fund Complex;
Chairman, President and Chief Executive Officer, Cunningham & Co., Inc.
(strategic business consulting); Trustee Associate, Boston College; Director,
Iperia Corp. (communications/software); formerly, Director, Redgate
Communications and EMC Corporation (computer storage systems).
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birth Date: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; Director, Michael
Baker Corp. (engineering, construction, operations and technical services);
formerly, Dean and Professor Law, University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University.
<PAGE>
Nominees Not Presently Serving as Trustees
J. Christopher Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President, CEO and
Director, Federated Investors, Inc.; President and Trustee, Federated Investment
Management Company; President and Director, Federated Global Investment
Management Corp.; President, Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company. Mr. Donahue
is the son of John F. Donahue, Chairman and Trustee of the Trust.
Charles F. Mansfield, Jr.
80 South Road
Westhampton Beach, NY
Birth Date: April 10, 1945
Director or Trustee of some of the Funds in the Federated Fund Complex;
Management Consultant; formerly, Chief Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank; Assistant Professor of Banking
and Finance, Frank G. Zarb School of Business, Hofstra University.
John S. Walsh
2007 Sherwood Drive
Valparaiso, IN
Birth Date: November 28, 1957
Director or Trustee of some of the Funds in the Federated Fund Complex;
President and Director, Heat Wagon, Inc. (manufacturer of construction temporary
heaters); President and Director, Manufacturers Products, Inc. (distributor of
portable construction heaters); President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy highway
contractor); formerly, Vice President, Walsh & Kelly, Inc.
APPROVAL OF CHANGES TO THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
The 1940 Act (which was adopted to protect mutual fund shareholders)
requires investment companies such as the Trust to adopt certain specific
investment policies or restrictions that can be changed only by shareholder
vote. An investment company may also elect to designate other policies or
restrictions that may be changed only by shareholder vote. Both types of
policies and restrictions are often referred to as "fundamental policies." These
policies and restrictions limit the investment activities of the Trust's
investment adviser.
After the Trust was formed in 1981, legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions imposed by
state laws and regulations were preempted by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, the Trust is
subject to fundamental policies that are no longer required to be fundamental,
and to other policies that are no longer required at all. Accordingly, the
Trustees have authorized the submission to the Trust's shareholders for their
approval, and recommend that shareholders approve, the amendment,
reclassification and/or elimination of certain of the Trust's fundamental
policies.
<PAGE>
The proposed amendments would:
(i) simplify, modernize and standardize the fundamental policies that
are required to be stated under the 1940 Act;
(ii) reclassify as operating policies those fundamental policies
that are not required to be fundamental under the 1940 Act;
and
(iii) eliminate those fundamental policies that are no longer
required by the securities laws of the various states.
By reducing the number of policies that can be changed only by
shareholder vote, the Trustees believe that the Trust would be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The Trustees
also believe that the investment adviser's ability to manage the Trust's assets
in a changing investment environment will be enhanced and that investment
management opportunities will be increased by these changes. The chart that
follows briefly describes the differences between fundamental policies and
non-fundamental policies.
<TABLE>
<CAPTION>
<S> <C> <C>
Fundamental Policies Non-Fundamental Policies
-------------------------------------- ---------------------------------------
Who must approve changes in the Board of Trustees and shareholders Board of
Trustees policies?
How quickly can a change in the Fairly slowly, since a vote of Fairly quickly, because the change
policies be made? shareholders is required can be accomplished by action of the
Board of Trustees
What is the relative cost to Costly to change because a Less costly to change because a
change a policy? shareholder vote requires holding a change can be accomplished by action
meeting of shareholders of the Board of Trustees
</TABLE>
The recommended changes are specified below. Each Proposal will be
voted on separately, and the approval of each Proposal for the Trust will
require the approval of a majority of the outstanding voting shares of the Trust
as defined in the 1940 Act. (See "Proxies, Quorum and Voting at the Special
Meeting" below.)
Description of Proposed Changes
The proposed standardized fundamental investment policies cover those
areas for which the 1940 Act requires the Trust to have a fundamental
restriction. They satisfy current regulatory requirements and are written to
provide flexibility to respond to future legal, regulatory, market or technical
changes. The proposed standardized changes will not affect the Trust's
investment objective. Although the proposed changes in fundamental policies will
allow the Trust greater flexibility to respond to future investment
opportunities, the Board of Trustees of the Trust does not anticipate that the
changes, individually or in the aggregate, will result at this time in a
material change in the level of investment risk associated with investment in
the Trust. Nor does the Board of Trustees anticipate that the proposed changes
in fundamental investment policies will, individually or in the aggregate,
change materially the manner in which the Trust is managed.
The following is the text and a summary description of the proposed
changes to the Trust's fundamental policies and restrictions. Any
non-fundamental policy may be modified or eliminated by the Trustees at any
future date without any further approval of shareholders. Shareholders should
note that certain of the fundamental policies that are treated separately below
currently are combined within a single existing fundamental policy.
Presently, if the Trust adheres to a fundamental or non-fundamental
percentage restriction at the time of an investment or transaction, a later
increase or decrease in the percentage resulting from a change in the value of
the Trust's portfolio securities or the amount of its total assets does not
create a violation of the policy. This policy will continue to apply for any of
the proposed changes that are approved.
PROPOSAL #2: APPROVAL OF AMENDMENTS TO THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
PROPOSAL #2(a): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING DIVERSIFICATION
Under the 1940 Act, the Trust's policy relating to the diversification
of its investments must be fundamental. The 1940 Act prohibits a "diversified"
mutual fund from purchasing securities of any one issuer if, at the time of
purchase, more than 5% of the fund's total assets would be invested in
securities of that issuer or the fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
fund's total assets may be invested without regard to this limitation. The 5%
limitation does not apply to securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities or to securities issued by other
open-end investment companies.
The Trust's present policy regarding diversification states:
"The Trust will not purchase the securities of any issuer (except cash,
cash instruments and securities issued or guaranteed by the United
States government, its agencies or instrumentalities) if as a result
more than 5% of its total assets would be invested in the securities of
such issuer. The Trust may not acquire more than 10% of the voting
securities of any one issuer."
In order to afford the Trust's investment adviser maximum flexibility
in managing the Trust's assets, the Trustees propose to amend the Trust's
diversification policy to be consistent with the definition of a diversified
investment company under the 1940 Act. The restated policy complies with the
U.S. Securities and Exchange Commission's (the "SEC" or the "Commission")
general definition of diversification. The new policy would specifically add
securities of other investment companies to the list of issuers that are
excluded from the 5% limitation. Upon approval of the Trust's shareholders, the
fundamental investment policy governing diversification for the Trust will be
amended as follows:
"With respect to securities comprising 75% of the value of its total
assets, the Trust will not purchase securities of any one issuer (other
than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such U.S. government
securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested
in securities of that issuer, or the Trust would own more than 10% of
the outstanding voting securities of that issuer."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(b): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR SECURITIES
The 1940 Act requires a mutual fund to have a fundamental investment
policy defining its ability to borrow money or issue senior securities. In
general, limitations on borrowing are designed to protect shareholders and their
investments by restricting a fund's ability to subject its assets to any claims
of creditors or senior security holders who would be entitled to dividends or
rights on liquidation of the fund prior to the rights of shareholders.
Shareholders of the Trust are being asked to approve a new standardized
fundamental policy for borrowing and the issuance of senior securities designed
to reflect all current regulatory requirements. The Trust's current policies
state:
"The Trust will not issue senior securities except as permitted by its
investment objective, policies and limitations. The Trust will not
borrow money except as a temporary measure for extraordinary or
emergency purposes and then (a) only in amounts not in excess of 5% of
the value of its total assets or (b) in an amount up to one-third of
the value of its total assets including the amount borrowed in order to
meet redemption requests without immediately selling any portfolio
securities. (This borrowing provision is not for investment leverage
but solely to facilitate management of the portfolio by enabling the
Trust to meet redemption requests where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.) While any
such borrowings are outstanding, no purchases of investment securities
will be made by the Trust."
Senior Securities-Generally. A "senior security" is an obligation of a mutual
fund with respect to its earnings or assets that takes precedence over the
claims of the fund's shareholders with respect to the same earnings or assets.
The 1940 Act generally prohibits a fund from issuing senior securities, in order
to limit the use of leverage. In general, an investment company uses leverage
when it borrows money to enter into securities transactions, or acquires an
asset without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types
of transactions which might otherwise be considered to create "senior
securities" or "leverage," so long as the fund meets certain collateral
requirements designed to protect shareholders. For example, some transactions
that may create senior security concerns include short sales, certain options
and futures transactions, reverse repurchase agreements and securities
transactions that obligate a fund to pay money at a future date (such as
when-issued, forward commitment or delayed delivery transactions). When engaging
in such transactions, a fund must set aside money or securities to meet the SEC
staff's collateralization requirements. This procedure effectively eliminates a
fund's ability to engage in leverage for these types of transactions.
Borrowing-Generally. Under the 1940 Act, an investment company is permitted to
borrow up to 5% of its total assets for temporary purposes. A fund may borrow
only from banks. If borrowings exceed 5%, the fund must have assets totaling at
least 300% of the borrowing when the amount of the borrowing is added to the
fund's other assets. The effect of this provision is to allow a fund to borrow
from banks in amounts up to one-third (33 1/3%) of its total assets (including
the amount borrowed). Investment companies typically borrow money to meet
redemptions in order to avoid a forced, unplanned sale of portfolio securities.
This technique allows a fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations. The costs of borrowing, however, can also reduce the fund's
total return.
The borrowing restrictions of the Trust permit borrowing only as a
temporary, extraordinary or emergency measure. The proposed investment policy
would provide greater flexibility, and would permit the Trust to borrow money,
directly or indirectly (such as through reverse repurchase agreements), and
issue senior securities within the limits established under the 1940 Act or
under any rule or regulation of the Commission, or any SEC staff interpretation
thereof. If the new policy is approved by shareholders, the Trust does not
presently anticipate changing its current practices relating to borrowing money
or issuing senior securities. As a matter of operating policy, the Trust does
not presently intend to engage in leveraging.
Upon shareholder approval, the fundamental investment policy governing
borrowing money and issuing senior securities for the Trust will state:
"The Trust may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
PROPOSAL #2(c): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENTS IN REAL ESTATE
Under the 1940 Act, the Trust's policy concerning investments in real
estate must be fundamental. The Trust currently has a fundamental investment
policy prohibiting the purchase or sale of real estate that states:
"The Trust will not purchase or sell real estate, but this shall not
prevent the Trust from investing in Municipal Bonds secured by real
estate or interests."
The proposed fundamental investment policy will not permit the Trust to
purchase real estate directly, but will permit the purchase of securities whose
payments of interest or principal are secured by mortgages or other rights to
real estate in the event of default. The investment policy will also enable the
Trust to invest in companies within the real estate industry, provided such
investments are consistent with the Trust's investment objective and policies.
If the new policy is approved by shareholders, the Trust does not presently
anticipate changing its current practices relating to investing in real estate.
Upon shareholder approval, the fundamental investment policy of the
Trust governing investments in real estate will state:
"The Trust may not purchase or sell real estate, provided that this
restriction does not prevent the Trust from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Trust may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(d): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENTS IN COMMODITIES
Under the 1940 Act, the Trust's policy concerning investments in
commodities must be fundamental. The Trust is currently subject to a fundamental
restriction prohibiting the purchase or sale of commodities that states:
"The Trust will not purchase or sell commodities or commodity contracts."
Historically, the most common types of commodities have been physical
commodities such as wheat, cotton, rice and corn. However, under federal law,
futures contracts are considered to be commodities and, therefore, financial
futures contracts, such as futures contracts related to currencies, stock
indices or interest rates are considered to be commodities. Financial futures
contracts enable an investment company to buy (or sell) the right to receive the
cash difference between the contract price for an underlying asset or index and
the future market price, if the market price is higher. If the future price is
lower, the investment company is obligated to pay (or, if the investment company
sold the contract, the investment company receives) the amount of the decrease.
Investment companies often desire to invest in financial futures contracts and
options related to such contracts for hedging or other investment reasons.
The Trust does not currently have a policy providing for investment in
financial futures contracts and related options. The proposed policy would
provide appropriate flexibility for the Trust to invest in financial futures
contracts and related options in the future. As proposed, the policy is broad
enough to permit investment in financial futures instruments for either
investment or hedging purposes. Using financial futures instruments can involve
substantial risks, and would be utilized only if the Trust's investment adviser
determined that such investments are advisable and such practices were disclosed
in the Trust's prospectus or statement of additional information. Gains or
losses on investments in financial futures instruments depend on the direction
of securities prices, interest rates and other economic factors, and losses from
engaging in these types of transactions are potentially unlimited. At the
present time, the Trust does not intend to engage in these activities. As a
matter of non-fundamental operating policy, for purposes of the proposed
fundamental policy, investments in transactions involving futures contracts and
options, forward currency contracts, swap transactions and other financial
contracts that settle by payment of cash are not deemed to be investments in
commodities.
Upon shareholder approval, the standardized fundamental investment
policy governing investments in commodities for the Trust will state:
"The Trust may not purchase or sell physical commodities, provided that
the Trust may purchase securities of companies that deal in
commodities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(e): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING UNDERWRITING SECURITIES
Under the 1940 Act, the Trust's policy relating to underwriting is
required to be fundamental. The Trust currently is subject to a fundamental
investment policy prohibiting it from acting as an underwriter of the securities
of other issuers that states:
"The Trust will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933, in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations."
A person or company generally is considered an underwriter under the
federal securities laws if it participates in the public distribution of
securities of other issuers, usually by purchasing the securities from the
issuer and re-selling the securities to the public. From time to time, a mutual
fund may purchase a security for investment purposes which it later sells or
redistributes to institutional investors or others under circumstances where the
fund could possibly be considered to be an underwriter under the technical
definition of underwriter contained in the securities laws.
Upon shareholder approval, the fundamental investment policy concerning
underwriting by the Trust will state:
"The Trust may not underwrite the securities of other issuers, except
that the Trust may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities
Act of 1933."
This does not constitute a substantive change in the Trust's fundamental policy.
Rather, it reflects a restatement to the standardized language now to be used by
the Federated Funds, and is submitted to shareholders for approval as a result
of the 1940 Act's requirements.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(f): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING LENDING BY THE TRUST
Under the 1940 Act, the Trust's policy concerning lending must be
fundamental. The Trust currently is subject to a fundamental investment policy
limiting its ability to make loans that states:
"The Trust will not lend any of its assets, except that it may purchase
or hold corporate or government bonds, debentures, notes, certificates
of indebtedness or other debt securities permitted by its investment
objective."
The Trust's current fundamental policy permits the Trust to invest its
assets in certain debt securities, which could technically be characterized as
the making of loans. Securities lending is a practice that has become common in
the mutual fund industry and involves the temporary loan of portfolio securities
to parties who use the securities for the settlement of securities transactions.
The collateral delivered to a fund in connection with such a transaction is then
invested to provide the fund with additional income it might not otherwise have.
Securities lending involves certain risks if the borrower fails to
return the securities. However, management believes that with appropriate
controls, such as 100% or greater collateralization of the loan and regular
monitoring of the creditworthiness of the counterparty, the ability to engage in
securities lending does not materially increase the risks to which the Trust
currently is subject. In addition, securities on loan cannot generally be sold
until the term of the loan is over.
Upon approval of the Trust's shareholders, the fundamental investment
policy governing the lending of assets by the Trust will state:
"The Trust may not make loans, provided that this restriction does not
prevent the Trust from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(g): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY REGARDING
CONCENTRATION OF THE TRUST'S INVESTMENTS IN THE SECURITIES OF COMPANIES IN THE
SAME INDUSTRY
Under the 1940 Act, the Trust's policy relating to the concentration of
its investments in securities of companies in a single industry must be
fundamental. The SEC staff considers a mutual fund to "concentrate" its
investments if 25% or more of its total assets are invested in a particular
industry (not counting U.S. government securities, bank instruments issued by
domestic banks and municipal securities).
The Trust currently is subject to a fundamental investment policy
prohibiting it from concentrating its investments in a single industry. This
policy provides:
"The Trust will not invest more than 25% of the value of its total assets
in one industry."
Upon the approval by the Trust's shareholders, the fundamental
investment policy governing concentration for the Trust will provide:
"The Trust will not make investments that will result in the
concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal
securities and bank instruments will not be deemed to constitute an
industry. To conform to the current view of the SEC staff that only
domestic bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Trust will not
exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the
value of the Trust's total assets in any one industry will constitute
`concentration.'"
The Trust's Board has also approved related non-fundamental investment
policy for the Trust, which will be adopted if the new fundamental policy is
approved by shareholders. These policies provide that in applying the
concentration restriction: (1) utility companies will be divided according to
their services, for example, gas, gas transmission, electric and telephone will
each be considered a separate industry; (2) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (3) asset-backed securities will be classified according to the
underlying assets securing such securities.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(h): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING SECURITIES ON
MARGIN
The Trust is not required to have a fundamental restriction on margin
transactions. Accordingly, it is proposed that the Trust's existing fundamental
investment policy be replaced with a non-fundamental restriction.
The Trust's current policy provides:
"The Trust will not purchase any securities on margin, except for such
credits as are necessary for the clearance of transactions."
The proposed non-fundamental policy makes some changes in wording from
the existing fundamental restriction, and contemplates that the Trust may engage
in the same types of transactions as it is presently authorized to do. Upon the
approval of the elimination of the existing fundamental policy on engaging in
margin transactions, the Trust would become subject to the following
non-fundamental policy:
"The Trust will not purchase securities on margin, provided that the
Trust may obtain short-term credits necessary for the clearance of
purchases and sales of securities."
This does not constitute a substantive change in the Trust's
fundamental policy. Rather, it reflects a restatement to the standardized
language now to be used by the Federated Funds, and is submitted to shareholders
for approval as a result of the 1940 Act's requirements.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(i): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTING IN SECURITIES
OF OTHER INVESTMENT COMPANIES
The Trust currently has a fundamental investment policy that governs
its investments in the securities of other investment companies that states:
"The Trust will not invest in securities issued by any other investment
company or investment trust except by purchase in the open market where
no commission or profit to a sponsor or dealer results from such
purchases other than the customary broker's commission or except when
such a purchase, though not made in the open market, is part of a plan
of merger or consolidation."
The Trust's investment adviser believes, and the Board has concluded,
that this prohibition unnecessarily limits the Trust's investments in securities
of other investment companies. Amending this policy would expand the investment
opportunities available to the Trust by allowing the Trust more flexibility to
invest in the securities of other investment companies in seeking to achieve the
Trust's investment objective. Establishing the policy as non-fundamental would
enable the Trust to change this policy in the future without shareholder
approval.
Investments in other investment companies are limited under the 1940
Act and, in the case of the Trust, by an exemptive order issued by the
Commission (the "Order"). The 1940 Act and the Order limit both the portion of
the Trust's assets which may be so invested in a particular fund, and the
percentage of such a fund which may be owned by the Trust. Normally, each
investment company in which the Trust invests will have its own operating
expenses, including advisory fees. It is expected that the other duplicative
expenses are justified by the benefit of having access to the markets in which
such mutual fund invests, or in the investment techniques or advisers of the
mutual fund.
If shareholders approve this item, the new operating policy for the
Trust will read as follows:
"The Trust may invest its assets in securities of other investment
companies, including the securities of affiliated money market funds,
as an efficient means of carrying out its investment policies and
managing its uninvested cash."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(j): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING PLEDGING ASSETS
The Trust is not required to have a fundamental investment restriction
with respect to the pledging of assets. To maximize the Trust's flexibility in
this area, the Board of the Trust believes the policy on pledging assets should
be made non-fundamental. The non-fundamental policy would be similar to the
fundamental policy proposed to be eliminated which states:
"The Trust will not pledge, mortgage or hypothecate its assets, except
that, to secure borrowings permitted by its fundamental investment
policies, it may pledge securities having a market value at the time of
pledge not exceeding 10% of the value of the Trust's total assets."
The Board does not expect this change to have a material impact on the
Trust's operations. Establishing the policy as non-fundamental, however, would
enable the Board to change this policy in the future without shareholder
approval. Upon the approval of the elimination of the existing fundamental
policy on pledging assets, the Trust would become subject to the following
non-fundamental investment policy:
"The Trust will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(k): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES REGARDING INVESTING IN RESTRICTED
SECURITIES AND INVESTING IN ILLIQUID SECURITIES
The Trust is currently subject to fundamental investment policies
regarding its ability to invest in restricted securities and to invest in
illiquid securities. The Trust's management has proposed that these policies be
amended and made non-fundamental. The Trust's policy relating to restricted
securities states:
"The Trust will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which
meet the criteria for liquidity as established by the Trustees."
This policy was adopted by the Trust because historically restricted securities
were viewed as illiquid since they could not be sold within seven days.
Investment companies issuing redeemable securities are required to meet a
shareholder's redemption request at the current net asset value within seven
days of receiving the request for redemption. In order to do this, some portion
of the securities in the Trust's portfolio must be "liquid" so that the
securities can be sold in sufficient time to obtain the necessary cash to meet
redemption requests. It is important to note that many restricted securities
are, in fact, quite liquid and can be purchased without jeopardizing the
liquidity of the Trust's portfolio.
Certain state securities regulators previously required mutual funds to
have a fundamental policy limiting investment in restricted securities. Since
the enactment of NSMIA, states no longer have the jurisdiction to impose such
requirements. Furthermore, rules adopted by the SEC have substantially increased
the number of restricted securities that can now be considered liquid and, in
addition, have given to the Trustees the ability to determine, under specific
guidelines, that a security is liquid. The Trustees may delegate this duty to
the investment adviser provided the investment adviser's determination of
liquidity is made in accordance with the guidelines established and monitored by
the Trustees.
The Trust's current restricted securities policy prevents the Trust
from acquiring a restricted security that may be viewed by the Trust's
investment adviser as liquid. As a result, the Trust's management has suggested
that the policy be revised to allow the Trust greater flexibility to invest in
restricted securities that are considered to be liquid under the Trust's
guidelines on such securities. The revised policy will also increase the Trust's
limitation on investments in restricted securities from 10% to 15% of its net
assets. The SEC takes the position that an investment company, other than a
money market fund, should not invest more than 15% of its net assets in
restricted securities. The proposed non-fundamental restriction would comply
with the SEC's guidelines. Finally, it has been proposed that the revised
restricted securities policy be made non-fundamental. Establishing the policy as
non-fundamental would enable the Trust to change this restriction in the future
without shareholder approval. However, the Trust's investment adviser does not
expect this change to have a material impact on the Trust's operations.
Upon the approval of the elimination of the existing fundamental policy
on investing in restricted securities, the Trust would become subject to the
following non-fundamental investment restriction:
"The Trust may invest in restricted securities. Restricted securities
are any securities in which the Trust may invest pursuant to its
investment objective and policies but which are subject to restrictions
on resale under federal securities law. Under criteria established by
the Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to
be liquid, the Trust will limit their purchase, together with other
illiquid securities, to 15% of its net assets."
In conjunction with this, it is also proposed that the Trust's
fundamental investment limitation relating to illiquid securities be amended and
made non-fundamental. The Trust is presently subject to an investment policy
pertaining to illiquid securities that provides:
"Management will limit the amount of repurchase agreements with
maturities in excess of seven days and other illiquid securities to not
more than 10% of the Trust's assets."
There is no legal requirement that the Trust have a fundamental
investment policy on this subject. Accordingly, the Board believes that it
should be made non-fundamental for the Trust, and amended to render it
consistent with the standardized disclosure utilized by the Federated Funds. The
amendment will also increase the Trust's ability to invest in illiquid
securities from 10% to 15% of its net assets. The SEC takes the position that an
investment company, other than a money market fund, should not invest more than
15% of its net assets in illiquid securities. The proposed non-fundamental
restriction would comply with the SEC's guidelines. Establishing the policy as
non-fundamental would enable the Trust to change this restriction in the future
without shareholder approval. However, the Trust's investment adviser does not
expect this change to have a material impact on the Trust's operations.
Upon the approval of the elimination of the existing fundamental policy
on investing in illiquid securities, the Trust would become subject to the
following non-fundamental restriction:
"The Trust will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as
a result, the value of such securities would exceed, in the aggregate,
15% of the Trust's net assets."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(l): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES REGARDING INVESTING IN THE COMMON STOCK OF
HIGH-QUALITY COMPANIES
The Trust is not required to have a fundamental investment policy
regarding the percentage of its assets that must be invested in common stock and
other securities. The fundamental investment policies currently in effect state:
"The Trust may invest in preferred stocks, corporate bonds, notes, and
warrants of these companies and in U.S. government securities and money
market instruments, in such proportions as management may determine.
However, at least 80% of the Trust's portfolio will be invested in
common stocks, unless it is in a defensive position."
To maximize the Trust's flexibility, the Board of the Trust believes
that these policies should be made non-fundamental and simplified. Although the
Trust is proposing to eliminate the fundamental policies, the Trust notes that
the staff of the SEC takes the position that a mutual fund should have an
investment policy that provides that at least 65% of the fund's assets must be
invested consistently with the fund's name. The Trust intends to operate in
accordance with that position, and its proposed, non-fundamental policy has been
prepared with this regulatory position in mind. For purposes of the proposed
policy, the Trust will classify common stock, preferred stock or other
securities convertible into common stock, and warrants exercisable to acquire
common stock, as constituting common stock for purposes of compliance with the
percentage requirement. For purposes of the revised policy, the Trust considers
an issuer to be high-quality if it is in the top 25% of its industry with regard
to revenues, although other factors, such as product position or growth of
market share, may also be considered.
Upon the approval of the elimination of the existing fundamental
investment policirs, the Trust would become subject to the following
non-fundamental policy:
"Under normal market circumstances, at least 65% of the Trust's
portfolio will be invested in common stocks of high-quality companies."
Designating the policy as non-fundamental would enable the Board to
change this policy in the future without shareholder approval. Although the
Trust is eliminating from the policy an itemization of the particular types of
securities that the Trust may acquire and reducing the percentage requirement
with respect to investing in the common stock of issuers, the Trust intends, as
a matter of operating policy, to invest in the same types of investments and in
the same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(m): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES RELATING TO INVESTING IN MONEY MARKET
INSTRUMENTS AND ENTERING INTO REPURCHASE AGREEMENTS
The Trust is presently subject to fundamental investment policies
governing its investing in money market instruments and entering into repurchase
agreements. The policies state:
"The Trust expects to own money market instruments, including
repurchase agreements. A money market instrument is a debt security
with a remaining maturity of one year or less at the time of purchase.
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities to the Trust and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Trust or its
custodian will take possession of the securities subject to repurchase
agreements, and these securities will be marked to market daily. The
Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are
found by the Adviser to be creditworthy pursuant to guidelines
established by the Trustees."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have these
types of fundamental policies. Additionally, a large portion of these
fundamental policies merely describe the mechanics of repurchase agreement
transactions, or the legal requirements underlying these types of transactions.
As such, the fundamental policies, as currently phrased, do not clarify the
scope of the Trust's permissible investments. Accordingly, it is proposed that
the Trust's existing fundamental policies be simplified, and replaced with a
non-fundamental investment policy that provides:
"The Trust may invest in money market instruments, including repurchase
agreements." The proposed non-fundamental policy does not alter the substance of
the current policies. Designating this policy as a non-fundamental policy will
allow the Trust to change the policy without shareholder approval. However, the
Trust has no present intention to change the policy, and the Trust's investment
adviser expects the Trust to enter into these transactions in the same manner as
presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(n): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY RELATING TO ENGAGING IN WHEN-ISSUED AND
DELAYED DELIVERY TRANSACTIONS
The Trust is presently subject to a fundamental investment policy
governing its ability to engage in when-issued and delayed delivery
transactions. The policy states:
"The Trust may purchase and sell securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which the Trust
purchases and sells securities with payment and delivery scheduled for
a future time. The Trust engages in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio securities
consistent with the Trust's investment objective and polices, not for
investment leverage. The seller's failure to complete the transaction
may cause the Trust to miss a price or yield considered to be
advantageous."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Similar to Proposal #2(m) above, much of the current fundamental policy
merely describes when-issued and delayed delivery transactions, without
clarifying the extent to which the Trust may engage in these transactions.
Accordingly, it is proposed that the Trust's existing fundamental policy be
eliminated and replaced with a simplified, non-fundamental investment policy
that provides:
"The Trust may purchase and sell securities on a when-issued and delayed
delivery basis."
Designating this policy as a non-fundamental policy will allow the Trust to
change the policy without shareholder approval. However, the Trust has no
present intention to change the policy, and the Trust's investment adviser
expects the Trust to engage in when-issued and delayed delivery transactions in
the same manner as it presently does.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
PROPOSAL #3: ELIMINATION OF CERTAIN OF THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
The Board has determined that certain of the Trust's current
fundamental investment policies are unnecessary and should be removed. Until
NSMIA was adopted in 1996, the securities laws of several states required every
investment company which intended to sell its shares in those states to adopt
policies governing a variety of operational issues, including investments in
certain securities. As a consequence of those restrictions, the Trust adopted
the investment policies described below and agreed that the policies would be
changed only upon the approval of shareholders. Since these prohibitions are no
longer required under current law, the management of the Trust has recommended,
and the Board has determined, that these policies should be removed. The removal
of these policies would provide greater flexibility in the management of the
Trust by permitting the Trust to purchase a broader range of securities that are
permitted investments and that are consistent with the Trust's investment
objective and policies.
The policies being removed are listed below. Each Proposal will be
voted on separately, and the approval of each change by the Trust will require
the affirmative vote of a majority of the outstanding voting shares of the Trust
as defined in the 1940 Act. (See "Proxies, Quorum and Voting at the Special
Meeting" below.)
PROPOSAL #3(a): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING SELLING SECURITIES SHORT
The Trust is not required to have a fundamental investment policy with
respect to short sales of securities. The Trust's current policy states that:
"the Trust will not make short sales of securities." To maximize the Trust's
flexibility in this area, the Board believes that the Trust's restriction on
short sales of securities should be eliminated. These restrictions were imposed
by state laws and NSMIA preempts that requirement. Notwithstanding the
elimination of these fundamental restrictions, the Trust expects to continue not
to engage in short sales of securities, except to the extent that the Trust
contemporaneously owns or has the right to acquire, at no additional cost,
securities identical to, or convertible into or exchangeable for, those sold
short.
Upon the approval by shareholders of Proposal #3(a), the existing
fundamental restriction on selling securities short for the Trust will be
eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(b): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTING IN SECURITIES OF NEW ISSUERS
The Trust is not required to have a fundamental restriction with
respect to investing in securities of companies that have been in operation for
less than three years. This limitation was imposed by state laws and NSMIA
preempts that requirement. To maximize the Trust's investment flexibility, the
Trust's investment adviser believes that the Trust's policy on investments in
such companies should be eliminated.
Upon the approval by shareholders of Proposal #3(b), the following
fundamental investment policy of the Trust will be eliminated:
"The Trust may not invest more than 5% of the value of the total assets
of the Trust in securities of issuers which have a record of less than
3 years of continuous operation, including the operation of any
predecessor."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
PROPOSAL #3(c): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
There is no legal requirement that the Trust have this fundamental
policy. This restriction was imposed by state laws and was preempted by NSMIA.
Moreover, the Board of the Trust and its investment adviser do not believe that
this policy provides any safeguards against conflicts of interest that are not
already effectively covered under the Trust's Code of Ethics. Accordingly, the
Board believes this restriction should be eliminated.
Upon the approval by shareholders of Proposal #3(c), the following
fundamental investment policy will be eliminated:
"The Trust will not purchase or retain the securities of any issuer
other than the securities of the Trust, if, to the Trust's knowledge,
those officers and Trustees of the Trust, or of the Adviser, who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of
such outstanding securities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(d): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTING FOR THE PURPOSE OF EXERCISING CONTROL
The Trust's current policy prohibits the acquisition of the securities
of an issuer for the purpose of exercising control over, or management of, any
company. The policy states:
"The Trust may not invest in securities of a company for the purpose of
exercising control or management. However, the Trust will acquire no
more than 10% of the voting securities of an issuer and may exercise
its voting power in the Trust's best interest. From time to time the
Trust, together with other investment companies advised by the Adviser
or its affiliated companies, may buy and hold substantial amounts of
the voting stock of a company and all such stock may be voted together
in regard to the company's affairs. In some such cases, the Trust and
other investment companies advised by the Adviser or its affiliated
companies holding such stock might collectively be considered to be in
control of such a company. Officers or affiliates of the Trust might
possibly become directors of companies in which the Trust holds stock."
"Control" is defined under the 1940 Act as owning 25% or more of the
voting securities of an issuer. A controlling ownership is likely to have an
effect on the outcome of any shareholder voting on changes related to the
operation of the issuing company.
When the Trust adopted this investment policy, it was required to be
fundamental by certain state securities regulators. Since the enactment of
NSMIA, those requirements no longer apply. Elimination of this policy would
clarify the Trust's ability to exercise freely its rights as a shareholder of
the companies in which it invests. The Trust, however, does not currently intend
to become involved in directing or administering the day-to-day operations of
any company.
Upon the approval by shareholders of Proposal #3(d), the Trust's
fundamental investment policy on investing for control will be eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
PROPOSAL #3(e): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING DEALING IN PUTS AND CALLS
There is no legal requirement that the Trust have this fundamental
policy. This restriction was imposed by state laws and was preempted by NSMIA.
To maximize the Trust's investment flexibility, the Board believes that the
Trust's policy on dealing in puts and calls should be eliminated.
Upon the approval by shareholders of Proposal #3(e), the following
fundamental investment policy will be eliminated:
"The Trust will not write, purchase or sell puts, calls, straddles or
spreads or any combination thereof."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL
PROPOSAL #3(f): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
REGARDING ENGAGING IN SHORT-TERM TRADING AND PORTFOLIO TURNOVER
The Trust currently has a fundamental investment policy pertaining to
short-term trading and portfolio turnover. The policy states that:
"Although the Trust does not intend to invest for the purpose of
seeking short-term profits, securities in its portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of
the Trust's investment objective, without regard to the length of time
a particular security may have been held.
Portfolio transactions are undertaken principally to invest new money
obtained from the sale of Trust shares and to meet redemptions of Trust
shares. The Trust is free to dispose of portfolio securities at any
time when changes in circumstances or conditions make such a move
desirable in light of the investment objective and policies heretofore
stated. The Trust will not attempt to achieve or be limited to a
pre-determined rate of portfolio turnover; however, it is not
anticipated that portfolio turnover will exceed 100% in the first year.
Such turnover is incidental to transactions undertaken with a view to
achieving the investment objective."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have such
fundamental policies. Accordingly, to maximize the Trust's investment
flexibility, the Trust's investment adviser believes that the investment
policies should be eliminated. Upon the approval by shareholders of Proposal
#3(f), it is intended that the Trust's investment adviser will continue to
operate the Trust by trading and disposing of portfolio securities as necessary
to meet the Trust's investment objective.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(g): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN OIL, GAS AND MINERALS
The Trust is not required to have a fundamental restriction with
respect to investments in oil, gas or minerals. To maximize the Trust's
flexibility in this area, management of the Trust believes that the Trust's
fundamental investment policy prohibiting oil, gas and mineral investments
should be eliminated. These restrictions were imposed by state laws and NSMIA
preempts that requirement. Notwithstanding the elimination of this fundamental
policy, the Trust does not expect to invest, at this time, in oil, gas or
mineral exploration or development programs or leases.
<PAGE>
Upon the approval by shareholders of Proposal #3(g), the following
fundamental policy on investments in oil, gas or minerals for the Trust will be
eliminated:
"The Trust will not purchase or sell oil, gas or other mineral exploration
or development programs."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(h): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
REGARDING PERMISSIBLE INVESTMENTS
The Trust is currently subject to certain fundamental investment
policies pertaining to investing in securities of high-quality companies. The
policies state that:
"The Trust pursues its investment objective by investing principally in
a professionally-managed and diversified portfolio of common stock of
high-quality companies. These companies generally are leaders in their
industries and are characterized by sound management and the ability to
finance expected growth, either through internal cash generation or
through ready access to capital markets. (Ordinarily, such a company
will be in the top 25% of its industry with regard to revenues;
however, this standard may be outweighed by other factors, such as
product position or growth of market share.) The Trust's investment
approach is based on the conviction that over the long term the economy
will continue to expand and develop and that this economic growth will
be reflected in the growth of the revenues and earnings of major
corporations.
In the pursuit of the Trust's investment objective, the Trust's
Investment Adviser, Federated Management ("Adviser"), recommends
securities for the Trust's investment portfolio from among the
securities of high quality companies. The companies whose securities
are purchased by the Trust are selected by the Adviser principally on
the basis of traditional research techniques, including assessment of
earnings and dividend growth prospects and of the risk and volatility
of the company's industry."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have such
fundamental policies. Accordingly, to maximize the Trust's investment
flexibility, it is proposed that the Trust's existing fundamental policies be
eliminated. This would allow the Trust to describe in its prospectus those
factors, by which it seeks to achieve its investment objective, while permitting
the Trust to change the policies without shareholder approval to meet changing
market factors. Nevertheless, the Trust's investment adviser expects to manage
the Trust in the same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4: TO APPROVE A CLARIFYING AMENDMENT TO THE TRUST'S INVESTMENT
ADVISORY AGREEMENT TO EXCLUDE RULE 12b-1 FEES AND SHAREHOLDER SERVICE FEES FROM
THE EXPENSE LIMITATION PROVISIONS OF THE AGREEMENT
The Trust obtains its investment advisory services from Federated
Investment Management Company (the "Adviser"), pursuant to an investment
advisory agreement dated ____________, 19__, (the "Advisory Agreement"). At a
meeting held on ____________, 1998, the Advisory Agreement was continued by the
Board of the Trust for one year ending _______, 1999. Under the Advisory
Agreement, the Adviser receives an annual investment advisory fee based on the
Trust's average daily net assets, subject to a sliding fee scheduled as follows:
Advisory Fee as a
Average Daily Net Assets Percentage of Average
Daily Net Assets
First $500 million 0.750%
Second $500 million 0.675%
Third $500 million 0.600%
Fourth $500 million 0.525%
Over $2 billion 0.400%
The Advisory Agreement provides that the Adviser will reimburse the
Trust, limited to the amount of the advisory fee, the amount, if any, by which
the aggregate normal operating expenses of the Trust exceed 1.00% of the average
daily net assets of the Trust during the period. The Advisory Agreement excludes
from the expense limitation provision a variety of expenditures, including
interest, taxes, brokerage commissions, federal and state registration fees,
expenses of withholding taxes, and extraordinary expenses. The expense
obligation also does not include expenses incurred by shareholders utilizing the
transfer agent's subaccounting facilities.
When the Advisory Agreement was originally approved, the provision
described above was not intended to reimburse expenses incurred by the Trust
pursuant to a Rule 12b-1 Plan or a shareholder servicing plan. However, during
the last decade, the investment company industry has developed additional
structures for investment companies, has developed new forms of distribution
plans and shareholder servicing plans, and has generally sought to provide
investors with a broader variety of ways to access investment company products.
The Federated Investors Funds have participated in these developments, and
anticipate further developments in these respects. In order to provide
additional flexibility to the Trust in establishing new mechanisms and plans,
and to provide increased flexibility in the pricing of new products, the Board
has unanimously recommended that the expense limitation be clarified to confirm
that it will not apply to any plan of distribution or shareholder servicing fee
approved by shareholders of the Trust, or any series or class of the Trust,
unless specifically so provided.
With respect to any new class or series which the Trust may create in
the future, it is anticipated that a plan of distribution or a shareholder
servicing plan would be instituted in connection with the organization of the
new class or series, prior to any investment in the new class or series. Any
proposal to approve a new plan of distribution or shareholder servicing plan for
an existing series or class of the Trust will include specific information
regarding the expense impact of that plan, including information about any
impact on the Trust's expense ratio of amounts which would be authorized under
such a plan.
Normally, the amendment of an investment advisory agreement commences a
new contract term running two years from the date of the amendment. However, the
Board of Trustees is submitting this proposal to shareholders only as a
clarification of the Advisory Agreement, and does not believe that approval of
the clarification should be viewed as authorizing the commencement of a new
two-year term of the agreement. The Trust therefore will require affirmative
action by the Board or shareholders in the manner contemplated under the 1940
Act to continue the Advisory Agreement, as clarified, at its next anniversary.
The Board considers this approach to be fair, as it recognizes the
non-substantive nature of the clarifying amendment. The approval of the
amendment to the Advisory Agreement will require the affirmative vote of a
majority of the outstanding voting securities of the Trust as defined in the
1940 Act. (See "Proxies, Quorum and Voting at the Special Meeting" below.)
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
PROPOSAL #4: TO AMEND THE TRUST'S DECLARATION OF TRUST TO PERMIT THE BOARD
OF TRUSTEES TO LIQUIDATE ASSETS OF THE TRUST, ITS SERIES OR CLASSES, AND
DISTRIBUTE THE PROCEEDS OF SUCH ASSETS TO THE HOLDERS OF SUCH SHARES
REPRESENTING SUCH INTERESTS, WITHOUT SEEKING SHAREHOLDER APPROVAL
Mutual funds, such as the Trust, are required to organize under the
laws of a state and to create and be bound by organizational documents outlining
how they will operate. In the case of the Trust, these organizational documents
are the Declaration of Trust and the By-Laws. Since the adoption of the Trust's
current Declaration of Trust, the market for mutual funds has evolved, requiring
mutual funds to be more flexible in their operation to respond quickly to
changes in the market. One item in the current Declaration of Trust, described
below, prohibits the Trust from responding quickly and favorably to changing
markets without going to the expense and delay of holding a shareholder meeting.
Shareholders are being asked to approve an amendment to the Trust's
Declaration of Trust to permit the Trustees to sell and convert into money
(i.e., liquidate) all the assets of the Trust, or any series or class of the
Trust, and then redeem all outstanding shares of any series or class of the
Trust. Currently, a majority vote of shareholders is required to liquidate the
Trust, or an affected series or class of which shares are outstanding. The
Trustees have determined that the current restriction presents a cumbersome
structure under which the best interest of all of the Trust's shareholders may
not be served. By requiring the Trustees to solicit a shareholder vote, by
means of a proxy solicitation and special meeting of shareholders, the
Declaration of Trust greatly hinders the Trustees' ability to effectively act
on decisions about the continued viability of the Trust. If it is determined
that it is no longer advisable to continue the Trust, or a series or class of
the Trust, it may not be in the best interest of shareholders to incur the
substantial additional expense of a shareholder meeting when it is more
important to preserve those assets that remain. If this proposal is approved
by shareholders, the Trustees will be authorized to liquidate a series or
class of the Trust by Board action without a further shareholder vote. The
Trustees have no present intention of liquidating the Trust.
If approved by shareholders, Article XII, Section 4(c) of the
Declaration of Trust will be amended to read as follows:
"The Trustees may at any time sell and convert into money all the
assets of the Trust or any Series or Class, without shareholder approval, unless
otherwise required by applicable law. Upon making provision for the payment of
all outstanding obligations, taxes and other liabilities, accrued or contingent,
belonging to each Series or Class, the Trustees shall distribute the remaining
assets belonging to each Series or Class ratably among the holders of the
outstanding Shares of that Series or Class."
The Trustees believe that the interest of the shareholders is
adequately protected by this provision, as the liquidation would require the
conversion of the assets of the Trust to cash, which will thereafter be
distributed to shareholders pro rata. It is believed that this will result in
the return to shareholders of substantially the same value as would be provided
to the shareholders by a redemption resulting in the payment to the shareholders
of the then current net asset value of the shares owned by the shareholders.
Accordingly, the Trustees have approved, and have authorized the submission to
the Trust's shareholders for their approval, an amendment to the Trust's
Declaration of Trust. The approval of the amendment will require the affirmative
vote of a majority of the outstanding voting shares of the Trust as described in
the Declaration of Trust. (See "Proxies, Quorum and Voting at the Meeting"
below.)
In the event that the amendment to the Declaration of Trust to allow
the Trustees to liquidate assets of the Trust is not approved by the
shareholders, the Declaration of Trust will remain as it currently exists and
the Trustees will consider what action, if any, should be taken.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
<PAGE>
INFORMATION ABOUT THE TRUST
Proxies, Quorum and Voting at the Special Meeting
Only shareholders of record on the Record Date will be entitled to vote
at the Special Meeting. Each share of the Trust is entitled to one vote.
Fractional shares are entitled to proportionate shares of one vote. Under the
Investment Company Act of 1940, the favorable vote of: (a) the holders of 67% or
more of the outstanding voting securities present at the Special Meeting, if the
holders of 50% or more of the outstanding voting securities of the Trust are
present or represented by proxy; or (b) the vote of the holders of more than 50%
of the outstanding voting securities, whichever is less, is required to approve
all of the proposals, except the election of Trustees and the amendment of the
Declaration of Trust.
Any person giving a proxy has the power to revoke it any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of the Trust. In addition, although mere
attendance at the Special Meeting will not revoke a proxy, a shareholder present
at the Special Meeting may withdraw his or her proxy and vote in person. All
properly executed and unrevoked proxies received in time for the Special Meeting
will be voted in accordance with the instructions contained in the proxies. If
no instruction is given on the proxy, the persons named as proxies will vote the
shares represented thereby in favor of the matters set forth in the attached
Notice.
In order to hold the Special Meeting, a "quorum" of shareholders must
be present. Holders of one-fourth of the total number of voting shares of the
Trust, present in person or by proxy, shall be required to constitute a quorum
for the purpose of voting on the proposals.
For purposes of determining a quorum for transacting business at the
Special Meeting, abstentions and broker "non-votes" (that is, proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. For this reason, abstentions and broker non-votes will have the
effect of a "no" vote for purposes of obtaining the requisite approval of some
of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies that have been received to adjourn the Special Meeting to a later date.
In the event that a quorum is present but sufficient votes in favor of one or
more of the proposals have not been received, the persons named as proxies may
propose one or more adjournments of the Special Meeting to permit further
solicitations of proxies with respect to such proposal(s). All such adjournments
will require the affirmative vote of a majority of the shares present in person
or by proxy at the session of the Special Meeting to be adjourned. The persons
named as proxies will vote AGAINST an adjournment those proxies that they are
required to vote against the proposal, and will vote in FAVOR of such an
adjournment all other proxies that they are authorized to vote. A shareholder
vote may be taken on the proposals in this proxy statement prior to any such
adjournment if sufficient votes have been received for approval.
As referred to in this Proxy Statement, the "Federated Fund Complex,"
"The Fund" or "Fund" includes the following investment companies: Cash Trust
Series, Inc.; Cash Trust Series II; CCB Fund; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Core Trust; Federated Equity Fund; 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 Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Trust; Federated Short-Term Municipal 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.; Federated High Income Bond Fund, Inc.;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Fund, Inc.; Edward D. Jones & Co. Daily Passport Cash Trust; Liberty Term Trust,
Inc. - 1999; Liberty U.S. Government Money Market 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 Fund; Regions Fund; RIGGS Fund; Tax-Free Instruments Trust; The
Planters Fund; WesMark Fund; WCT Fund; and World Investment Series, Inc.
Share Ownership of the Trustees
Officers and Trustees of the Trust own less than 1% of the Trust's outstanding
shares.
At the close of business on the Record Date, the following persons owned,
to the knowledge of management, more than 5% of the outstanding shares of the
Trust: [TO BE INSERTED]
<TABLE>
<CAPTION>
<S> <C> <C>
Trustee Compensation
Name and Position Aggregate Total Compensation Paid From Trust Complex+
with Trust Compensation
From Trust1#
- ---------------------------------------- ------------------------- -------------------------------------------------------
John F. Donahue*@ $0 $0 for the Trust and 54 other
Chairman and Trustee investment companies in the Trust Complex
Thomas G. Bigley $1,869.36 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
John T. Conroy, Jr. $2,056.61 $125,264.48 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Nicholas P. Constantakis $1,412.44 $0 for the Trust and 36 other investment
Trustee companies in the Fund Complex
John F. Cunningham** $0 $0 for the Trust and 26 other
Trustee investment companies in the Fund Complex
Lawrence D. Ellis, M.D.* $1,869.36 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Peter E. Madden $1,869.36 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
John E. Murray, Jr., J.D., S.J.D. @ $1,869.36 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Marjorie P. Smuts $1,869.36 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
</TABLE>
1 Information is furnished for the fiscal year ended October 31, 1998.
# The aggregate compensation is provided for the Trust, which is comprised
of one portfolio.
+ The information is provided for the last calendar year.
*This Trustee is deemed to be an "interested person" as defined in the 1940 Act.
** Mr. Cunningham became a Trustee of the Trust on January 1, 1999. He did not
receive any fees from the Fund Complex as of the last calendar year.
@ Member of the Executive Committee.
During the fiscal year ended October 31, 1998, there were four meetings
of the Board of Trustees. The interested Trustees, other than Dr. Ellis, do not
receive fees from the Trust. Dr. Ellis is an interested person by reason of the
employment of his son-in-law by Federated Securities Corp. All Trustees were
reimbursed for expenses for attendance at Board of Trustees meetings.
The Executive Committee of the Board of Trustees handles the
responsibilities of the Board between meetings of the Board. Other than its
Executive Committee, the Trust has one Board committee, the Audit Committee.
Generally, the function of the Audit Committee is to assist the Board of
Trustees in fulfilling its duties relating to the Trust's accounting and
financial reporting practices and to serve as a direct line of communication
between the Board of Trustees and the independent auditors. The specific
functions of the Audit Committee include recommending the engagement or
retention of the independent auditors, reviewing with the independent auditors
the plan and the results of the auditing engagement, approving professional
services provided by the independent auditors prior to the performance of such
services, considering the range of audit and non-audit fees, reviewing the
independence of the independent auditors, reviewing the scope and results of the
Trust's procedures for internal auditing, and reviewing the Trust's system of
internal accounting controls.
Messrs. Conroy, Madden and Murray serve on the Audit Committee. These
Trustees are not interested Trustees of the Trust. During the fiscal year ended
) October 31, 1998 there were four meetings of the Audit Committee. All of the
members of the Audit Committee were present for each meeting. Each member of the
Audit Committee receives an annual fee of $100 plus $25 for attendance at each
meeting and is reimbursed for expenses of attendance.
Officers and Incumbent Trustees of the Trust
The executive officers of the Trust are elected annually by the Board
of Trustees. Each officer holds the office until qualification of his successor.
The names and birth dates of the executive officers of the Trust, as well as the
incumbent Trustees of the Trust who have previously been elected by
shareholders, and their principal occupations during the last five years, are
set forth below:
John F. Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: July 28, 1924
Chairman and Trustee
Date Became an Officer and a Trustee: January 8, 1982 and December 30, 1981
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Investment Management Company; Chairman and Director, Federated
Investment Counseling and Federated Global Investment Management Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust and Nominee for Trustee.
John T. Conroy, Jr.
Wood/IPC Commercial Dept.
John R. Wood Associates, Inc. Realtors
3255 Tamiami Trail North
Naples, FL
Birth Date: June 23, 1937
Trustee
Date Became a Trustee: November 13, 1991
Director or Trustee of the Federated Fund Complex; 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.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue
Suite 1111
Pittsburgh, PA
Birth Date: October 11, 1932
Trustee
Date Became a Trustee: August 26, 1987
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center-Downtown; Hematologist, Oncologist, and Internist, University of
Pittsburgh Medical Center; Member, National Board of Trustees, Leukemia Society
of America.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birth Date: March 16, 1942
Trustee
Date Became a Trustee: November 13, 1991
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation. Previous Positions: Director, VISA
USA and VISA International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation; Director, The Boston Stock
Exchange.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birth Date: June 21, 1935
Trustee
Date Became a Trustee: February 24, 1984
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning. Previous Positions: National
Spokesperson, Aluminum Company of America; television producer; business owner.
Glen R. Johnson
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: May 2, 1929
President
Date Became an Officer: January 8, 1982
Staff member, Federated Securities Corp.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: October 22, 1930
Executive Vice President
Date Became an Officer: June 1, 1995
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Investment Management Company and Federated Investment
Counseling, Federated Global Investment Management Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: October 26, 1938
Executive Vice President and Secretary
Date Became an Officer: June 1, 1995
Executive Vice President and Secretary of the Federated Fund Complex; Executive
Vice President, Secretary and Director, Federated Investors, Inc.; Trustee,
Federated Investment Management Company; Trustee, Federated Investment
Counseling and Director, Federated Global Investment Management Corp.; Director,
Federated Services Company; Director, Federated Securities Corp.
Richard B. Fisher
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: May 17, 1923
Vice President
Date Became an Officer: January 8, 1982
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
<PAGE>
J. Thomas Madden
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: October 22, 1945
Chief Investment Officer
Date Became an Officer: November 19, 1998
Chief Investment Officer of the Trust and various other Funds in the Federated
Fund Complex; Executive Vice President, Federated Investment Counseling,
Federated Global Investment Management Corp., Federated Investment Management
Company and Passport Research, Ltd.; Vice President, Federated Investors, Inc.;
formerly, Executive Vice President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio Management Services Division;
Senior Vice President, Federated Investment Management Company and Passport
Research, Ltd.
Richard J. Thomas
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth Date: June 17, 1954
Treasurer
Date Became an Officer: November 19, 1998
Treasurer of the Federated Fund Complex; Vice President - Funds Financial
Services Division, Federated Investors, Inc.; formerly, various management
positions within Funds Financial Services Division of Federated Investors, Inc.
None of the Officers of the Trust received salaries from the Trust
during the fiscal year ended October 31, 1998.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Trust is not required, and does not intend, to hold regular annual
meetings of shareholders. Shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for the next meeting of
shareholders should send their written proposals to Federated High Income Bond
Fund, Inc., Federated Investors Fund, 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7000, so that they are received within a reasonable time
before any such meeting.
No business other than the matters described above is expected to come
before the Special Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment or postponement
of the Special Meeting, the persons named on the enclosed proxy card will vote
on such matters according to their best judgment in the interests of the Trust.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
September 24, 1999
<PAGE>
FEDERATED STOCK TRUST
Investment Adviser
FEDERATED INVESTMENT MANAGEMENT COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Distributor
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Administrator
FEDERATED SERVICES COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
Federated Stock Trust (the "Trust") hereby appoint Patricia F. Conner, Gail
Cagney, William Haas, Suzanne W. Land and Ann M. Scanlon, or any one of them,
true and lawful attorneys, with the power of substitution of each, to vote all
shares of the Trust which the undersigned is entitled to vote at the Special
Meeting of Shareholders (the "Special Meeting") to be held on November 18, 1999,
at 5800 Corporate Drive, Pittsburgh, Pennsylvania, at 2:00 p.m., and at any
adjournment thereof.
The attorneys named will vote the shares represented by this proxy in accordance
with the choices made on this ballot. If no choice is indicated as to the item,
this proxy will be voted affirmatively on the matters. Discretionary authority
is hereby conferred as to all other matters as may properly come before the
Special Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FEDERATED STOCK
TRUST. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSALS.
By checking the box "FOR" below, you will vote to approve each of the proposed
items in this proxy, and to elect each of the nominees as Trustees of the Trust
For [ ]
Proposal 1 To elect Thomas G. Bigley, Nicholas P. Constantakis, John F.
Cunningham, J. Christopher Donahue, Charles F. Mansfield, Jr., John E.
Murray, Jr. and John S. Walsh as Trustees of the Trust
FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY
TO VOTE [ ]
FOR ALL EXCEPT [ ]
If you do not wish your shares to be voted "FOR"
a particular nominee, mark the "For All Except"
box and strike a line through the name of each
nominee for whom you are NOT voting. Your shares
will be voted for the remaining nominees.
Proposal 2........To make changes to the Trust's fundamental investment
policies:
Approval of all proposed changes to the Trust's fundamental
investment policies
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
To vote against the proposed changes to one or more of the specific
fundamental investment policies, but to approve all others, indicate
the number(s) (as set forth in the Proxy Statement) of the investment
policy(ies) you do not want to change on the line below. Please see
the Notice of the Proxy Statement for the Proposal topics.
Proposal 3 To eliminate certain of the Trust's fundamental investment policies:
Approval of the eight proposed eliminations of the Trust's fundamental
investment policies FOR [ ] AGAINST [ ] ABSTAIN [ ]
To vote against the proposed elimination of one or more of the
specific fundamental investment policies, but to approve the
elimination of the others, indicate the number(s) (as set
forth in the Proxy Statement) of the investment policy(ies)
you do not want to eliminate on the line below. Please see the
Notice of the Proxy Statement for the Proposal topics.
Proposal 4 To approve a clarifying amendment to the Trust's Investment
Advisory Agreement to exclude Rule 12b-1 fees and shareholder
service fees from the expense limitation provisions of the
Agreement
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
Proposal 5: To approve an amendment to the Trust's Declaration of Trust
to permit the Board of Trustees to liquidate assets of the
Trust, its series or classes and distribute the proceeds of
such assets to the holders of such shares representing such
interests, or a class without seeking shareholder approval
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
YOUR VOTE
IS
IMPORTANT
Please
complete,
sign and
return
this card
as soon
as
possible.
Dated
Signature
Signature (Joint Owners)
Please sign this proxy exactly as your name appears on the books of the Trust.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
