1933 Act File No. 33-63527
1940 Act File No. 811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1 on
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FEDERATED EQUITY FUNDS
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Copy to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L. Street, N.W.
Washington, D.C. 20037
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
pursuant to paragraph (b) of Rule 485 on November 24, 1995
(Approximate Date of Proposed Public Offering)
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 that
it elects to register an indefinite amount of securities under the Securities
Act of 1933 and filed the Notice required by that Rule on December 15, 1994 for
Registrant's most recent fiscal year ended October 31, 1994. Therefore, a
filing fee will not be submitted because of Registrant's reliance on Rule 24f-2.
CROSS-REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14
Item of Part A of Form N-14 and Caption Caption or Location in
Prospectus
1.Beginning of Registration Statement
and Outside Front Cover Page
of Prospectus.......................... Cross-Reference Sheet;
Cover Page
2.Beginning and Outside Back Cover
Page of Prospectus.................... Table of Contents
3.Synopsis Information and Risk Factors. Summary; Comparison of
Investment Policies and Risk Factors
4.Information About the Transaction..... Information About the Exchange
5.Information About the Registrant...... Information About the Trust,
the Portfolio, and the Fund
6.Information About the Company
Being Acquired........................ Information About the Trust,
the Portfolio, and the Fund
7.Voting Information.................... Voting Information
8.Interest of Certain Persons
and Experts........................... Not Applicable
9.Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters.................... Not Applicable
Item of Part B of Form N-14 and Caption Caption or Location in Statement
of Additional Information
10.Cover Page .......................... Cover Page
11.Table of Contents ................... Table of Contents
12.Additional Information About the
Registrant...................... Statement of Additional Information
of Federated Capital Appreciation
Fund, dated November 14, 1995
(Revised November 17, 1995)
13.Additional Information About the
Company Being Acquired........... Registration statement of Federated
Exchange Fund, Ltd. dated April 28,
1995
14.Financial Statements................. Annual Report of Federated
Exchange Fund, Ltd. dated December
31, 1994
FEDERATED EXCHANGE FUND, LTD.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
November 24, 1995
Dear Limited Partner:
The Board of Managing General Partners of Federated Exchange
Fund, Ltd. (the "Fund") is pleased to submit for your vote a proposal to
reorganize the Fund into Federated Capital Appreciation Fund, a portfolio
of Federated Equity Funds. We believe that this proposal presents Limited
Partners of the Fund with an exciting opportunity to participate in a new
investment vehicle in which they can purchase additional shares.
The Board of Managing General Partners believes that the
reorganization transaction is in the best interest of the Fund's Limited
Partners for several reasons:
Shares of Federated Capital Appreciation Fund provide shareholders
with an excellent investment opportunity. Limited Partners who
invest may acquire shares without the imposition of a sales load.
In addition, they may participate in a fund that is positioned to
pursue further growth of capital. The objective and policies of
Federated Capital Appreciation Fund, as compared to Federated
Exchange Fund, are fully described in the Prospectus/Proxy
Statement.
Under federal tax law, Federated Exchange Fund would be treated,
and taxed, as a corporation after December 31, 1997. To avoid
corporate income taxation, the Fund must either reorganize as
described in the proxy statement or elect to be treated as a non-
publicly offered regulated investment company. The ability to grow
the investment in the reorganized fund could help achieve economies
of scale, resulting in lower expenses and greater opportunity to
participate in a diversified fund.
The reorganization will be accomplished in a TAX-FREE transaction.
This means that Limited Partners will not recognize gains or losses
on the exchange of Fund shares for shares of Federated Capital
Appreciation Fund, and will carryover their cost basis and holding
period in the shares they receive.
We believe that the reorganization of the Fund presents an
excellent opportunity to the Limited Partners. We have appreciated your
loyalty as an investor in the Fund and are excited to offer you the
benefits of investing in Federated Capital Appreciation Fund.
Your vote on the transaction is critical to its success. The
reorganization will be accomplished only on the affirmative vote of a
majority of the Fund's shareholders. We hope you share our enthusiasm and
will participate by casting your vote in person or by proxy if you are
unable to attend the meeting scheduled for December 21, 1995. Please read
the enclosed Prospectus/Proxy Statement carefully before you vote. If you
have any questions, please feel free to call our Investor Services
representatives at 1-800-245-2423.
Thank you for your participation in the proposed reorganization.
Very truly yours,
FEDERATED EXCHANGE FUND, LTD.
By:
John F. Donahue
Chairman and
Managing General Partner
FEDERATED EXCHANGE FUND, LTD.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF LIMITED PARTNERS
TO LIMITED PARTNERS OF FEDERATED EXCHANGE FUND, LTD.: A Special
Meeting of Limited Partners of Federated Exchange Fund, Ltd. (the "Fund")
will be held at 2 p.m. on December 21, 1995 on the 19th Floor, Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779
for the following purposes:
1. To approve a proposed Agreement and Plan of Exchange between
the Fund and Federated Equity Funds (the "Trust"), on behalf
of its portfolio, Federated Capital Appreciation Fund (the
"Portfolio"), whereby the Trust would acquire all of the
assets of the Fund in exchange for Class A Shares of the
Portfolio to be distributed pro rata by the Fund to its
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limited partners in complete liquidation and dissolution of
the Fund; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
By Order of the
Managing General Partners,
Dated: November 24, 1995 John F. Donahue
President and
Managing General Partner
Limited partners of record at the close of business November 16,
1995, are entitled to vote at the meeting. Whether or not you plan to
attend the meeting, please sign and return the enclosed proxy card. Your
vote is important.
To secure the largest possible representation and to save the
expense of further mailings, please mark your proxy card, sign it, and
return it in the enclosed envelope, which requires no postage if mailed in
the United States. You may revoke your proxy at any time at or before the
meeting or vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
November 24, 1995
Acquisition of the assets of
FEDERATED EXCHANGE FUND, LTD.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-235-4669
By and in exchange for Class A Shares of
FEDERATED CAPITAL APPRECIATION FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-235-4669
This Prospectus/Proxy Statement describes the proposed Agreement
and Plan of Exchange (the "Plan") whereby Federated Equity Funds, a
Massachusetts business trust (the "Trust"), on behalf of its portfolio,
Federated Capital Appreciation Fund (the "Portfolio"), would acquire all of
the assets of Federated Exchange Fund, Ltd., a California limited
partnership (the "Fund"), in exchange for Class A Shares ("Shares") of the
Portfolio to be distributed pro rata by the Fund to its limited partners in
--- ----
complete liquidation and dissolution of the Fund. As a result of the Plan,
each limited partner of the Fund will become the owner of Shares having a
total net asset value equal to the total net asset value of his holdings in
the Fund.
The Trust is an open-end, diversified management investment
company which currently includes three portfolios: Federated Growth
Strategies Fund, Federated Small Cap Strategies Fund, and the Portfolio.
The investment objective of the Portfolio is capital appreciation. The
Portfolio pursues this investment objective by investing at least 65% of
its assets in equity securities, including common stocks, preferred stocks,
and securities (including investment grade debt securities) that are
convertible into common stocks. The investment objective of the Fund is
long-term growth of capital and income, which it pursues by investing
principally in common stocks. For a comparison of the investment policies
of the Portfolio and the Fund, see "Comparison of Investment Policies and
Risk Factors."
This Prospectus/Proxy Statement should be retained for future
reference. It sets forth concisely the information about the Trust and the
Portfolio that a prospective investor should know before investing. This
Prospectus/Proxy Statement is accompanied by the Prospectus of the
Portfolio dated November 14, 1995 (Revised, November 17, 1995), which is
incorporated herein by reference. Statements of Additional Information for
the Portfolio dated November 14, 1995, (relating to the Portfolio's
prospectus of the same date) and November 24, 1995 (relating to this
Prospectus/Proxy Statement) containing additional information have been
filed by the Trust with the Securities and Exchange Commission and are
incorporated herein by reference. Copies of the Statements of Additional
Information may be obtained without charge by writing or by calling the
Trust at the address and telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary...................................... 1
Comparison on Investment Policies and Risk Factors .....5
Information about the Exchange............... 7
Information about the Trust,
the Portfolio and the Fund.................. 14
Voting Information........................... 15
Agreement and Plan of Exchange............... Exhibit A
SUMMARY
ABOUT THE PROPOSED EXCHANGE
The Managing General Partners of Federated Exchange Fund, Ltd. (the "Fund")
have voted to recommend to the limited partners (individually, "Partner" or
collectively, "Partners") of the Fund the approval of an Agreement and Plan of
Exchange (the "Plan"), dated October 10, 1995, whereby Federated Equity Funds, a
Massachusetts business trust (the "Trust"), on behalf of its portfolio,
Federated Capital Appreciation Fund (the "Portfolio"), would acquire all of the
assets of the Fund in exchange for Class A Shares ("Shares") of the Portfolio to
be distributed pro rata by the Fund to its Partners in complete liquidation and
--- ----
dissolution of the Fund (the "Exchange"). As a result of the Exchange, each
Partner of the Fund will become the owner of Shares of the Portfolio having a
total net asset value equal to the total net asset value of his holdings in the
Fund on the date of the Exchange, i.e., the Closing Date, which is scheduled for
January 2, 1996.
As a condition to the Exchange, the Trust and the Fund will receive an
opinion of counsel that the Exchange will be considered a tax-free "Exchange"
under applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), so that no gain or loss will be recognized by the Trust, its
shareholders, the Fund, or its Partners. The tax cost basis of the Portfolio
Shares received by Fund Partners will be the same as the tax cost basis of their
shares in the Fund.
After the Exchange is completed, the Fund will dissolve and deregister as
an investment company under the Investment Company Act of 1940 (the "1940 Act").
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is capital appreciation while the
Fund's investment objective is long-term growth of capital and income. Both the
Portfolio and the Fund pursue their respective investment objectives by
investing in common stocks, preferred stocks, convertible securities, corporate
bonds, notes and warrants, cash and cash items, and repurchase agreements, and
writing call options on securities in their portfolios. The Portfolio is also
permitted to enter into foreign currency transactions, and purchase and sell put
options, financial futures and options on futures, while the Fund is also
permitted to invest in municipal and government obligations. The Fund and the
Portfolio are subject to the same principal risk factors. For additional
information, see "Comparison of Investment Policies and Risk Factors" below.
ADVISORY FEES AND EXPENSE RATIOS
The investment adviser to the Portfolio is Federated Management. The
investment adviser to the Fund is Federated Advisers. Both of these advisers,
which are registered under the Investment Advisers Act of 1940, are subsidiaries
of Federated Investors.
The annual investment advisory fee for the Portfolio is .75% of average
daily net assets. The fee paid by the Portfolio, while higher than the advisory
fees paid by other mutual funds in general, is comparable to fees paid by other
mutual funds with similar objectives and policies. The Portfolio's estimated
total operating expenses for its fiscal year ended October 31, 1996, are 1.15%,
including a 0.75% management (advisory) fee and 0.40% of total other expenses.
The annual investment advisory fee for the Fund is .55% of average daily
net assets plus 4.5% of the gross income of the Fund (excluding capital gains
and losses). The Fund's total operating expenses for its fiscal year ended
December 31, 1994, were 1.063%, including a 0.676% management fee and 0.387% of
total other expenses. The Fund's estimated total operating expenses for its
fiscal year ended December 31, 1995, are 1.015%, including a 0.675% management
fee and 0.34% of total other expenses.
DISTRIBUTION ARRANGEMENTS
Federated Securities Corp. ("FSC"), a subsidiary of Federated Investors, is
the principal distributor for the Portfolio. Under a distribution plan adopted
in accordance with Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), the
Portfolio may pay FSC an amount computed at an annual rate of up to 0.25 of 1%
of average daily net assets to finance any activity which is principally
intended to result in the sale of Shares. However, the Portfolio does not
currently make payments to the distributor or charge a fee under the 12b-1 Plan
for Shares. Before the fee can be incurred, the Board of Trustees of the Trust
must agree to impose the fee and holders of Shares would be notified of the
Portfolio's intention to charge a fee under the 12b-1 Plan. The Fund is not
subject to a 12b-1 Plan.
SHAREHOLDER SERVICES
The Fund has entered into a shareholder services agreement with Federated
Shareholder Services ("FSS"), a subsidiary of Federated Investors, under which
it may pay FSS up to 0.25 of 1% of average daily net assets to obtain certain
personal services for Partners and for the maintenance of Partner accounts. The
Portfolio has not entered into a shareholder services agreement.
ADMINISTRATIVE SERVICES
Federated Administrative Services ("FAS"), a subsidiary of Federated
Investors, provides the Portfolio and the Fund with administrative personnel and
services. FAS provides services to the Portfolio and the Fund under identical
agreements at the annual rate of 0.15% on the first $250 million of average
daily net assets, 0.125% on the next $250 million, 0.10% on the next $250
million and 0.075% on assets in excess of $750 million. The annual
administrative fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period, but
is at least $125,000 per portfolio and $30,000 per each additional class of
shares.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Portfolio and the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT
Federated Services Company, a subsidiary of Federated Investors, is
transfer agent and dividend disbursing agent for the Portfolio and the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, Pittsburgh, Pennsylvania, are the independent auditors
for the Portfolio. Deloitte & Touche, LLP, Boston, Massachusetts, are the
independent auditors for the Fund.
PURCHASE AND REDEMPTION PROCEDURES
If the Exchange is consummated, Partners of the Fund will receive
information shortly after the Closing Date with respect to the various services
provided by the Portfolio, as well as a detailed explanation of the options
available to shareholders for effecting purchases and redemptions of Portfolio
Shares. Any questions about such procedures may be directed to, and assistance
in effecting purchases or redemptions of Portfolio Shares may be obtained from,
FSC at 1-800-235-4669.
Reference is made to the Prospectus of the Portfolio dated November 14,
1995, and the Registration Statement of the Fund dated April 28, 1995, for a
complete description of the purchase and redemption procedures applicable to
purchases and redemptions of Portfolio and Fund shares, respectively, each of
which is incorporated herein by reference thereto. Set forth below is a brief
listing of the more significant differences between the purchase and redemption
procedures of the Portfolio, as compared to the Fund.
Purchases of Portfolio Shares may be made by wire, by check, or through a
financial institution. Additionally, the Portfolio offers a systematic
investment program. The minimum initial investment for Shares is $500, and the
minimum subsequent investment is $100, except in the case of retirement plans,
in which case the minimum initial or subsequent investment is $50. Shares are
sold at net asset value next determined after an order is received, plus a sales
load based on the amount of the transaction. Shareholders who receive Shares
through the Exchange will not be subject to such sales load on any future
purchases.
No Partners have been admitted to the Fund since its organization in 1976.
At that time, a prospective partner who held acceptable securities could
exchange such securities for Fund shares by depositing such securities, along
with appropriate documentation, with the Fund's securities depository, State
Street Bank and Trust Company. The Fund would not accept a deposit of
securities unless the aggregate value of such securities, plus cash, if any,
deposited was at least $25,000, determined as of the date of deposit.
Shares of the Portfolio may be redeemed by mail, by telephone, or through a
financial institution. The Portfolio also offers a systematic withdrawal
program for shareholders with minimum account values of $10,000. Shares are
redeemed at their net asset value next determined after the Portfolio receives
the redemption request.
Shares of the Fund may be redeemed by mail. Shares are redeemed at their
net asset value determined at the close of business on the New York Stock
Exchange on the day of receipt of the written redemption request. The Fund may
redeem its shares wholly or partly in portfolio securities (i.e., redemption in
kind) instead of in cash, and deliver one or more portfolio securities in
satisfaction of the redemption request regardless of which securities were
deposited by the Partner or the composition of the portfolio of the Fund at the
time of redemption. Securities delivered in redemption in kind are valued at
the amount at which they were valued in computing the redemption value of the
Shares redeemed.
EXCHANGE PRIVILEGES
Holders of Portfolio Shares are permitted to exchange all or some of their
Shares for Class A shares of other funds in the Liberty Family of Funds, which
are distributed by FSC. Such exchanges will be effected at net asset value
without the imposition of additional fees. Shareholders using the exchange
privilege must exchange shares having a net asset value equal to the minimum
investment requirements of the fund into which the exchange is being made.
Information with respect to the other funds in the Liberty Family of Funds,
including a prospectus which describes the shares offered thereby, may be
obtained from FSC.
Partners of the Fund may exchange all or some of their shares for shares of
American Leaders Fund, Inc., Money Market Management, Inc., and Fund for U.S.
Government Securities, Inc., each of which is distributed by FSC. Shares with a
net asset value of $2,500 must be exchanged initially, and subsequent exchanges
must be in the minimum amount of $1,000. FSC will provide information with
respect to such funds, including a prospectus which describes the shares offered
thereby.
COMPARATIVE FEE TABLES. Set forth below is comparative fee information for the
Fund and the Portfolio. After giving effect to the Exchange, Partners will be
subject to the fees described for Class A Shares of the Portfolio.
COMPARATIVE FEE TABLE FOR THE FUND AND THE PORTFOLIO
FEDERATED EXCHANGE FEDERATED CAPITAL APPRECIATION FUND
FUND, LTD.
CLASS A SHARESCLASS B SHARESCLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases None 5.50%(1) None None
Maximum Sales Load Imposed
on Reinvested
Dividends (as a percentage
of offering price) None None None None
Contingent Deferred Sales Load
(as a percentage of original
purchase price or
redemption proceeds, as
applicable) None 0.00%(2) 5.50% (2) 1.00%(3)
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee...................0.68% 0.75% 0.75% 0.75%
12b-1 Fees.......................None None 0.75% 0.75%
Other Expenses (after fee
waivers and/or
expense reimbursements).....0.39% 0.40% 0.40% 0.40%
Total Operating Expenses
(after fee waivers and/or
expense reimbursements)..........1.07% 1.15% 1.90% 1.90%
(1) The sales load is not imposed upon shares received by Limited
Partners of Federated Exchange Fund, Ltd. in the proposed
reorganization transaction, and is not imposed on additional purchases
of Class A Shares by such Limited Partners.
(2) Class A Shares purchased with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed
with a sales load and not distributed by Federated Securities Corp.
may be charged a contingent deferred sales charge of 0.50% of 1.00%
for redemptions made within one full year of purchase. For Class B
Shares, the contingent deferred sales charge is 5.50% in the first
year declining to 1.00% in the sixth year and 0.00% thereafter.
(3) The contingent deferred sales charge assessed is 1.00% of the
lesser of the original purchase price or the net asset value of Class
C Shares redeemed within one year of their purchase date.
* Total Operating Expenses for Class A Shares, Class B Shares, and Class
C Shares of Federated Capital Appreciation Fund are estimated based on
average expenses expected to be incurred during the period ending
October 31, 1996. During the course of the period, expenses may be
more or less the average amount shown.
EXAMPLE : An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2) redemption at the end of
the following periods:
1 year 3 years 5 years 10 years
Federated Exchange Fund, Ltd........... $ 11 $ 34 $ 59 $ 131
Federated Capital Appreciation Fund
Class A Shares..................$ 71 $ 90
Class B Shares..................$ 76 $104
Class C Shares..................$ 30 $ 60
COMPARISON OF INVESTMENT POLICIES AND RISK FACTORS
Both the Portfolio and the Fund have similar investment objectives.
The Portfolio seeks capital appreciation, while the Fund seeks long-term
growth of capital and income.
The Portfolio invests at least 65% of its assets in equity securities,
including common stocks, preferred stocks, and securities (including
investment grade debt securities) that are convertible into common stocks.
The Portfolio may also invest in foreign securities, high-yield convertible
securities (commonly referred to as "junk bonds"), and restricted and
illiquid securities; enter into foreign currency transactions, repurchase
agreements, and when-issued and delayed delivery transactions; and purchase
and sell put and call options, financial futures, and options on futures.
The Portfolio may invest up to, but not including, 35% of its assets
in lower-rated convertible, synthetic, and zero coupon convertible
securities. Debt obligations that are not determined to be investment
grade are high-yield, high-risk bonds, typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an
issuer's default. To a greater extent than investment-grade bonds, lower-
rated bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds. The Portfolio may
invest in securities rated in the lowest rating category.
The Fund invests principally in common stocks, but may also invest in
other corporate securities such as preferred stocks, convertible
securities, corporate bonds, notes and warrants, or in municipal and
government obligations, or cash and cash items, including but not limited
to short-term obligations such as certificates of deposit, short-term
notes, and repurchase agreements. Some of the convertible securities in
which the Fund may invest may be high-yield securities (commonly referred
to as "junk bonds"), that are subject to the risks described in the
preceding paragraph. The Fund may invest in securities rated in the lowest
rating category. The Fund may also write call options on portfolio
securities and purchase restricted securities. Under normal circumstances,
the Fund will invest at least 65% of its assets in equity securities.
The principal difference between the Portfolio and the Fund is that
the Portfolio is permitted to invest in foreign securities, purchase and
sell financial futures and options on futures, and enter into foreign
currency transactions. Because the Fund is not permitted to engage in
these activities, the Portfolio is exposed to different types of risk than
the Fund.
Investments in foreign securities, in which the Portfolio is permitted
to invest, are subject to different risks than domestic securities. These
risks include, but are not limited to, the possibility of expropriation,
confiscatory taxation, currency fluctuations, the unavailability of
financial information or the difficulty of interpreting financial
information prepared under foreign accounting standards, less liquidity and
more volatility in foreign securities markets, the impact of political,
social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. Insofar as the Portfolio may invest
in foreign securities, as an operating policy, which may be changed without
shareholder approval, the Portfolio intends to invest not more than 20% of
its assets in foreign securities.
The Portfolio is also permitted to purchase and sell financial futures
and options on futures to hedge against changes in interest rates. There
is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the price of the Portfolio's
securities, causing the futures contract and any related options to react
differently than the Portfolio's securities to market changes. Also, it is
not certain that a secondary market for positions in futures contracts or
for options will exist at all times, and the Portfolio's ability to
establish and close out futures and options positions depends on this
secondary market. Insofar as the Portfolio may invest in foreign currency
transactions, as an operating policy, which may be changed without
shareholder approval, the Portfolio intends to invest not more than 20% of
its assets in foreign transactions.
Finally, the Portfolio is permitted to enter into foreign currency
transactions, such as forward foreign currency exchange contracts, foreign
currency options and foreign currency futures transactions. Thus, changes
in foreign currency exchange rates will affect the Portfolio's net asset
value. If the value of a foreign currency declines against the U.S.
dollar, the value of the Portfolio's assets denominated in that currency
will decrease. Foreign currency options and foreign currency futures
transactions are subject to the same risks that apply to options and
futures generally. In addition, the markets in foreign currency options
and foreign currency futures transactions are relatively new, and the
Portfolio's ability to establish and close out positions on such
transactions is subject to the maintenance of a liquid secondary market.
Although the Portfolio and the Fund invest in many of the same types
of securities, as described above, the percentage of assets that may be
invested in particular securities differs between the funds. Generally,
the Fund may invest in any of the securities described without limitation
as to percentage of assets. The Portfolio is subject to specific
limitations as to the percentage of assets that may be invested in
particular securities. For example, the Portfolio must invest at least 65%
of its assets in equity securities, which means that it cannot invest more
than 35% of its assets in a combination of restricted and illiquid
securities, repurchase agreements, when-issued and delayed delivery
transactions, and other non-equity securities. Among these transactions,
the Portfolio is subject to certain additional restrictions: no more than
10% of the Portfolio's net assets may be invested in restricted securities;
no more than 15% of the Portfolio's net assets may be invested in illiquid
securities; and no more than 20% of total assets may be segregated to
reflect the Portfolio's participation in when-issued or delayed delivery
transactions. Because the Portfolio is subject to limitations on its
investments in various types of securities and the Fund is not subject to
such limitations, the Portfolio may provide investors with additional
protections due to its inability to concentrate investments in certain
types of securities.
The Portfolio's investment objective and policies are more fully
described in its current Prospectus dated November 14, 1995 (Revised,
November 17, 1995), a copy of which accompanies this Prospectus/Proxy
Statement. The Portfolio's investment objective, as described on page 5 of
its current Prospectus, may not be changed without the approval of the
Portfolio's shareholders.
In general, the investment restrictions of the Portfolio and the Fund
are similar, although not identical. Set forth below is a brief summary of
the more significant differences between rights of Partners of the Fund and
shareholders of the Portfolio.
The Portfolio may not sell securities short except under strict
limitations; the Fund may not sell securities short under any circumstance.
Neither the Portfolio nor the Fund may borrow money except as a temporary
measure for extraordinary purposes, in which case the Portfolio may borrow
up to one-third the value of its total assets, while the Fund may borrow up
to 10% of the value of its total assets. The Portfolio may not pledge
assets except to secure permitted borrowings, in which case it may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the borrowing;
the Fund may not pledge assets. Finally, the Portfolio may purchase and
sell puts, calls, straddles, or spreads, or any combination thereof, while
the Fund is prohibited from engaging in such transactions, except that it
may write call options on securities constituting not more than 5% of the
value of its net assets when the Fund owns securities against which the
option is written or owns securities convertible into such securities. The
Portfolio has adopted non-fundamental investment limitations whereby it
will not commit more than 5% of the value of its total assets to premiums
on open option positions.
Reference is hereby made to the Portfolio's Statement of Additional
Information dated November 14, 1995, and the Fund's registration statement
dated April 28, 1995, for a complete description of the investment
restrictions of the Portfolio, and the Fund. Copies of such documents are
available upon request at no charge. See "Information About the Trust, the
Portfolio and the Fund."
INFORMATION ABOUT THE EXCHANGE
BACKGROUND AND REASONS FOR THE PROPOSED ACQUISITION
The Fund was created in 1976 as a tax-free exchange fund that allowed
investors to exchange stock from their own portfolios for shares of a
professionally managed mutual fund. The Fund is organized as a limited
partnership under the laws of the State of California. This form of
organization was chosen because a tax-free exchange of that sort, which is
not available after 1976 under the Code, was available at the time of the
Fund's organization only to mutual funds organized as limited partnerships.
For tax purposes, the Fund is treated as a publicly traded partnership
("PTP") because its shares are considered readily tradable. Most PTPs are
taxed as if they were corporations. A grandfather provision, however,
protects the Fund from corporate income taxation through the end of 1997.
In order to avoid the imposition of corporate income tax on its net income,
the Fund must (1) effect the Exchange; or (2) elect to be treated as a
regulated investment company under the Internal Revenue Code, as amended
(for federal tax purposes), after December 31, 1997. The Fund has
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and intends to maintain such registration
following the reorganization transaction.
The Managing General Partners of the Fund have concluded that it is
desirable to effect the Exchange to relieve some of the difficulties and
expenses experienced by the Partners of the Fund in accounting for their
investments and preparing federal tax returns. The Managing General
Partners also believe that the public offering of Portfolio Shares will
result in certain economies of scale due to a larger asset base. Finally,
the Managing General Partners believe that the Exchange will simplify the
procedures involved in the Fund's administrative operations, and eliminate
certain expenses associated with the limited partnership form of
organization.
The accounting required of an owner of shares of the Portfolio, as a
Massachusetts business trust, is far simpler than the accounting involved
in owning shares of a limited partnership. Because income and gains earned
by the Portfolio would be taxable only when paid out to shareholders as a
dividend (instead of when earned, as with the Fund), a shareholder in the
Portfolio could easily estimate the amount of income from the Portfolio
that he must report for tax purposes by simply referring to the account
statements provided whenever a dividend is paid. By contrast, present
Partners of the Fund cannot determine the amount of income that must be
reported until a Form K-1 is provided by the Fund after the end of the
year.
Accounting for gains and losses realized upon the sale of shares would
also be simplified. A Partner's tax basis in shares of the Fund, like each
Partner's portion of the Fund's income and gains, changes daily according
to the Fund's transactions, and can only be determined after receipt of
Form K-1. The tax basis in shares of the Portfolio, on the other hand,
generally would be unaffected by the operations of the Portfolio unless the
Portfolio paid a distribution from capital rather than from income or
gains, and could readily be estimated at any time from information and
account statements supplied to each shareholder. The Managing General
Partners believe that the Exchange should increase the convenience of
maintaining an investment in the Fund, and could also reduce the costs to
Partners of preparing their tax returns and monitoring their investments.
The Managing General Partners have considered the possibility of
organizing a trust under the laws of other states, including certain states
which, by statute, provide limited liability to trust shareholders. The
Managing General Partners feel, however, that it is in the best interest of
Partners of the Fund to adopt a Massachusetts domicile, largely because the
laws of Massachusetts regarding business trusts are the most developed of
any state and any potential for shareholder liability is extremely remote.
It is expected that some minor additional savings to the Fund may also be
realized through administrative efficiencies because many Federated funds
are organized in the same manner.
The Managing General Partners also believe that the Partners will
realize certain economies of scale due to a larger asset base. This larger
asset base will allow the Portfolio to invest in, and be exposed to, a
greater range of equity issuers. Greater diversification will decrease the
risk and volatility of investment in the Portfolio. In addition, the
larger asset base will allow the Portfolio to participate in securities
transactions involving larger denominations than would be available to the
Fund, thereby reducing transaction costs.
Finally, the Portfolio would not be subject to the legal and
administrative expenses incurred by the Fund in connection with amendments
to the Agreement of Limited Partnership that it is required to file with
the State of California for each substitution of Partners upon transfer of
ownership of shares.
On August 22, 1995, the Board of Trustees of the Trust and the
Managing General Partners of the Fund each met to discuss the above
information, as well as the terms and conditions of the proposed Exchange
and Plan. Since the Trust and the Fund may be deemed affiliates of one
another because they have common Trustees and Managing General Partners,
and certain of the same officers and service providers, the Board of
Trustees of the Trust and the Managing General Partners of the Fund
unanimously approved the proposed Exchange under Rule 17a-8 under the 1940
Act. In accordance with this Rule, the Board of Trustees of the Trust and
the Managing General Partners of the Fund determined that participation in
the transaction is in the best interests of the Trust and the Fund,
respectively, and the Managing General Partners of the Fund determined that
the interests of existing Partners of the Fund will not be diluted as a
result of the Exchange. The Board of Trustees and the Managing General
Partners also approved the Plan, as described below.
DESCRIPTION OF THE PLAN OF EXCHANGE
The Plan provides that the Fund will discharge all of its liabilities
and the Trust, on behalf of the Portfolio, will acquire all of the assets
of the Fund in exchange for Shares of the Portfolio to be distributed pro
---
rata by the Fund to its Partners in complete liquidation and dissolution of
- ----
the Fund on or about . Partners of the Fund will become
shareholders of the Portfolio as of 4:00 (Eastern time) on the Closing Date
and will begin accruing dividends as of such day.
Consummation of the Exchange is subject to the conditions set forth in
the Plan, including receipt of an opinion of counsel in form and substance
satisfactory to the Fund and the Trust, on behalf of the Portfolio, as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Exchange may be abandoned at any time before
or after approval by the Partners of the Fund prior to the Closing Date by
either party if it believes that consummation of the Exchange would not be
in the best interests of its Partners or shareholders.
Federated Management is responsible for the payment of all expenses of
the Exchange incurred by either party, whether or not the Exchange is
consummated. Such expenses include, but are not limited to, legal fees,
registration fees, transfer taxes (if any), the fees of banks and transfer
agents, and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Fund's Partners and the costs of holding the
Special Meeting of Partners.
The foregoing description of the Plan entered into between the Trust,
on behalf of the Portfolio, and the Fund is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto as
Exhibit A and incorporated herein by reference thereto.
DESCRIPTION OF PORTFOLIO SHARES
Shares of the Portfolio to be issued to Partners of the Fund under the
Plan will be fully paid and nonassessable when issued and transferable
without restrictions and will have no preemptive or conversion rights. The
Declaration of Trust of the Portfolio permits it to offer separate series
of shares representing interests in separate portfolios of securities. The
shares in any one portfolio may be offered in separate classes. Currently,
the Trustees have established three classes of shares: Class A Shares,
Class B Shares, and Class C Shares. Class A Shares are generally sold at
net asset value plus an applicable sales load and are redeemed at net asset
value. Class B Shares are sold at net asset value and are redeemed at net
asset value; a contingent deferred sales charge is imposed on certain
shares which are redeemed within six full years of purchase. Class C
shares are sold at net asset value; a contingent deferred sales charge will
be charged on assets redeemed within the first twelve months following
purchase. Partners of the Fund will receive Class A shares of the
Portfolio if the Exchange is consummated. Reference is hereby made to the
Prospectus of the Portfolio provided herewith for additional information
about Shares of the Portfolio.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Exchange, the Trust, on behalf of the Portfolio,
and the Fund will receive an opinion from Hunton & Williams to the effect
that, on the basis of existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), current administrative rules and court
decisions, for federal income tax purposes:
1) The Partnership will recognize no gain or loss on the transfer of
the Assets to the Fund solely in exchange for Stock and the
Fund's assumption of the Partnership's liabilities.
2) The Fund will recognize no gain or loss on the transfer of the
Assets to the Fund solely in exchange for Stock and the Fund's
assumption of the Partnership's liabilities.
3) The Fund's basis in the Assets transferred to the Fund will equal
the basis of the Assets in the hands of the Partnership
immediately prior to the Exchange.
4) The Fund's holding period for the Assets transferred to the Fund
will, in each case, include the period during which the
Partnership held the Assets.
5) The General Partners will recognize no gain or loss on the
redemption of their partnership interests in exchange for a pro
rata portion of each asset held by the Partnership immediately
prior to the Exchange.
6) Each General Partner's aggregate basis in the assets distributed
to it in redemption of its Partnership interest will equal its
adjusted basis in its Partnership interest, after taking into
account the reduction in such basis resulting from the General
Partner's being relieved of its share of Partnership liabilities.
7) Each General Partner's holding period for the assets distributed
to it in redemption of its Partnership interest will include the
Partnership's holding period.
8) The Limited Partners will recognize no gain or loss on the
distribution of the Stock to them in exchange for their
Partnership interests.
9) Each Limited Partner's aggregate basis in the Stock distributed
to him will equal his adjusted basis in his Partnership interest,
after taking into account the reduction in such basis resulting
from the Limited Partner's being relieved of its share of
Partnership liabilities.
10) Each Limited Partner's holding period for the Stock will include
the Partnership's holding period for the Stock, which in turn
will include the period for which the Partnership held the
Assets. To the extent that the Partnership's holding period for
some Assets exceeds one year (long-term Assets) and its holding
period for other Assets does not exceed one year (short-term
Assets), the Limited Partners' holding periods for the Stock will
be in part long-term and in part short-term.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
The Trust is organized as a business trust pursuant to a Declaration
of Trust under the laws of the Commonwealth of Massachusetts while the Fund
is organized as a limited partnership under the laws of the State of
California. In general, the rights of shareholders of the Trust and
Partners of the Fund are similar, although not identical. Set forth below
is a brief summary of the more significant differences between rights of
Partners of the Fund and shareholders of the Portfolio.
The Trust's Declaration of Trust provides that the presence of
the holders of one-fourth of the shares of the Trust constitutes a quorum.
A plurality of votes cast will elect a Trustee, and all other matters will
be decided by a majority of the votes cast and entitled to vote thereon.
Trustees may be removed at any special meeting of shareholders by a vote of
two-thirds of the outstanding shares.
Under the Fund's Agreement of Limited Partnership, a majority of the
outstanding shares will elect the Managing General Partners or terminate
the Partnership. All other actions of Partners, including the removal of
Managing General Partners, requires the lesser of (i) the vote of Partners
holding a majority of the then outstanding shares; or (ii) the vote of
Partners holding 67% or more of the shares represented in person or by
proxy at a meeting at which Partners holding a majority of outstanding
shares are present in person or by proxy.
Under certain circumstances, shareholders of the Portfolio may be held
personally liable as partners under Massachusetts law for acts or
obligations of the Trust on behalf of the Portfolio. To protect
shareholders of the Portfolio, the Trust has filed legal documents with the
Commonwealth of Massachusetts that expressly disclaim the liability of
shareholders of the Portfolio for such acts or obligations of the Trust.
These documents require that notice of this disclaimer be given in each
agreement, obligation, or instrument that the Trust or its Trustees enter
into or sign on behalf of the Portfolio.
In the unlikely event that a shareholder of the Portfolio is held
personally liable for the Trust's obligations on behalf of the Portfolio,
the Trust is required to use the property of the Portfolio to protect or
compensate the shareholder. On request, the Trust will defend any claims
made and pay any judgment against a shareholder of the Portfolio for any
act or obligation of the Trust on behalf of the Portfolio. Therefore,
financial loss resulting from liability as a shareholder of the Portfolio
will occur only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from the assets of the
Portfolio.
Partners of the Fund generally are not personally liable for
liabilities of the Fund. However, if the Fund were unable to pay its
liabilities, recipients of distributions from the Fund could be liable to
certain creditors of the Fund to the extent of such distributions, plus
interest. The Fund will, to the extent of its net assets, indemnify the
Partners or former Partners against any liability which is incurred because
of the receipt of a distribution which has to be returned to creditors in
satisfaction of Fund liability. If the Fund's net assets are insufficient
to indemnify the Partners in full, the Fund will attempt to recover from
other Partners who received such distributions their proportionate share of
such liability. Each Partner agrees to indemnify each other Partner
against such liability to the extent of his proportionate share of such
liability. Each Partner, by becoming a Partner, consents to pro rata
distributions to holders of shares which may constitute, in whole or in
part, returns of contributions with respect to such shares.
CAPITALIZATION
The following table shows the capitalization of the Portfolio and the
Fund as of November 16, 1995 and on a pro forma basis as of that date:
Pro Forma
Portfolio* Fund Combined
Net Assets $0 (A) $100,409,475.22 $100,409,475.22 (A)
$0 (B) $0 $0 (B)
$0 (C) $0 $0 (C)
$0 $0 $
Net Asset
Value Per
Share $0 $90.84 $90.84
Shares
Outstanding 0 (A) 1,105,333.068 1,105,333.068 (A)
0 (B) 0 0 (B)
0 (C) 0 0 (C)
Shares
Authorized Indefinite Indefinite Indefinite
*The Figures for the Portfolio are shown for Class A Shares, Class B
Shares, and Class C Shares where different, although the Exchange involves
issuance of Class A Shares of the Portfolio to the Fund Partners.
INFORMATION ABOUT THE TRUST, THE PORTFOLIO, AND THE FUND
FEDERATED CAPITAL APPRECIATION FUND, A PORTFOLIO OF FEDERATED EQUITY FUNDS
Information about the Trust and the Portfolio is contained in the
Portfolio's Prospectus dated November 14, 1995 (Revised, November 17,
1995), a copy of which is included herewith and incorporated by reference
herein. Additional information about the Trust and the Portfolio is
included in the Portfolio's Statement of Additional Information dated
November 14, 1995 (Revised, November 17, 1995) , which is incorporated
herein by reference. Copies of the Statement of Additional Information,
which has been filed with the Securities and Exchange Commission, may be
obtained without charge by contacting the Trust at 1-800-235-4669 or by
writing the Trust at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Trust, on behalf of the Portfolio, is subject to the
informational requirements of the Securities Act of 1933, the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files
reports and other information with the Securities and Exchange Commission.
Reports, proxy and information statements and other information filed by
the Trust, on behalf of the Portfolio, can be obtained by calling or
writing the Trust and can also be inspected and copied by the public at the
public reference facilities maintained by the Securities and Exchange
Commission in Washington, D.C. located at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following SEC regional offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048; and the Midwest Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Trust, on behalf of the Portfolio, with
the Securities and Exchange Commission under the Securities Act of 1933,
omits certain of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Trust, the Portfolio,
and the shares offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and
each such statement is qualified in its entirety by reference to the copy
of the applicable documents filed with the Securities and Exchange
Commission.
FEDERATED EXCHANGE FUND, LTD.
Information about the Fund may be found in the Fund's Registration
Statement dated April 28, 1995, its Annual Report dated December 31, 1994,
and its Semi-Annual Report dated June 30, 1995, all of which are
incorporated herein by reference. Copies of such documents, which have
been filed with the Securities and Exchange Commission, may be obtained
without charge from the Trust by calling 1-800-235-4669 or by writing to
the Trust at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Fund is subject to the informational requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934, and the
Investment Company Act of 1940, and in accordance therewith files reports
and other information with the Securities and Exchange Commission.
Reports, proxy, and information statements and other information filed by
the Fund can be obtained by calling or writing the Fund and can also be
inspected at the public reference facilities maintained by the Securities
and Exchange Commission at the addresses listed in the previous sections.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Managing General Partners of the Fund of proxies for
use at the Special Meeting of Partners of the Fund (the "Meeting") to be
held on December 21, 1995, and at any adjournment thereof. The proxy
confers discretionary authority on the persons designated therein to vote
on other business not currently contemplated which may properly come before
the Meeting. A proxy, if properly executed, duly returned, and not
revoked, will be voted in accordance with the specifications thereon; if no
instructions are given, such proxy will be voted in favor of the Exchange.
A Partner may revoke a proxy at any time prior to use by filing with the
Secretary of the Fund an instrument revoking the proxy, or by submitting a
proxy bearing a later date, or by attending and voting at the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by Federated Management. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees, and agents of the Fund at no additional cost to the Fund. Such
solicitations may be by telephone or otherwise. Federated Management will
reimburse custodians, nominees, and fiduciaries for the reasonable costs
incurred by them in solicitation materials to the beneficial owners of
shares held of record by such persons.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Managing General Partners of the Fund have fixed the close of
business on November 16, 1995, as the record date for the determination of
Partners entitled to notice of and to vote at the Meeting and any
adjournment thereof. As of the record date, there were 1,105,333.068
shares of the Fund outstanding. Each Fund share is entitled to one vote
and fractional shares have proportionate voting rights. On the record
date, Paulette M. Boiardi, New York, New York, beneficially owned
91,356.7600 shares, or approximately 8.27% of the Fund's outstanding
shares. On such date, no other person owned or record, or to the knowledge
of FSC, beneficially owned, 5% or more of the Fund's outstanding shares.
On the record date, the Managing General Partners and officers of the Fund
as a group owned less than 1% of the outstanding shares of the Fund.
On the record date, the Trustees and officers of the Portfolio as a
group owned less than 1% of the outstanding shares of the Portfolio. On
the record date, no person owned of record, or to the knowledge of FSC,
beneficially owned, 5% or more of a class of shares of the Portfolio.
After giving effect to the Exchange, the following persons of record on the
record date would own 5% or more of the outstanding shares of Class A
Shares, Class B Shares, or Class C Shares, as indicated: [name, address,
percentage of shares class].
The votes of shareholders of the Portfolio are not being solicited
since their approval is not required in order to effect the acquisition.
Approval of the Plan requires the lesser of (i) the vote of Partners
holding a majority of the then outstanding shares; or (ii) the vote of
Partners holding 67% or more of the shares represented in person or by
proxy at a meeting at which Partners holding a majority of outstanding
shares are present in person or by proxy.
OTHER MATTERS
Management of the Fund knows of no other matters that may properly be,
or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
So far as management is presently informed, there is no litigation
pending or threatened against the Trust.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in, and return the enclosed proxy
ballot promptly.
Exhibit A
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE dated October 10, 1995,(the
"Agreement"), among Federated Equity Funds, a Massachusetts business trust
(hereinafter called the "Trust"), on behalf of its portfolio, Federated
Capital Appreciation Fund (hereinafter called the "Acquiring Fund"), and
Federated Exchange Fund, Ltd., a California limited partnership (the
"Acquired Fund").
This Agreement is intended to be and is adopted as a plan of exchange
within the meaning of Section 351 of the United States Internal Revenue
Code of 1986, as amended (the "Code"). The exchange (the "Exchange") will
consist of the transfer of substantially all of the assets of the Acquired
Fund in exchange solely for shares of beneficial interest of the Class A
Shares of the Acquiring Fund (the "Acquiring Fund Shares") and the
distribution, after the Closing Date hereinafter referred to, of the
Acquiring Fund Shares to the limited partners ("Partners") of the Acquired
Fund in liquidation of the Acquired Fund as provided herein, all upon the
terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Trust are registered open-end
management investment companies and the Acquired Fund owns securities which
generally are assets of the character in which the Acquiring Fund is
permitted to invest;
WHEREAS, the Acquired Fund and the Trust are authorized to issue their
shares of beneficial interest; and
WHEREAS, the Managing General Partners, including a majority of the
Managing General Partners who are not "interested persons" (as defined in
the Investment Company Act of 1940 (the "1940 Act")), of the Acquired Fund
have determined that the exchange of all or substantially all of the assets
of the Acquired Fund for Acquiring Fund Shares is in the best interests of
the Acquired Fund and that the interests of the existing Partners of the
Acquired Fund would not be diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act), of the Trust
has determined that the exchange of all or substantially all of the assets
of the Acquired Fund for Acquiring Fund Shares is in the best interests of
the Acquiring Fund;
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund
substantially all of the assets of the Acquired Fund, including all
securities and cash, and the Acquiring Fund agrees in exchange therefor to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3.
Such transaction shall take place at the closing (the "Closing") on the
closing date (the "Closing Date") provided for in paragraph 3.1. In lieu
of delivering certificates for the Acquiring Fund Shares, the Acquiring
Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account
on the stock record books of the Acquiring Fund's transfer agent and shall
deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to State Street
Bank and Trust Company ("State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the
Acquiring Fund, together with proper instructions and all necessary
documents to transfer such assets to the account of the Acquiring Fund,
free and clear of all liens, encumbrances, rights, restrictions and claims.
All cash delivered shall be in the form of currency and immediately
available funds payable to the order of the Custodian for the account of
the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund hereunder. The
Acquired Fund will transfer to the Acquiring Fund any distributions, rights
or other assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such
assets shall be deemed included in assets transferred to the Acquiring Fund
on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable
(but in no event later than 90 days of the Closing Date) (the "Liquidation
Date"), the Acquired Fund will liquidate and distribute pro rata to the
Acquired Fund's Partners of record, determined as of the close of business
on the Closing Date (the "Acquired Fund Partners"), the Acquiring Fund
Shares received by the Acquired Fund pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund's transfer agent to open accounts on the
share record books of the Acquiring Fund's transfer agent in the names of
the Acquired Fund Partners and representing the respective pro rata number
of the Acquiring Fund Shares due such Partners. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on the books of
the Acquired Fund. Share certificates representing interests in the
Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with paragraph 2.3. The Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued
in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the
Closing Date and such later dates, with respect to dissolution and
deregistration of the Acquired Fund, on which the Acquired Fund is
deregistered and dissolved.
1.9 The Acquired Fund shall be deregistered as an investment company
under the 1940 Act and dissolved as a California limited partnership
promptly following the Closing Date and the making of all distributions
pursuant to paragraph 1.5.
2. VALUATION
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
4:00 p.m. (Eastern time) on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures
set forth in the Acquiring Fund's then-current prospectus or statement of
additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the Acquiring
Fund's then-current prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1 by the net asset value of one Acquiring Fund Share determined
in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be January 2, 1996, or such later date as
the parties may mutually agree. All acts taking place at the Closing Date
shall be deemed to take place simultaneously as of the close of business on
the Closing Date unless otherwise provided. The Closing shall be held at
4:00 p.m. (Eastern time) at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779, or such other time and/or place as the
parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading or
the reporting of trading shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 Federated Services Company, as transfer agent for each of the
Acquired Fund and Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the
names and addresses of the Acquired Fund Partners and the number and
percentage ownership of outstanding shares owned by each such Partner
immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, assumption agreements, share
certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring Fund
as follows:
(a) The Acquired Fund is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
California and has power to own all of its properties and assets and to
carry out this Agreement.
(b) The Acquired Fund is registered under the 1940 Act, as an
open-end, diversified, management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of its
Agreement of Limited Partnership or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund
is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business. The
Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein as necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund
at December 31, 1994, has been audited by Deloitte & Touche, LLP,
independent auditors, and has been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statement (a
copy of which has been furnished to the Acquiring Fund) fairly reflects the
financial condition of the Acquired Fund as of such date, and there are no
known contingent liabilities of the Acquired Fund as of such date not
disclosed therein.
(h) Since December 31, 1994, there has not been any material
adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by the Acquiring Fund.
(i) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such
dates shall have been filed, and all Federal and other taxes shall have
been paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to
such returns.
(j) All issued and outstanding shares of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. All of the issued and outstanding shares of
the Acquired Fund will, at the time of the Closing, be held by the persons
and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.3. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquired Fund shares, nor is there outstanding any security convertible
into any of the Acquired Fund shares.
(k) On the Closing Date, the Acquired Fund will have full right,
power and authority to sell, assign, transfer and deliver the assets to be
transferred by it hereunder.
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action on the part of the Acquired Fund's Managing General Partners and,
subject to the approval of the Acquired Fund Partners, this Agreement will
constitute the valid and legally binding obligation of the Acquired Fund
enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto, and to general principles of
equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(m) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (other than information therein that relates
to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 The Trust represents and warrants to the Trust as follows:
(a) The Acquiring Fund is a portfolio of the Trust, which is
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the power to own all of its
properties and assets and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as an open-end,
diversified, management investment company, and such registration has not
been revoked or rescinded and is in full force and effect.
(c) The Trust is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party
or by which it is bound.
(d) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business. The
Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) At the Closing Date, all Federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed shall have
been filed, and all Federal and other taxes shown as due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof.
(g) All issued and outstanding shares of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
(h) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Acquiring Fund's Trustees, and this
Agreement will constitute the valid and legally binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether
the enforceability is considered in a proceeding in equity or at law).
(i) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
(j) The Acquiring Fund has entered into an agreement under which
its investment adviser, Federated Management, will assume the expenses of
the exchange including accountants' fees, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the
costs of preparing, printing, copying and mailing proxy solicitation
materials to the Acquired Fund's Partners and the costs of holding the
Special Meeting of Partners.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Partners to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated
herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund,
in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for Federal
income tax purposes which will be carried over to the Acquiring Fund as a
result of Section 381 of the Code and which will be certified by the
Acquired Fund's President or Vice President and its Treasurer or Assistant
Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in
paragraph 4.1(m), all to be included in a Registration Statement on Form N-
14 of the Acquiring Fund (the "Registration Statement"), in compliance with
the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Partners to
consider approval of this Agreement and the transactions contemplated
herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of the Acquired Fund contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer or Assistant Treasurer of the
Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Fund, to the effect that the
representations and warranties of the Acquired Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquired Fund, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquired Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Partners of the Acquired Fund in
accordance with the provisions of the Acquired Fund's Agreement of Limited
Partnership.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act.
8.5 The Trust and the Acquired Fund shall have received an opinion of
Hunton & Williams substantially to the effect that for Federal income tax
purposes: (1) the general partners will recognize no gain or loss upon the
redemption of their partnership interests in exchange for a pro rata
portion of each asset held by the Acquired Fund immediately prior to the
Exchange; (2) the Acquired Fund will recognize no gain or loss upon the
transfer of the assets to the Acquiring Fund solely in exchange for
Acquiring Fund Shares and the Acquiring Fund's assumption of the Acquired
Fund's liabilities; (3) the Partners will recognize no gain or loss upon
the distribution of the Acquiring Fund Shares to them in exchange for their
Acquired Fund interests; (4) the Acquiring Fund will recognize no gain or
loss upon the transfer of the assets to the Acquiring Fund solely in
exchange for Acquiring Fund Shares and the Acquiring Fund's assumption of
the Acquired Fund's liabilities; (5) the Acquiring Fund's basis in the
assets transferred to the Acquiring Fund will equal the basis of the assets
in the hands of the Acquired Fund immediately prior to the Exchange; (6)
the Acquiring Fund's holding period for the assets transferred to the
Acquiring Fund will, in each case, include the period during which the
Acquired Fund held such assets; (7) each Partner's basis in the Acquiring
Fund Shares distributed to him will equal his adjusted basis in his
Acquired Fund interest immediately prior to the Exchange; (8) each
Partner's holding period for the Acquiring Fund Shares will include the
period during which the Partner was considered to have held the assets
transferred to the Acquiring Fund, provided that the assets were capital
assets; (9) each general partner's basis in the assets distributed to it in
redemption of its Acquired Fund interest will equal its adjusted basis in
its Acquired Fund interest; and (10) each general partner's holding period
for the assets distributed to it in redemption of its Acquired Fund
interest will include the period during which the general partner was
considered to have held the assets, provided that the assets were capital
assets.
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Managing General Partners of
the Acquired Fund or the Board of Trustees of the Acquiring Fund at any
time prior to the Closing Date if circumstances should develop that, in the
opinion of either of such Managing General Partners or Board of Trustees,
make proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the Managing General Partners, trustees,
officers, Partners, or shareholders of the Acquiring Fund or of the
Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Managing General Partners of the Acquired Fund or the
Board of Trustees of the Trust, if, in the judgment of either, such waiver
will not have a material adverse effect on the benefits intended under this
Agreement to the Partners of the Acquired Fund or the shareholders of the
Acquiring Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated
hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition,
warranty or representation, other than as set forth or provided in this
Agreement or as may be set forth in a later writing signed by the party to
be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an
original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Trust and agrees that the obligations assumed by the Trust
pursuant to this Agreement shall be limited in any case to the Acquiring
Fund and its assets and the Acquired Fund shall not seek satisfaction of
any such obligation from the shareholders of the Acquiring Fund, the
trustees, officers, employees or agents of the Trust or any of them.
IN WITNESS WHEREOF, the Trust, on behalf of the Acquired Fund, and the
Acquiring Fund have caused this Agreement and Plan of Exchange to be
executed and attested on its behalf by its duly authorized representatives
as of the date first above written.
Acquired Fund:
FEDERATED EXCHANGE FUND, LTD.
Attest:
/s/Robert C. Rosselot By: /s/John W. McGonigle
Robert C. Rosselot Name: John W. McGonigle
Assistant Secretary Title: Vice President & Secretary
Acquiring Fund:
FEDERATED EQUITY FUNDS, on behalf of its portfolio
FEDERATED CAPITAL
APPRECIATION FUND
Attest:
/s/Robert C. Rosselot By: /s/John W. McGonigle
Robert C. Rosselot Name: John W. McGonigle
Assistant Secretary Title: Vice President & Secretary
STATEMENT OF ADDITIONAL INFORMATION
November 24, 1995
Acquisition of the assets of
FEDERATED EXCHANGE FUND, LTD.
By and in exchange for Class A Shares of
FEDERATED CAPITAL APPRECIATION FUND,
a portfolio of FEDERATED EQUITY FUNDS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Telephone Number: 1-800-235-4669
This Statement of Additional Information dated November 24, 1995 is not a
prospectus. A Prospectus/Proxy Statement dated November 24, 1995 related
to the above-referenced matter may be obtained from Federated Equity
Funds, on behalf of its portfolio, Federated Capital Appreciation Fund,
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSIP 314175100
G01369-01(11/95)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This
Statement of Additional Information should be read in conjunction with
such Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated Capital Appreciation
Fund, a portfolio of Federated Equity Funds, dated November 14, 1995
(Revised November 17, 1995).
2. Registration Statement of Federated Exchange Fund, Ltd. dated
April 28, 1995.
3. Annual Report of Federated Exchange Fund, Ltd., dated December 31,
1994.
4. Semi-Annual Report of Federated Exchange Fund, Ltd., dated June 30,
1995.
The Statement of Additional Information of Federated Capital Appreciation
Fund (the "Portfolio"), a portfolio of Federated Equity Funds (the
"Trust"), is incorporated herein by reference to the Trust's Registration
Statement on Form N-1A (1933 Act File No. 2-91090; 1940 Act File No.
811-4017), which was filed with the Securities and Exchange Commission on
or about August 31, 1995. Copies of this document may be obtained free of
charge from the Portfolio at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, telephone number 1-800-235-4669.
The Registration Statement of Federated Exchange Fund, Ltd. (the "Fund")
dated April 28, 1995, is incorporated herein by reference to Post-
Effective Amendment No. 15 to the Registration Statement of Federated
Exchange Fund, Ltd. on Form N-1A (1940 Act File No. 811-2626. The Annual
Report of the Fund dated December 31, 1994, and the Independent Auditors'
report of Deloitte & Touche LLP, are incorporated herein by reference.
The Annual Report of the Fund was filed with the Securities and Exchange
Commission pursuant to Section 30(b) of the Investment Company Act of 1940
on or about February 24, 1995. Copies of these documents may be obtained
free of charge from the Fund at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, telephone number 1-800-235-4669.
The Semi-Annual Report of the Fund was filed with the Securities and
Exchange Commission pursuant to Section 30(b) of the Investment Company
Act of 1940 on or about August 29, 1995. Copies of these documents may be
obtained free of charge from the Fund at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, telephone number 1-800-235-4669.
FEDERATED EQUITY FUNDS
FORM N-14
PART C - OTHER INFORMATION
Item 15. Indemnification.
Indemnification is provided to Officers and Trustees of the
Registrant pursuant to Section 2 of Article XI of Registrant's
Declaration of Trust. The Investment Advisory Contract between
the Registrant and Federated Advisers ("Adviser") provides that,
in the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties
under the Investment Advisory Contract on the part of Adviser,
Adviser shall not be liable to the Registrant or to any
shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses
that may be sustained in the purchase, holding, or sale of any
security. Registrant's Trustees and Officers are covered by
Directors and Officers and Errors and Omissions Liability
Insurance.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, Officers,
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by Trustees, Officers, or controlling
persons of the Registrant in connection with the successful
defense of any act, suit, or proceeding) is asserted by such
Trustees, Officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for
Trustees, Officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware of the position of the
Securities and Exchange Commission as set forth in Investment
Company Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable
provisions of the Declaration of Trust or otherwise, in the
absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence
of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum
of non-party Trustees who are not interested persons of the
Registrant or (ii) by independent legal counsel in a written
opinion that the indemnitee was not liable for an act of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of duties. The Registrant further undertakes that advancement
of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined
that indemnification is appropriate) against an Officer,
Trustee, or controlling person of the Registrant will not be
made absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses
arising by reason of any lawful advances; or (iii) a majority of
a quorum of disinterested non-party Trustees or independent
legal counsel in a written opinion makes a factual determination
that there is reason to believe the indemnitee will be entitled
to indemnification.
Item 16. Exhibits
(1.1) Conformed copy of Declaration of Trust of the Registrant (1.);
(2.1) Copy of Bylaws of the Registrant (1.);
(2.2) Copy of Amendment No. 2 to Bylaws effective February 2, 1987 (2.);
(2.3) Copy of Amendment No. 3 to Bylaws effective August 25, 1988 (3.);
(3.1) Not Applicable
(4.1) Conformed Copy of Agreement and Plan of Exchange (Included as
Exhibit A to the Proxy Prospectus (Part A) of this
Registration Statement.)+
(5.1) Not Applicable
(6.1) Conformed copy of Investment Advisory Contract of the Registrant,
including exhibit for Federated Capital Appreciation Fund (4.);
(7.1) Conformed copy of Distributor's Contract of the Registrant,
including exhibit for Federated Capital Appreciation Fund (4.);
(8.1) Not Applicable
(9.1) Conformed copy of Custodian Agreement of the Registrant (3.);
(10.1) Conformed copy of Distribution Plan of the Registrant (3.);
(11.1) Conformed copy of Opinion regarding legality of shares being
issued (5);
(12.1) Conformed Copy of Opinion regarding tax consequences of Exchange;+
(13.1) Conformed copy of Agreement for Fund Accounting, Shareholder
Recordkeeping and Custody Services Procurement (3.);
(14.1)Conformed copy of Consent of Independent Auditors;+
(15.1) Not Applicable
(16.1) Conformed copy of Power of Attorney (5);
(17.1) Copy of Notice under Rule 24f-2 (5);
(17.2) Form of Proxy (5);
+ Filed electronically
(1.) Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 on Form N-1A filed on July 9, 1984 (File
Nos.
2-91090 and 811-4017).
(2.) Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 5 on Form N-1A filed on July 21, 1987
(File Nos.
2-91090 and 811-4017).
(3.) Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 20 on Form N-1A filed on December 29, 1994
(File Nos. 2-91090 and 811-4017).
(4.) Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 26 on Form N-1A filed on September 12,
1995 (File Nos. 2-91090 and 811-4017).
(5.) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-14 filed on October 19, 1995
(File Nos. 33-63527 and 811-4017).
Item 17. Undertakings:
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of
a prospectus which is part of this Registration Statement
by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the
information called for by the applicable registration form
for the reofferings by persons who may be deemed
underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as
part of an amendment to the Registration Statement and will
not be used until the amendment is effective, and that in
determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein;
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering to them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, FEDERATED EQUITY FUNDS, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 24th day of
November, 1995.
FEDERATED EQUITY FUNDS
(Registrant)
BY:/s/Robert C. Rosselot
Robert C. Rosselot, Assistant Secretary
Attorney in Fact for John F. Donahue
November 24, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
NAME TITLE DATE
BY:/s/Robert C. Rosselot
Robert C. Rosselot Attorney-in-Fact November 24, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Executive Vice President
David M. Taylor* Treasurer (Principal Financial
and Accounting Officer)
John T. Conroy* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit 14.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Federated Equity Funds on Form N-14 of our report dated February 10, 1995,
appearing in the Annual Report on Form N-1A of the Federated Exchange Fund, Ltd.
for the year ended December 31, 1994 and to the reference to us under the
heading "Independent Auditors" in the Prospectus/Proxy Statement, which is a
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
Exhibit 12.1
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Telephone Number: 804-788-8200
Fax Number: 804-788-8218
October 18, 1995
Federated Exchange Fund, Ltd.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Federated Exchange Fund, Ltd.
Conversion to Federated Capital Appreciation Fund
Gentlemen:
We have acted as counsel to Federated Exchange Fund, Ltd., a
California limited partnership (the "Partnership"), in connection with the
transfer of substantially all of the assets of the Partnership to Federated
Capital Appreciation Fund (the "Fund"), an investment portfolio of Federated
Equity Funds, in exchange solely for capital stock (the "Stock") of the Fund
(the "Exchange"). Immediately prior to the Exchange, the general partners of
the Partnership (the "General Partners") will redeem their Partnership interests
in exchange for a pro rata share of each asset held by the Partnership.
Beginning with the date of the Exchange (the "Exchange Date"), the Fund will
Federated Exchange Fund, Ltd.
October 18, 1995
Page 2
offer its Stock for sale to the public. The Fund will be authorized to issue an
unlimited number of shares of three classes of Stock.
The Partnership is registered under the Investment Company Act of
1940, as amended, as an open-end diversified management investment company. The
Partnership's General Partners consist of several individual managing general
partners and one corporate non-managing general partner. The limited partners
(the "Limited Partners," and together with the General Partners, the "Partners")
consist of 347 individual limited partners. As a group, the initial General
Partners made capital contributions to the Partnership at least equal to one
percent of the total capital contributions made by all partners. No Limited
Partners have been admitted to the Partnership since its organization in 1976.
The Partnership has requested our opinion regarding certain federal
income tax consequences associated with the Exchange. We have reviewed the
Agreement and Plan of Exchange, a draft of the Registration Statement filed on
Form N-14 by Federated Equity Funds relating to the issuance of Stock to the
Public Investors, and such other documents as we have considered necessary in
giving our opinion. In addition, we have, with your permission, assumed the
following:
1. The General Partners hold, in the aggregate, a 1.06% interest in
the Partnership. Immediately prior to the Exchange, the Partnership will
distribute to each General Partner a pro rata share (based on the General
Partner's interest in the net assets of the Partnership) of each asset held by
the Partnership in redemption of such General Partner's Partnership interest.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 3
2. On the Exchange Date, the Partnership will transfer all of its
remaining assets to the Fund (the "Assets") in exchange solely for Stock and the
Fund's assumption of the Partnership's liabilities.
3. Immediate following the Exchange, the Partnership will liquidate,
and will distribute the Stock to the Limited Partners in proportion to, and in
liquidation of, their Partnership interests.
4. Beginning on the Exchange Date, the Fund will offer its Stock for
sale to the public (the "Public Investors"). The Fund has not entered into any
binding agreements for the sale of its shares or rights to acquire such shares,
and cannot anticipate and does not know the number of shares, if any, that may
be sold. If such an offering is made, each Public Investor will acquire its
shares either (i) directly from the Fund or (ii) from an underwriter or dealer
who is acting as an agent of the Fund. Any new funds obtained through the sale
of shares to a Public Investor will be invested promptly in assets that, if held
by the Partnership, would satisfy the requirements set forth in paragraph 26
below.
5. No Stock will be issued for services rendered to or for the
benefit of the Fund.
6. No Stock will be issued for indebtedness of the Fund.
7. The Exchange will occur solely as the result of the Partnership's
decision to transfer the Assets from the Partnership to the Fund. The Exchange
is not the result of the solicitation by any other person.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 4
8. The Partnership will not retain any rights in the Assets
transferred to the Fund.
9. There is no indebtedness between the Fund and the Partnership and
there will be no indebtedness created in favor of the Partnership as a result of
the Exchange.
10. The adjusted basis and fair market value of the Assets to be
transferred by the Partnership to the Fund will, in each case, equal or exceed
the sum of the liabilities to be assumed by the Fund plus any liabilities to
which the Assets are subject.
11. The liabilities of the Partnership to be assumed by the Fund were
incurred in the ordinary course of business and are associated with the assets
to be transferred.
12. The Exchange and the offering of Stock to the Public Investors
will occur pursuant to a written plan approved by the Partners prior to the
Exchange Date.
13. All Assets will be transferred to the Fund on the Exchange Date.
14. All Stock received by the Partnership in the Exchange will be
distributed to the Limited Partners on the Exchange Date.
15. There is no plan or intention on the part of the Fund to redeem
or otherwise reacquire any Stock other than in the normal course of business
operations to the extent required by the Investment Company Act of 1940.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 5
16. The Partnership does not know of any plan or intention on the
part of its Partners to sell or to require the redemption of Stock.
17. At the time of the Exchange, there will be no (i) rights,
warrants, subscriptions, or other agreements with respect to the acquisition or
disposition of shares of the Fund, or (ii) any plan or intention to sell,
exchange, transfer by gift, or otherwise dispose of any shares of the Fund to be
received in the Exchange, other than through redemption in the ordinary course
of business. Immediately after the Exchange, the Partnership and the Public
Investors will own shares in the Fund possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of each other class of stock of
the Fund.
18. The Stock that the Partnership will receive in the Exchange will
have a fair market value approximately equal to the fair market value of the
Assets, less the amount of liabilities, transferred to the Fund.
19. The Stock will be issued in one class on the Exchange Date, but
additional classes of shares (all of which would be voting stock) may be issued
in the future.
20. The Fund will represent a newly formed entity that will be
classified for federal income tax purposes as an association taxable as a
corporation. The Fund will qualify as a regulated investment company that is
treated as a separate corporation for federal income tax purposes under
section 851(h) of the Internal Revenue Code of 1986, as amended (the "Code").
Federated Exchange Fund, Ltd.
October 18, 1995
Page 6
21. The Fund will remain in existence and will retain and use the
Assets transferred to it for investment purposes.
22. There is no plan or intention by the Fund to dispose of Assets
other than in the normal course of its investment activities.
23. The Partnership and the Fund each will pay its own expenses
incurred in connection with the Exchange.
24. The Partnership is not under the jurisdiction of a court in a
case under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a federal or state court, and the Stock received in the
Exchange will not be used to satisfy indebtedness of the Partnership.
25. At all times since the date of organization of the Partnership,
the Partnership interests have been either (i) traded on an established
securities market or (ii) readily tradable on a secondary market. The
Partnership is, and at all times since its organization has been, a publicly
traded partnership within the meaning of Code section 7704.
26. At least 50 percent of the fair market value of the Partnership's
Assets consists of stock or securities at least 80 percent of the fair market
value of the Assets are and will be held for investment by the Partnership at
the time of the Exchange. In addition, not more than 25 percent of the fair
market value of the Partnership's adjusted total assets consists of stock and
securities of any one issuer, and not more than 50 percent of the fair market
value of its adjusted total assets consists of stock or securities of five or
Federated Exchange Fund, Ltd.
October 18, 1995
Page 7
fewer issuers. For purposes of the preceding sentence, (i) the Partnership's
adjusted total assets exclude cash, cash items (including accounts receivable
and cash equivalents), and any United States government securities or other
assets that are acquired for purposes of satisfying the foregoing limitations,
and (ii) all corporations that are members of the same "controlled group" within
the meaning of Code section 1563(a) are treated as a single issuer.
27. The Partnership has never engaged in any trade or business or
undertaken activities other than in its capacity as an investor in its assets.
The Partnership holds all its assets as "capital assets" within the meaning of
Code section 1221.
28. All of the assets of the Partnership have at all times consisted
of "marketable securities" as such term is defined in Code section 731(c).
Substantially all of the assets of the Partnership (by value) have always
consisted of (i) money, (ii) stock in a corporation, (iii) notes, bonds,
debentures, or other evidences of indebtedness, (iv) interest rate, currency, or
equity notional principal contracts, (v) foreign currencies, (vi) interests in
or derivative financial instruments (including options, forward or futures
contracts, short positions, and similar financial instruments) in any asset
described in clauses (i) through (v), or (vi) any combination of the foregoing.
None of the Partnership's assets ever has consisted of interests in other
partnerships.
29. None of the Partners has or will have a negative capital account.
30. No assets were contributed by the Partners to the Partnership
during the five years preceding the Exchange Date.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 8
31. None of the Partnership's assets will consist of "market discount
bonds" as defined in Code section 1276 with respect to which market discount has
accrued but has not yet been taken into income by the Partnership.
32. None of the Partnership's assets constitutes "qualified
replacement property" subject to the provisions of Code section 1042(e), which
generally relates to sales of stock to employee stock ownership plans.
Based on the assumptions and facts set forth above, we are of the
opinion that, under existing law, for federal income tax purposes:
(a) The Partnership will recognize no gain or loss on the transfer of
the Assets to the Fund solely in exchange for Stock and the Fund's
assumption of the Partnership's liabilities.
(b) The Fund will recognize no gain or loss on the transfer of the
Assets to the Fund solely in exchange for Stock and the Fund's assumption
of the Partnership's liabilities.
(c) The Fund's basis in the Assets transferred to the Fund will equal
the basis of the Assets in the hands of the Partnership immediately prior
to the Exchange.
(d) The Fund's holding period for the Assets transferred to the Fund
will, in each case, include the period during which the Partnership held
the Assets.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 9
(e) The General Partners will recognize no gain or loss on the
redemption of their partnership interests in exchange for a pro rata
portion of each asset held by the Partnership immediately prior to the
Exchange.
(f) Each General Partner's aggregate basis in the assets distributed
to it in redemption of its Partnership interest will equal its adjusted
basis in its Partnership interest, after taking into account the reduction
in such basis resulting from the General Partner's being relieved of its
share of Partnership liabilities.
(g) Each General Partner's holding period for the assets distributed
to it in redemption of its Partnership interest will include the
Partnership's holding period.
(h) The Limited Partners will recognize no gain or loss on the
distribution of the Stock to them in exchange for their Partnership
interests.
(i) Each Limited Partner's aggregate basis in the Stock distributed
to him will equal his adjusted basis in his Partnership interest, after
taking into account the reduction in such basis resulting from the Limited
Partner's being relieved of its share of Partnership liabilities.
(j) Each Limited Partner's holding period for the Stock will include
the Partnership's holding period for the Stock, which in turn will include
the period for which the Partnership held the Assets. To the extent that
the Partnership's holding period for some Assets exceeds one year
Federated Exchange Fund, Ltd.
October 18, 1995
Page 10
(long-term Assets) and its holding period for other Assets does not exceed
one year (short-term Assets), the Limited Partners' holding periods for the
Stock will be in part long-term and in part short-term.
This opinion is limited to the federal income tax matters addressed
herein, and we neither express nor imply any other opinion relating to the
Exchange, including, but not limited to, the validity of the transfer of the
Assets from the Partnership to the Fund and the issuance of the Stock by the
Fund to the Partnership and to the Public Investors. This opinion letter is
solely for the information and use of the addressee and may not be relied upon
for any purpose by any other person without our express written consent.
Very truly yours,
