1933 Act File No. 33-
1940 Act File No. 811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 thirty days
after it is filed pursuant to Rule 488.
(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
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
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 a.m. on December , 1995 at Room , Federated
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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 limited partners in complete
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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 John F. Donahue
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President and
Managing General Partner
Limited partners of record at the close of business October , 1995,
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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
[DATE]
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
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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
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, 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 (relating to
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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.................. 13
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
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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
.
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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. 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 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.
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 debt
securities) that are convertible into common stocks. The Portfolio may also
invest in foreign securities, high-yield corporate debt obligations, 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 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. The
Fund may also write call options on portfolio securities and purchase restricted
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.
The Portfolio's investment objective and policies are more fully described
in its current Prospectus dated November 14, 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 25% of the value of its net assets under certain
circumstances.
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 after December 31, 1997.
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
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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 October 10, 1995 and on a pro forma basis as of that date:
Pro Forma
Portfolio* Fund Combined
Net Assets $0(A) $97,006,383.72 $97,006,383.72(A)
$0(B) $0 $0(B)
$0(C) $0 $0(C)
$0 $0 $
Net Asset
Value Per
Share $0 $0 $86.43
Shares
Outstanding 0 (A) 1,122,429.502 1,122,429.502 (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, 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, 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 , 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 , 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 shares of the Fund outstanding. Each
Fund share is entitled to one vote and fractional shares have proportionate
voting rights. On the record date, [name, address], beneficially owned
shares, or approximately % 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 , or such later date as the
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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:
By:
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:
By:
Robert C. Rosselot Name: John W. McGonigle
Assistant Secretary Title: Vice President & Secretary
STATEMENT OF ADDITIONAL INFORMATION
[DATE]
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 is not a prospectus.
-----------
A Prospectus/Proxy Statement dated related to the above-referenced
--------
matter may be obtained from Federated Equity Funds, on behalf of its portfolio,
Federated Capital Appreciation Fund, 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.
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.
The shares of Federated Capital Appreciation Fund (the "Fund") represent
interests in a diversified investment portfolio of Federated Equity Funds, an
open-end management investment company (a mutual fund). The Fund invests
primarily in equity securities that offer opportunities for capital
appreciation.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund. Keep
this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated , 1995, with
---------------
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information, which is in paper form only, or a paper copy of this prospectus, if
you have received your prospectus electronically, free of charge by calling 1-
800-235-4669. To obtain other information or to make inquiries about the Fund,
contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Dated , 1995
-------------
SUMMARY OF FUND EXPENSES 1 HOW TO REDEEM SHARES 23
CLASS A SHARES 1 SPECIAL REDEMPTION FEATURES 24
SUMMARY OF FUND EXPENSES 3 CONTINGENT DEFERRED SALES CHARGE
25
CLASS B SHARES 3
ELIMINATION OF CONTINGENT
SUMMARY OF FUND EXPENSES 5
DEFERRED SALES CHARGE 26
CLASS C SHARES 5 ACCOUNT AND SHARE INFORMATION 27
SYNOPSIS 7
LIBERTY FAMILY OF FUNDS 8
FEDERATED LIFETRACKTM PROGRAM
(CLASS A SHARES AND CLASS C
SHARES) 9
INVESTMENT INFORMATION 10
INVESTMENT OBJECTIVE 10
INVESTMENT POLICIES 10
PORTFOLIO TURNOVER 15
INVESTMENT LIMITATIONS 16
NET ASSET VALUE 16
INVESTING IN THE FUND 18
HOW TO PURCHASE SHARES 18
INVESTING IN CLASS A SHARES 18
INVESTING IN CLASS B SHARES 20
INVESTING IN CLASS C SHARES 21
SPECIAL PURCHASE FEATURES 21
EXCHANGE PRIVILEGE 22
TRUST INFORMATION 27
MANAGEMENT OF THE TRUST27
DISTRIBUTION OF SHARES 29
ADMINISTRATION OF THE FUND 30
EXPENSES OF THE FUND AND CLASS A
SHARES, CLASS B SHARES, AND
CLASS C SHARES 31
BROKERAGE TRANSACTIONS 31
SHAREHOLDER INFORMATION 31
VOTING RIGHTS 31
MASSACHUSETTS PARTNERSHIP LAW 32
TAX INFORMATION 32
FEDERAL INCOME TAX 32
PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES 32
PERFORMANCE INFORMATION 33
APPENDIX 34
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable) (1)..........
-----
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2)............................. %
----
12b-1 Fee (3)................................................. %
----
Total Other Expenses (after expense reimbursement)............ %
----
Shareholder Services Fee ......................... %
----
Total Class A Shares Operating Expenses (4) ........... %
----
(1)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 of for redemptions made
---- -----
within one full year of purchase. See "Contingent Deferred Sales
Charge."
(2)The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The
maximum management fee is .
-----
(3)The Class A Shares has no present intention of paying or accruing the
12b-1 fee during the fiscal year ending October 31, 1996. If the Class
A Shares were paying or accruing the 12b-1 fee, the Class A Shares would
be able to pay up to of its average daily net assets for the 12b-1
-----
fee. See "Trust Information."
(4)The Total Class A Shares Operating Expenses are estimated to be %
---
absent the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating expenses.
*Total Class A Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending October 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
EXAMPLE.................... 1 year 3 years
You would pay the following expenses on a
$1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $ $
-- --
You would pay the following expenses on the
same
investment, assuming no redemption .. $ $
-- --
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS A SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1995.
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price)........................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable) (1)..........
-----
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2)............................. %
----
12b-1 Fee..................................................... %
----
Total Other Expenses (after expense reimbursement)............ %
----
Shareholder Services Fee ......................... %
----
Total Class B Shares Operating Expenses (3) (4) ....... %
----
(1)The contingent deferred sales charge is in the first year
-----
declining to in the sixth year and 0.00% thereafter. (See
-----
"Contingent Deferred Sales Charge.")
(2)The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The
maximum management fee is .
-----
(3)Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4)The Total Class B Shares Operating Expenses are estimated to be %
----
absent the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating expenses.
*Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending October 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
EXAMPLE.................... 1 year 3 years
You would pay the following expenses on a
$1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $ $
-- ---
You would pay the following expenses on the
same
investment, assuming no redemption .. $ $
-- ---
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS B SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1995.
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable) (1)..........
-----
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2)............................. %
----
12b-1 Fee..................................................... %
----
Total Other Expenses (after expense reimbursement)............ %
----
Shareholder Services Fee ......................... %
----
Total Class C Shares Operating Expenses (3) ........... %
----
(1)The contingent deferred sales charge assessed is of the lesser of
-----
the original purchase price or the net asset value of Shares redeemed
within one year of their purchase date. For a more complete
description, see "Contingent Deferred Sales Charge."
(2)The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The
maximum management fee is .
------
(2)The Total Class C Shares Operating Expenses are estimated to be %
----
absent the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating expenses.
*Total Class C Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending October 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
EXAMPLE.................. 1 year 3 years
You would pay the following expenses on a
$1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $ $
-- --
You would pay the following expenses on the
same
investment, assuming no redemption .. $ $
-- --
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS C SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1995.
SYNOPSIS
Federated Capital Appreciation Fund (the "Fund") is an investment portfolio of
Federated Equity Funds (the "Trust"). The Trust was established as a business
trust under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated April 17, 1984. The Fund was created for the purpose
of soliciting the shareholders of Federated Exchange Fund, Ltd., a California
Limited Partnership, to exchange their partnership interests for shares of
beneficial interest in the Class A Shares of the Fund. Until this transaction
is completed, or until management of the Fund determines that it will abandon
its plan to acquire the assets of Federated Exchange Fund, Ltd. in a
reorganization transaction, shares of the Fund will not be available for public
investment. The Fund's address is Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779.
The Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. With respect
to this Fund, as of the date of this prospectus, the Board of Trustees (the
"Trustees") has established three classes of shares, known as Class A Shares,
Class B Shares, and Class C Shares (referred to as "Shares," individually and
collectively as the context requires).
Shares of the Fund are designed primarily for individuals and institutions
seeking capital appreciation through a professionally managed, diversified
portfolio consisting primarily of equity securities.
For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1,500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.
Class A Shares are generally sold at net asset value plus an applicable sales
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares." Class A Shares are sold and redeemed at net asset
value for trust departments, investment advisers, and shareholders who receive
Shares in the reorganization of Federated Exchange Fund, Ltd., described above.
Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."
Federated Management is the investment adviser (the "Adviser") to the Fund and
receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including investing in convertible securities and zero coupon convertible
securities, entering into repurchase agreements, investing in when-issued and
delayed delivery securities, lending portfolio securities, the purchasing or
writing of put and call options, the purchasing and selling of financial futures
and options on futures, and investing in restricted and illiquid securities,
foreign securities and high yield corporate debt obligations. These risks are
described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspaper under "Federated Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
o American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital primarily
through equity securities;
o Federated Bond Fund, providing as high a level of current income as is
consistent with the preservation of capital by investing primarily in a
portfolio of investment grade bonds;
o Federated Growth Strategies Fund, providing appreciation of capital
through equity securities of companies with prospects for above-average
growth in earnings and dividends, or of companies where significant
fundamental changes are taking place;
o Federated Small Cap Strategies Fund, providing appreciation of capital
through common stocks of small and medium sized companies;
o Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
o International Equity Fund, providing long-term capital growth and
income through international securities;
o International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
o Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
o Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
o Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
o Liberty Utility Fund, Inc., providing current income and long-term
growth of income, primarily through electric, gas, and communications
utilities;
o Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal through investment grade
securities;
o Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
o Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and personal income taxes imposed by the
state of Michigan and Michigan municipalities, primarily through Michigan
municipal securities;
o Pennsylvania Municipal Income Fund, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the Commonwealth of Pennsylvania, primarily through Pennsylvania
municipal securities;
o Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
o Tax-Free Instruments Trust, providing current income consistent with
the stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
o World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
FEDERATED LIFETRACKTM PROGRAM (CLASS A SHARES AND CLASS C SHARES)
The Fund is also a member of the Federated LifeTrackTM Program sold through
financial representatives. Federated LifeTrackTM Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under Federated
LifeTrackTM Program, employers or plan trustees may select a group of investment
options to be offered in a plan which also uses Federated LifeTrackTM Program
for recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of Federated LifeTrackTM
Program, exchanges may readily be made between investment options selected by
the employer or a plan trustee. For further information about participating in
the Federated LifeTrackTM Program, please contact an investment professional or
the Fund at the address referenced in the Synopsis of this prospectus.
The other funds participating in the Federated LifeTrackTM Program are: American
Leaders Fund, Inc., Automated Cash Management Trust, Automated Government Cash
Reserves, Automated Government Money Trust, Automated Treasury Cash Reserves,
Capital Preservation Fund, Federated ARMs Fund, Federated Bond Fund, Federated
GNMA Trust, Federated Growth Strategies Fund, Federated High Yield Trust,
Federated Income Trust, Federated Managed Aggressive Growth Fund, Federated
Managed Growth and Income Fund, Federated Managed Growth Fund, Federated Managed
Income Fund, Federated Max Cap Fund, Federated Mini Cap Fund, Federated Mid
Cap Fund, Federated Short-Term Income Fund, Federated Stock Trust, Federated
U.S. Government Securities Fund 1-3 Years, Federated U.S. Government Securities
Fund 2-5 Years, Fortress Utility Fund, Inc., Fund for U.S. Government
Securities, Inc., Intermediate Income Fund, International Equity Fund,
International Income Fund, Liberty Equity Income Fund, Inc., Liberty High Income
Bond Fund, Inc., Liberty Utility Fund, Inc., and Stock and Bond Fund, Inc.
With respect to Class A Shares, no sales load is imposed on purchases made by
qualified retirement plans with over $l million invested in funds participating
in the Federated LifeTrackTM Program.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its objectives by
investing at least 65% of its assets in equity securities. Equity securities
include common stocks, preferred stocks, and securities (including debt
securities) that are convertible into common stocks. The portion of the Fund's
total assets invested in common stocks, preferred stocks, and convertible
securities will vary according to the Fund's assessment of market and economic
conditions and outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
offer significant potential for capital appreciation based upon factors such as
price/cash flow, price/book value, and projected earnings growth. The Fund may
also invest in the securities of companies involved in mergers or restructuring,
and may invest up to 20% of its total assets in foreign securities.
COMMON STOCK. As described above, the Fund invests primarily in equity
securities. As with other mutual funds that invest primarily in equity
securities, the Fund is subject to market risks. That is, the possibility
exists that common stocks will decline over short or even extended periods of
time, and the United States equity market tends to be cyclical, experiencing
both periods when stock prices generally increase and periods when stock prices
generally decrease. However, since the Fund invests in growth-oriented equity
securities, there are some additional risk factors associated with investment in
the Fund. Growth-oriented stocks may include issuers with smaller
capitalization. Small and medium capitalization stocks have historically been
more volatile in price than larger capitalization stocks, such as those included
in the Standard & Poor's 500 Index. This is because, among other things,
smaller companies have a lower degree of liquidity in the equity market and tend
to have a greater sensitivity to changing economic conditions. That is, the
stock of small and medium capitalization companies may decline in price as the
price of large company stocks rise, or vice versa. Therefore, investors should
expect that the Fund will be more volatile than, and may fluctuate independently
of, broad market indices such as the Standard & Poor's 500 Index.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Fund
invests in convertible bonds rated "B" or higher by Standard & Poor's Rating
Group ("Standard & Poor's"), or Moody's Investors Service, Inc. ("Moody's") at
the time of investment, or if unrated, of comparable quality. If a convertible
bond is rated below "B" according to the characteristics set forth here after
the Fund has purchased it, the Fund is not required to drop the convertible bond
from the portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment characteristics of
the convertible security as a fixed-income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are debt
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero coupon
convertible securities are convertible into a specific number of shares of the
issuer's common stock. In addition, zero coupon convertible securities usually
have put features that provide the holder with the opportunity to sell the bonds
back to the issuer at a stated price before maturity. Generally, the prices of
zero coupon convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
FOREIGN SECURITIES. The Fund reserves the right to invest up to 20% of its
assets in foreign debt and equity securities. These securities may be either
dollar-denominated or denominated in foreign currencies. Investments in foreign
securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include 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. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The
Adviser will consider these and other factors before investing in foreign
securities and will not make such investments unless, in its opinion, such
investments will meet the Fund's standards and objectives.
FOREIGN CURRENCY TRANSACTIONS. The Fund may enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
CURRENCY RISKS.. To the extent that debt securities purchased by the
Fund are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset value;
the value of interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if any, to be
distributed to shareholders by the Fund. If the value of a foreign
currency rises against the U.S. dollar, the value of the Fund's assets
denominated in that currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. dollar, the value of the
Fund's assets denominated in that currency will decrease.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in
a particular currency in an amount in excess of the Fund's assets denominated in
that currency. The Fund will not invest more than 20% of its total assets in
forward foreign currency exchange contracts.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the
value of its total assets in corporate debt obligations that are not investment
grade bonds or are not rated but are determined by the Adviser to be of
comparable quality. Securities which are rated BBB or lower by Standard & Poor's
or Baa or lower by Moody's either have speculative characteristics or are
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligations. A description of the rating
categories is contained in the Appendix to this Prospectus. There is no lower
limit with respect to rating categories for securities in which the Fund may
invest.
Corporate 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 high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its assets in
corporate debt obligations that are not investment-grade bonds (excluding
securities convertible into equity securities) during the current fiscal year.
The Adviser attempts to reduce the risks described above through diversification
of the portfolio and by credit analysis of each issuer as well as by monitoring
broad economic trends and corporate and legislative developments.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write call options on securities either held in its
portfolio or for which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in interest rates. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, much depends on the ability of the Adviser to
predict market conditions based upon certain economic analysis and
factors. There is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract
and any related options to react differently than the portfolio
securities to market changes. In addition, the Adviser could be incorrect
in its expectations about the direction or extent of market factors such
as interest rate movements. In these events, the Fund may lose money on
the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Adviser
will consider liquidity before entering into options transactions, there
is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures
and options positions depends on this secondary market.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933, as
amended. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objectives and policies but which
are subject to restriction on resale under federal securities law. The Fund will
limit investments in illiquid securities, including certain restricted
securities determined by the Trustees not to be liquid, non-negotiable time
deposits and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
TEMPORARY INVESTMENTS. The Fund may also invest temporarily, in amounts of 35%
or less of the Fund's assets, in cash and cash items during times of unusual
market conditions to maintain liquidity. Cash items may include the following
short-term obligations:
o commercial paper and Europaper (dollar denominated commercial paper
issued outside the United States);
o instruments of domestic and foreign banks and savings associations
(such as certificates of deposit, demand and time deposits, savings
shares, and bankers' acceptances);
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement, if the Adviser deems
it appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities, on a short-term or a long-term basis, up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that the Fund may borrow up to one-
third of the value of its total assets and pledge up to 10% of the
value of those assets to secure such borrowings;
o sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its
net assets is held as collateral for those positions;
o lend any of its assets except portfolio securities up to one-third of
the value of its total assets;
o underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933, as amended, in connection
with the sale of restricted securities which the Fund may purchase
pursuant to its investment objectives, policies, and limitations; or
o with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in securities of any one issuer (other than
cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, and repurchase
agreements collateralized by such securities) or acquire more than 10%
of any class of voting securities of any one issuer. For these
purposes, the Fund takes all common stock and all preferred stock of an
issuer each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
o invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations;
o commit more than 5% of the value of its total assets to premiums on
open put option positions; or
o invest more than 5% of its total assets in warrants.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
This prospectus offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and which
bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales loads. See "Reducing or
Eliminating the Sales Load." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased, as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:
Sales Load as Sales Load as Dealer Concession
a Percentage of a Percentage of as a Percentage
Public Offering Net Amount of Public
Amount of Transaction Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
*See sub-section entitled "DEALER CONCESSION."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, to "wrap accounts" or similar programs for the benefit of clients of
financial institutions under which clients pay fees to such financial
institutions, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser,
wrap account, or retirement plan may be charged an additional service fee by
that institution. In addition, shareholders who received Class A Shares through
the exchange of interests in Federated Exchange Fund, Ltd. through the tax-free
reorganization of the partnership may purchase Class A Shares without the
imposition of a sales charge.
No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated LifeTrackTM Program.
DEALER CONCESSION. For sales of Class A Shares, a dealer will normally receive
up to 90% of the applicable sales load. Any portion of the sales load which is
not paid to a dealer will be retained by the distributor. However, the
distributor, may offer to pay dealers up to 100% of the sales load retained by
it. Such payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales load; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price over
the first year following the purchase. Such payments are based on the original
purchase price of Shares outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
Until further notice, the entire amount of the applicable sales load will be
reallowed to dealers. In addition, the distributor will pay dealers additional
bonus payments in an amount equal to 0.50 of 1.00% of the public offering price
of the Shares sold.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single master
accounts. However, certain institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Shares in a fiduciary, agency, custodial, or
similar capacity may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
REDUCING OR ELIMINATING THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A Shares
through:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales load paid. The Fund will combine purchases of
Class A Shares made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales load. In
addition, the sales load, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales load reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase price of which includes a
sales load. For example, if a shareholder concurrently invested $30,000 in one
of the other funds in the Liberty Family of Funds with a sales load, and $20,000
in this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares of the funds in the Liberty Family of Funds (excluding money market
funds) over the next 13 months, the sales load may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of the
total amount intended to be purchased in escrow (in shares) until such purchase
is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE. If Class A Shares in the Fund have been redeemed, the
shareholder has the privilege, within 120 days to reinvest the redemption
proceeds at the next-determined net asset value without any sales load.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Class A Shares in the Fund, there may be
tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering, as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge - Class
B Shares," a contingent deferred sales charge may be applied by the distributor
at the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES. Class B Shares will automatically convert into
Class A Shares on or around the end of the month eight full years after the
purchase date, except as noted below, and will no longer be subject to a
distribution services fee (see "Distribution of Shares"). Such conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. Class B Shares acquired by
exchange from Class B Shares of another fund in the Liberty Family of Funds will
convert into Class A Shares based on the time of the initial purchase. For
purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class
A Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge - Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. An investor may call his
financial institution (such as a bank or an investment dealer) to place an order
to purchase Shares. Orders placed through a financial institution are considered
received when the Fund is notified of the purchase order or when payment is
converted into federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be purchased at that day's price. Purchase orders through other
financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may charge
additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE. Once an account has been established, Shares may be
purchased by wire by calling the Fund. All information needed will be taken over
the telephone, and the order is considered received immediately. Payment for
purchases which are subject to a sales load must be received within three
business days following the order. Payment for purchases on which no sales load
is imposed must be received before 3:00 p.m. (Eastern time) on the next business
day following the order. Federal funds should be wired as follows: State Street
Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK. Once an account has been established, Shares may be
purchased by sending a check made payable to the name of the Fund (designate
class of Shares and account number) to: Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales load, if applicable. Shareholders should
contact their financial institution or the Fund to participate in this program.
RETIREMENT PLANS. Fund Shares can be purchased as an investment for retirement
plans or IRA accounts. For further details, contact the Fund and consult a tax
adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES. Class A shareholders may exchange all or some of their Shares
for Class A Shares of other funds in the Liberty Family of Funds at net asset
value. Shareholders of Class A Shares may also exchange into certain other
Federated Funds (as defined in the "Synopsis" of this prospectus) which are sold
with a sales load different from that of the Fund's or with no sales load, and
which are advised by subsidiaries or affiliates of Federated Investors. These
exchanges are made at net asset value plus the difference between the Fund's
sales load already paid and any sales load of the Federated Fund into which the
Shares are to be exchanged, if higher. Neither the Fund nor any of the funds in
the Liberty Family of Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange their shares in the
Federated Funds for Class A Shares. Participants in a retirement plan under the
Federated LifeTrackTM Program may exchange all or some of their Shares for Class
A Shares of other funds offered under the plan at net asset value.
CLASS B SHARES. Class B shareholders may exchange all or some of their Shares
for Class B Shares of other funds in the Liberty Family of Funds. (Not all funds
in the Liberty Family of Funds currently offer Class B Shares. Contact your
financial institution regarding the availability of other Class B Shares in the
Liberty Family of Funds). Exchanges are made at net asset value without being
assessed a contingent deferred sales charge on the exchanged Shares. To the
extent that a shareholder exchanges Shares for Class B Shares in other funds in
the Liberty Family of Funds, the time for which the exchanged-for Shares are to
be held will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the applicable holding period. For more information, see
"Contingent Deferred Sales Charge."
CLASS C SHARES. Class C shareholders may exchange all or some of their Shares
for Class C Shares in other funds in the Liberty Family of Funds at net asset
value without a contingent deferred sales charge. (Not all funds in the Liberty
Family of Funds currently offer Class C Shares. Contact your financial
institution regarding the availability of other Class C Shares in the Liberty
Family of Funds.) Participants in a retirement plan under Federated LifeTrackTM
Program may exchange some or all of their Shares for Class C Shares of other
funds offered under their plan at net asset value without a contingent deferred
sales charge. To the extent that a shareholder exchanges Shares for Class C
Shares in other funds in the Liberty Family of Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for which
exchanged-from Shares were held for purposes of satisfying the applicable
holding period. For more information, see "Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road - 2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for retirement plans participating in the Federated
LifeTrackTM Program should be given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8000, Boston, Massachusetts
02266-8000 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrackTM Program will be governed by the
requirements of the respective plans.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares of the Fund may be
redeemed by calling your financial institution to request the redemption. Shares
will be redeemed at the net asset value, less any applicable contingent deferred
sales charge next determined after the Fund receives the redemption request from
the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions (such as banks) must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions. Customary fees
and commissions may be charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any amount by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds will be mailed in
the form of a check, to the shareholder's address of record or by wire transfer
to the shareholder's account at a domestic commercial bank that is a member of
the Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, Massachusetts 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.
If you are requesting a redemption of any amount to be sent to an address other
than that on record with the Fund, or a redemption payable to a third party,
then all signatures appearing on the written request must be guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM. Shareholders who desire to receive payments of a
predetermined amount not less than $100 may take advantage of the Systematic
Withdrawal Program. Under this program, Shares are redeemed to provide for
periodic withdrawal payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales load, it is not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
Year of Redemption Contingent Deferred
After Purchase Sales Charge
First...........................................................................
...... 5.50%
Second..........................................................................
.. 4.75%
Third...........................................................................
.... 4%
Fourth..........................................................................
... 3%
Fifth...........................................................................
...... 2%
Sixth...........................................................................
..... 1%
Seventh and thereafter................................................. 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption. No contingent deferred sales charge
will be charged for redemptions of Class C Shares from the Federated LifeTrackTM
Program.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and one full year from the
date of purchase with respect to Class C Shares and applicable Class A Shares on
a first-in, first-out basis. A contingent deferred sales charge is not assessed
in connection with an exchange of Fund Shares for Shares of other funds in the
Liberty Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged for Shares
are redeemed is calculated as if the shareholder had held the Shares from the
date on which he became a shareholder of the exchanged-from Shares. Moreover,
the contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Elimination of Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or
Federated LifeTrackTM Program funds or redemptions from the Federated
LifeTrackTM Program.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Trustees, employees and sales representatives of the Fund, the
distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Trustees reserve the
right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Confirmations are sent to report dividends paid.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid
by the Fund, 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 Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
The Adviser can terminate this voluntary waiver at any time at its sole
discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated
Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife,
and Mr. Donahue's son, J. Christopher Donahue, who is President and
Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve
as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $72 billion invested
across more than 260 funds under management and/or administration by its
subsidiaries, as of December 31, 1994, Federated Investors is one of the
largest investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
J. Thomas Madden has been the Fund's portfolio manager since the Fund
inception date. Mr. Madden joined Federated Investors in 1977, and is an
Executive Vice President of the Adviser. Mr. Madden oversees portfolio
management for the Adviser in the domestic equity, high yield, and asset
allocation areas, and contributes to the formation of investment strategy
at Federated. Mr. Madden is a Chartered Financial Analyst and received
his M.B.A. in Finance from the Darden School, University of Virginia.
Peter R. Anderson has been the Fund's portfolio manager since the Fund
inception date. Mr. Anderson joined Federated Investors in 1972 as, and
is presently, a Senior Vice President of the Fund's investment adviser.
Mr. Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Timothy E. Keefe has been the Fund's portfolio manager since the Fund
inception date. Mr. Keefe joined Federated Investors in 1987, and has
been an Assistant Vice President of the Adviser since 1993. Mr. Keefe
served as an Investment Analyst of the Adviser from 1991 until 1993, and
from 1987 until 1991, he acted as a Marketing Representative in the
Broker Dealer Department. Mr. Keefe is a Chartered Financial Analyst and
received his M.B.A. in Business Administration from the University of
Pittsburgh.
Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own
interest. Among other things, the codes: require preclearance and periodic
reporting of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or sale, by
the Fund; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days. Violations
of the codes are subject to review by the Board of Trustees, and could result in
severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase (except for participants in the Federated LifeTrackTM
Program). These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the distributor may be paid a fee in an amount computed at an annual rate of up
to .25% for Class A Shares and up to .75% for Class B Shares and Class C Shares
of the average daily net assets of each class of Shares to finance any activity
which is principally intended to result in the sale of Shares subject to the
Distribution Plan. The Fund does not currently make payments to the
distributor or charge a fee under the Distribution Plan for Class A Shares, and
shareholders of Class A Shares will be notified if the Fund intends to charge a
fee under the Distribution Plan. For Class A Shares and Class C Shares, the
distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers. With respect to Class B Shares, because distribution fees
to be paid by the Fund to the distributor may not exceed an annual rate of .75%
of each class of Shares' average daily net assets, it will take the distributor
a number of years to recoup the expenses it has incurred for its sales services
and distribution-related services pursuant to the Distribution Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments of up to 0.25 of 1% of the average daily net asset
value of Class A Shares, Class B Shares, and Class C Shares to obtain certain
personal services for shareholders and for the maintenance of shareholder
accounts ("Shareholder Services"). Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
In addition to payments made pursuant to the Distribution Plan and the
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-related
support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. will pay
financial institutions, at the time of purchase of Class A Shares, an amount
equal to .50 of 1% of the net asset value of Class A Shares purchased by their
clients or customers under the Federated LifeTrackTM Program or by certain
qualified plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all Federated Funds as specified
below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Federated Funds
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8600, Boston, Massachusetts 02266-8600, is transfer agent for the Shares of
the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, One Oxford Centre, Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Trust and Fund expenses.
The Trust expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to: the
cost of organizing the Trust and continuing its existence; registering the Trust
with federal and state securities authorities; Trustees fees; auditors' fees,
the cost of meetings of the Trustees; legal fees of the Trust; association
membership dues; and such non-recurring and extraordinary items as may arise
from time to time.
The Fund expenses for which holders of Class A Shares, Class B Shares, and Class
C Shares pay their allocable portion include, but are not limited to:
registering the Fund and shares of the Fund; investment advisory services; taxes
and commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocable specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Trust's Distribution Plan and fees for Shareholder Services. However, the
Trustees reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares, and Class C Shares as they deem appropriate (the
"Class Expenses"). In any case, the Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, or Class C Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses, and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, or
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Trustees fees incurred as a result of issues relating solely
to Class A Shares, Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only Shares of that Fund or class are entitled
to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
o the Trust is not subject to Pennsylvania corporate or personal
property taxes; and
o Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to
the extent that the portfolio securities in the Trust would be
subject to such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Because Class A Shares may be subject to lower Rule
12b-1 fees, the yield for Class A Shares, for the same period, may exceed that
of Class B Shares and Class C Shares.
Because Class A Shares are subject to a higher maximum sales load, the total
return for Class B Shares and Class C Shares, for the same period, may exceed
that of Class A Shares. Depending on the dollar amount invested, and the time
period for which any particular class of Shares is held, the total return for
any particular class may exceed that of another.
From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA - Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC - The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C - The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC- " debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI - The rating "CI" is reserved for income bonds on which no interest is being
paid.
D - Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA - Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA - Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA - Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB - Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC - Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC - Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C - Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D - Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"'
represents the lowest potential for recovery.
Combined Prospectus
An Open-End, Diversified
Management Investment Company
, 1995
--------------
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
<INSERT PRODUCT CODE> (5/95)
FEDERATED CAPITAL APPRECIATION FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESRERS
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C Shares
of Federated Capital Appreciation Fund (the "Fund"), dated ,
----------
1995. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated , 1995
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FEDERATED SECURITIES
DistribCORP.
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND ADVISER TO THE FUND 13
1 ADVISORY FEES 13
OTHER RELATED SERVICES 13
INVESTMENT OBJECTIVES AND POLICIES
ADMINISTRATIVE SERVICES 13
1
TRANSFER AGENT AND DIVIDEND
CONVERTIBLE SECURITIES 1
DISBURSING AGENT 13
TEMPORARY INVESTMENTS 1
WARRANTS 2 BROKERAGE TRANSACTIONS 13
WHEN-ISSUED AND DELAYED DELIVERY
PURCHASING SHARES 14
TRANSACTIONS 2
REPURCHASE AGREEMENTS 2 DISTRIBUTION PLAN AND SHAREHOLDER
FUTURES AND OPTIONS TRANSACTIONS SERVICES AGREEMENT 14
2 CONVERSION TO FEDERAL FUNDS14
FOREIGN CURRENCY TRANSACTIONS 4 PURCHASES BY SALES
RESTRICTED AND ILLIQUID REPRESENTATIVES, TRUSTEES, AND
SECURITIES 6 EMPLOYEES 14
LENDING OF PORTFOLIO SECURITIES EXCHANGING SECURITIES FOR FUND
6 SHARES 14
REVERSE REPURCHASE AGREEMENTS 6
PORTFOLIO TURNOVER 6
INVESTMENT LIMITATIONS 7
FEDERATED EQUITY FUNDS MANAGEMENT
8
FUND OWNERSHIP 12
TRUSTEES COMPENSATION 12
TRUSTEE LIABILITY
INVESTMENT ADVISORY SERVICES13
DETERMINING NET ASSET VALUE 15
DETERMINING MARKET VALUE OF
SECURITIES 15
REDEEMING SHARES 16
REDEMPTION IN KIND 16
EXCHANGING SECURITIES FOR SHARES
16
TAX CONSEQUENCES 16
TAX STATUS 16
THE FUND'S TAX STATUS 16
SHAREHOLDERS' TAX STATUS17
TOTAL RETURN 17
YIELD 17
CURRENT DISTRIBUTIONS 18
PERFORMANCE COMPARISONS 18
ABOUT FEDERATED INVESTORS19
APPENDIX 21
GENERAL INFORMATION ABOUT THE FUND
Federated Capital Appreciation Fund (the "Fund") is an investment portfolio of
Federated Equity Funds (the "Trust"). The Trust was established as a business
trust under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated April 17, 1984. The Fund was created for the purpose
of soliciting the shareholders of Federated Exchange Fund, Ltd., a California
Limited Partnership, to exchange their partnership interests for shares of
beneficial interest in the Class A Shares of the Fund. Until this transaction
is completed, or until management of the Fund determines that it will abandon
its plan to acquire the assets of Federated Exchange Fund, Ltd. in a
reorganization transaction, shares of the Fund will not be available for public
investment. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779.
Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares," as the context may require). This Combined Statement of Additional
Information relates to all classes of Shares of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders.
CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline and, conversely, as interest rates decline, the market
value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since securities
prices fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital appreciation as
their underlying common stocks. When the underlying common stock is experiencing
a decline, the value of the convertible security tends to decline to a level
approximating the yield-to-maturity basis of straight nonconvertible debt of
similar quality, often called "investment value," and may not experience the
same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a fixed-
income security with a possibility of capital appreciation due to the conversion
privilege. If this appreciation potential is not realized, the premium may not
be recovered.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are not
limited to:
o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group,
Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by
Fitch Investors Service, Inc., and Europaper rated A-1, A-2, Prime-1,
or Prime-2. In the case where commercial paper or Europaper has
received different ratings from different rating services, such
commercial paper or Europaper is an acceptable temporary investment so
long as at least one rating is one of the preceding high-quality
ratings and provided the Fund's investment adviser, Federated
Management (the "Adviser"), has determined that such investment
presents minimal credit risks;
o instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or
if the principal amount of the instrument is insured by the Federal
Deposit Insurance Corporation. These instruments may include Eurodollar
Certificates of Deposits ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments which are not rated but are determined by
the Adviser to be of comparable quality to the other temporary
obligations in which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the
issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, and the public availability of information. These factors
will be carefully considered by the Adviser in selecting investments for
the Fund.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees (the
"Trustees").
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.
In the fixed-income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed-income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed-income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and exercise
the option. The Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out nor exercises
an option, the option will expire on the date provided in the option
contract, and the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options on futures contracts to hedge its portfolio against an
increase in market interest rates. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price at
any time during the life of the option if the option is exercised. As
market interest rates rise, causing the prices of futures to go down, the
Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can offset
the drop in value of the Fund's fixed-income portfolio which is occurring
as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then offset the decrease in value of the hedged
securities.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation
is exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that futures contract initial margin does not
involve the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good-faith deposit
on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As writer
of a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of
the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which it has the right to
obtain without payment of further consideration (or has segregated cash in
the amount of any additional consideration).
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when its converts its holdings to another currency.
Foreign exchange dealers may realize a profit on the difference between the
price at which the Fund buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with their investments in the securities. The Fund will conduct
their foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect themselves against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a foreign
currency involved in an underlying transaction. However, forward foreign
currency exchange contracts may limit potential gains which could result
from a positive change in such currency relationships. The Fund's
investment adviser believes that it is important to have the flexibility to
enter into forward foreign currency exchange contracts whenever it
determines that it is in the Fund's best interest to do so. The Fund will
not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when they would be obligated to
deliver an amount of foreign currency in excess of the value of their
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the Fund's investment adviser believes will tend to be closely correlated
with that currency with regard to price movements. Generally, the Fund
will not enter into a forward foreign currency exchange contract with a
term longer than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund were holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge against a
decline in the value of the currency, the Fund would not have to exercise
their put option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in conjunction
with that purchase, were to purchase a foreign currency call options to
hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead,
the Fund could acquire in the spot market the amount of foreign currency
needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets in
foreign currency options are relatively new, and the Fund's ability to
establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Fund's investment adviser, the market for them has developed sufficiently
to ensure that the risks in connection with such options are not greater
than the risks in connection with the underlying currency, there can be no
assurance that a liquid secondary market will exist for a particular option
at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as they would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on futures
currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the Fund's
investment adviser, the market for such options has developed sufficiently
that the risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk
is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss, such as when there is no movement
in the price of the underlying currency or futures contract.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under an Securities and Exchange Commission's Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended, (the "Rule"). The Rule is a non-exclusive, safe harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the Securities and Exchange Commission
has left the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination of the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Securities in the Fund's portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The Adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the Fund's
portfolio turnover rate and transaction costs.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-
third of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, 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. Margin deposits
for the purchase and sale of financial futures contracts and related
options are not deemed to be a pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase agreements,
or other transactions which are permitted by the Fund's investment
objectives and policies.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Fund will not invest more than 5% of the value of its total assets in
securities of any one issuer (other than cash, cash items, or securities
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collateralized by such
securities) or acquire more than 10% of any class of voting securities of
any one issuer. For these purposes, the Fund takes all common stock and all
preferred stock of an issuer each as a single class, regardless of
priorities, series, designations, or other differences.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
portfolio instruments of unseasoned issuers, including their predecessors,
that have been in operation for less than three years.
PURCHASING PUT OPTIONS
The Fund will not commit more than 5% of the value of its total assets to
premiums on open option positions.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its total assets in warrants. No
more than 2% of this 5% may be warrants which are not listed on the New
York or American Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund will not
invest in real estate limited partnerships or oil, gas, or other mineral leases.
FEDERATED EQUITY FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Equity Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, Florida
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, Pennsylvania
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, Pennsylvania
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, Pennsylvania
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, Pennsylvania
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Westin, Massachusetts
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, Pennsylvania
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Fund.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, Pennsylvania
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, Pennsylvania
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, Pennsylvania
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930
Executive Vice President
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Executive Vice President or President of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 26, 1938
Executive Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated
Shareholder Services; Senior Vice President, Federated Administrative Services;
Treasurer of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Star Funds; The Starburst Funds; The Starburst Funds
II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; The Virtus Funds; and World Investment Series,
Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Trust and
Chairman and Trustee 68 other investment companies in the Fund Complex
John T. Conroy, Jr. $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
William J. Copeland $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
James E. Dowd $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Peter E. Madden $ 1,419 $90,563 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Gregor F. Meyer $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ 0 $0 for the Trust and
Trustee 69 other investment companies in the Fund Complex
Wesley W. Posvar $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Marjorie P. Smuts$ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended October 31, 1994.
+The information is provided for the last calendar year.
TRUSTEES LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgement or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1.5% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Dr. Henry J. Gailliot, an officer of Federated Management, the
Fund's investment adviser, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Administrative
Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The fee
paid for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To the
extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value (plus a sales load on Class A Shares only) on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares of the Fund is explained in the prospectus under "How to Purchase
Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expects that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, the Adviser, and
Federated Securities Corp., or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp., and their spouses and
children under 21, may buy Class A Shares at net asset value without a sales
load. Shares may also be sold without a sales load to trusts or pension or
profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for Shares, or
they may exchange a combination of convertible securities and cash for Shares.
Any securities to be exchanged must meet the investment objective and policies
of the Fund, must have a readily ascertainable market value, must be liquid, and
must not be subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for acceptance and
furnish this list to brokers upon request. The Fund reserves the right to reject
any security, even though it appears on the list, and the right to amend the
list of acceptable securities at any time without notice to brokers or
investors.
An investment broker acting for an investor should forward the securities in
negotiable form with an authorized letter of transmittal to Federated Securities
Corp. Federated Securities Corp. will determine that transmittal papers are in
good order and will forward them to the Fund's custodian, State Street Bank and
Trust Company. The Fund will notify the broker of its acceptance and valuation
of the securities within five business days of their receipt by State Street
Bank and Trust Company.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share will be issued
for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange, if
available, or on the basis of prices provided by an independent pricing
service;
o for most short-term obligations, according to the average of the last
offer to buy and the last offer to sell the security, as provided by
independent pricing services;
o for options traded in the over-the-counter market, according to the
mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that
deals in the option;
o for short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions of Shares may be
subject to a contingent deferred sales charge. Redemption procedures are
explained in the prospectus under "How to Redeem Shares." Although the transfer
agent does not charge for telephone redemptions, it reserves the right to charge
a fee for the cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within one to six years of purchase and Class C Shares
and applicable Class A Shares redeemed within one year of purchase may be
subject to a contingent deferred sales charge. The amount of the contingent
deferred sales charge is based upon the amount of the administrative fee paid at
the time of purchase by the distributor to the financial institution for
services rendered, and the length of time the investor remains a shareholder in
the Fund. Should financial institutions elect to receive an amount less than the
administrative fee that is stated in the prospectus for servicing a particular
shareholder, the contingent deferred sales charge and/or holding period for that
particular shareholder will be reduced accordingly.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940, as amended, under which the Fund is obligated to redeem Shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the
respective class's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
EXCHANGING SECURITIES FOR SHARES
Investors may exchange securities they already own for Shares, or they may
exchange a combination of securities and cash for Shares. An investor should
forward the securities in negotiable form with an authorized letter of
transmittal to Federated Securities Corp. The Fund will notify the investor of
its acceptance and valuation of the securities within five business days of
their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund values its assets. The
basis of the exchange will depend upon the net asset value of Shares on the day
the securities are valued. One Share of the Fund will be issued for each
equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio securities
and as a result of discounts from par value on securities held to maturity.
Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the Shares. Any loss by a shareholder on Shares held
for less than six months and sold after a capital gains distribution will
be treated as a long-term capital loss to the extent of the capital gains
distribution.
TOTAL RETURN
The Fund's average annual total returns for shares of Federated Exchange Fund,
Ltd., the predecessor to Class A Shares, for the one-year and five-year periods
ended , 1995 and for the period from , 19 to ,
-------- ------------ -- ----------
1995, were , , and , respectively.
------ ------ -----
The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the offering price per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
load, adjusted over the period by any additional Shares, assuming a quarterly
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investments based
on the lesser of the original purchase price or the offering price of Shares
redeemed.
YIELD
The Fund's yields for shares of Federated Exchange Fund, Ltd., the predecessor
to Class A Shares, was %, for the thirty-day period ended , 1995.
---- ---------
The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per Share of any class of Shares on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by any
class of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
CURRENT DISTRIBUTIONS
The shares of Federated Exchange Fund, Ltd., the predecessor to Class A Shares,
average net annualized current distributions rate for the thirty days ended
, 1995, was %.
- ------ ------
Each class of Shares calculates its current distributions daily based upon its
past twelve months' income dividends and short-term capital gains distributions
per Share divided by its offering price per Share on that day. Each class of
Shares may reduce the time period upon which it bases its calculation of current
distributions if the Adviser believes a shortened period would be more
representative in light of current market conditions.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
The Fund may compare the performance of equity income funds to other types of
stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and
income dividends and takes into account any change in net asset value
over a specific period of time. From time to time, the Fund will quote
its Lipper ranking in the convertible securities and fixed income funds
categories in advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator
for the stock market as a whole.
o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS is a composite index of common stocks in industry,
transportation, and financial and public utility companies which
compares total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage
or other fees calculated, in the Standard & Poor's figures.
o LIPPER GROWTH FUND AVERAGE is an average of the total returns for 251
growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.
o LIPPER GROWTH FUND INDEX is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical
Services, Inc., an independent mutual fund rating service.
o STRATEGIC INSIGHT GROWTH FUNDS INDEX consists of mutual funds that
invest in well-established companies primarily for long-term capital
gains rather than current income.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common
equity securities. It is based on a geometric average of relative
price changes of the component stocks and does not include income.
o VALUE LINE MUTUAL FUND SURVEY, published by Value Line Publishing,
Inc., analyzes price, yield, risk, and total return for equity and
fixed income mutual funds. The highest rating is One, and ratings are
effective for two weeks.
o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes
price, yield, risk, and total return for equity and fixed income funds.
o FINANCIAL PUBLICATIONS: The Wall Street Journal, Business Week,
Changing Times, Financial World, Forbes, Fortune, and Money Magazines,
among others--provide performance statistics over specified time
periods.
o CDA MUTUAL FUND REPORT, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time
periods for the mutual fund industry.
o STRATEGIC INSIGHT MUTUAL FUND RESEARCH AND CONSULTING, ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in
net asset value over a specified period of time. From time to time, the
Fund will quote its Strategic Insight ranking in advertising and sales
literature.
In addition, the Fund will, from time to time, use the following standard
convertible securities indices against which it will compare its performance:
Goldman Sachs Convertible 100; Kidder Peabody Convertible Bond Index; Value Line
Convertible Bond Index; and Dow Jones Utility Index.
The Fund may compare the performance of equity funds to other types of stock
funds and indices.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on quarterly reinvestment of dividends over a specified
period of time.
From time to time, the Fund may advertise the performance of any class of Shares
using charts, graphs, and descriptions, compared to federally insured bank
products, including certificates of deposit and time deposits, and to money
market funds using the Lipper Analytical Services money market instruments
average. In addition, advertising and sales literature for the Fund may use
charts and graphs to illustrate the principals of dollar-cost averaging and may
disclose the amount of dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of a sales load or contingent deferred sales charge, as applicable.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs which
is reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
billion in assets across growth, value, equity income, international, index, and
sector (i.e. utility) styles. Federated's value-oriented management style
combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1994, Federated managed 8 money
market funds, 5 investment grade, and 4 high yield bond funds with assets
approximating $7.4 billion, $.9 billion and $.8 billion, respectively.
Federated's corporate bond decision making--based on intensive, diligent credit
analysis--is backed by over 20 years of experience in the corporate bond sector.
In 1972, Federated introduced one of the first high-yield bond funds in the
industry. In 17 years ending December 1994, Federated's high-yield portfolios
experienced a default rate of just 1.86%, versus 3.10% for the market as a
whole. In 1983, Federated was one of the first fund managers to participate in
the asset-backed securities market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisors. The marketing
effort to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment.
530461102
530461409
530461201
<INSERT PRODUCT CODE> (5/95)
1933 Act File No. N/A
530461300
1940 Act File No. 811-2626
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 15 X
FEDERATED EXCHANGE FUND, LTD.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies to:
Matthew G Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
PART A.
Item 1. Cover Page
Not applicable.
Item 2. Synopsis
Not applicable.
Item 3. Condensed Financial Information
Financial Highlights
Supplementary Information
(For a share outstanding throughout each period)
Year Ended December 31,
1994 1993 1992 1991 1990
Net asset value, beginning of period $71.39 $65.83 $61.65 $50.56 $54.93
Income from investment operations
Net investment income 1.18 1.13 1.36 1.16 1.46
Net realized and unrealized gain
(loss) on investments (1.39) 6.30 5.57 12.62 (3.86)
Total from investment operations (0.21) 7.43 6.93 13.78 (2.40)
Less distributions
Dividends to partners from net
investment incom (1.14) (1.16) (1.38) (1.15) (1.51)
Distributions to partners from
net realized gain on investment
transactions (1.20) (0.71) (1.37) (1.54) (0.46)
Total distributions (2.34) (1.87) (2.75) (2.69) (1.97)
Net asset value, end of period $68.84 $71.39 $65.83 $61.65 $50.56
Total return* (.30%) 11.31% 11.38% 27.42% (4.43%)
Ratios to average net assets
Expenses 1.15% 1.15% 1.11% 1.12% 1.07%
Net investment income 1.63% 1.59% 2.13% 1.97% 2.76%
Supplemental Data
Net assets, end of period
(000 omitted) $81,377 $88,949 $91,551 $90,503 $79,114
Portfolio turnover rate 23% 26% 47% 54% 61%
* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
Year Ended December 31,
1989 1988 1987 1986 1985
Net asset value, beginning of period $50.03 $46.19 $48.39 $43.27 $33.94
Income from investment operations
Net investment income 1.37 1.31 1.29 1.20 1.24
Net realized and unrealized gain
(loss) on investments 7.34 5.08 (0.45) 6.27 10.47
Total from investment operations 8.71 6.39 0.84 7.47 11.71
Less distributions
Dividends to partners from net
investment income (1.32) (1.29) (1.30) (1.22) (1.24)
Distributions to partners from
net realized gain on investment
transactions (2.49) (1.26) (1.74) (1.13) (1.14)
Total distributions (3.81) (2.55) (3.04) (2.35) (2.38)
Net asset value, end of period $54.93 $50.03 $46.19 $48.39 $43.27
Total return* 17.58% 13.97% 0.88% 17.31% 35.37%
Ratios to average net assets
Expenses 1.13% 1.08% 0.92% 0.94% 0.99%
Net investment income 2.45% 2.61% 2.29% 2.43% 3.13%
Supplemental Data
Net assets, end of period
(000 omitted) $95,422 $89,228 $89,371 $106,360 $103,877
Portfolio turnover rate 41% 36% 39% 17% 18%
* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
Further information about the Fund's performance is contained in the Fund's
annual report dated December 31, 1995, which can be obtained free of charge.
Item 4. General Description of Registrant
(a) The Registrant is a diversified management investment
company organized as a California limited partnership under the
provisions of The Uniform Limited Partnership Act as enacted in
California pursuant to the Registrant's Certificate and Agreement of
Limited Partnership dated February 27, 1976. The Partnership
Agreement was restated on September 1, 1976.
The investment objective of the Registrant is to seek long-term
growth of capital and of income. The Registrant accepted for
deposit, and invests its assets in a broadly diversified portfolio
of
securities which, in the opinion of the Managing General Partners,
meets its investment objective. The Registrant's investment
objective and its policies stated herein and in Item 4(b) may not be
changed without a vote of the Partners. The Registrant invests its
assets principally in common stocks which, in the opinion of the
Managing General Partners, have potential for growth of capital and
of income. There is, however, no requirement that the Registrant
invest exclusively in common stocks and, if deemed advisable for the
attainment of its investment objective, the Registrant may invest in
other corporate securities such as preferred stocks,
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, all in such proportions as the Managing
General Partners may determine. The Registrant will invest in
short-
term obligations in order to keep its cash reserves and temporary
funds invested and may also invest in such securities for defensive
purposes. The Registrant will not enter into repurchase agreements
with securities dealers if such transactions constitute the purchase
of an interest in such dealers under the Investment Company Act of
1940, as amended. The Registrant may write exchange traded call
options on portfolio securities as permitted hereunder. The
Registrant may write call options on securities constituting
not more
than 25% of the value of its net assets if the option is listed on a
national securities exchange and at all times while the option is
outstanding the Registrant owns securities against which the option
is written or owns securities convertible into such securities. The
Registrant will endeavor to liquidate its position as an option
writer in a closing purchase transaction rather than delivering
portfolio securities upon exercise of the option. The extent to
which the Registrant may be able to write such options will
depend in
part on state securities regulations, as amended from time to time.
The Registrant accepted for exchange, and may invest its assets in,
securities which, in the opinion of counsel of the Registrant, are
subject to restrictions on sale by the Registrant by reason of any
agreement of the depositor of such securities, by reason of the
provisions of the Securities Act of 1933 and the rules and
regulations thereunder or otherwise. While the Registrant cannot
eliminate the risks of ownership of common stock and
other securities
nor give any assurance that it will achieve its investment
objective, it does seek, through professional management
and diversification, to
reduce these risks and enhance the Partners' opportunities for long-
term growth of capital and of income.
If management deems it advisable for the attainment of the
Registrant's investment objective, it may invest up to 25% of the
value of the Registrant's assets in any one industry. The
Registrant
may, at times, invest more than 25% of the value of its assets in
cash or cash items, U.S. Treasury bills or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
or instruments secured by those money market instruments, such as
repurchase agreements, for defensive purposes. If, because of
changing values, the value of the Registrant's assets invested in a
particular industry exceeds 25% of the value of its assets, the
Registrant will not be required to make any reduction of its
holdings in that particular industry.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
(b) The Registrant has limited the percentage of restricted
securities that it will acquire to 10% of the total value of its
assets. Securities acquired pursuant to an effective Registration
Statement under the Securities Act of 1933 will not be considered
restricted securities.
No security that is subject to the restriction will be
distributed in case of redemption in kind, except possibly to a
redeeming shareholder who had originally deposited that particular
security. No other disposition of such securities will be made by
the Registrant unless the Registrant has obtained an opinion of its
counsel at the time that such securities may be disposed of
consistent with the Securities Act of 1933.
In general, restricted securities can be sold: (a) in limited
quantities in the public market after having been held beneficially
for at least two years; (b) in privately negotiated transactions
to a limited number of purchasers; or (c) in a public
offering pursuant to
an effective registration statement under the Securities
Act of 1933.
The Registrant may not borrow money except as a temporary
measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. The
Registrant will not borrow for investment purposes. Investment
securities will not be purchased while any borrowings are
outstanding.
The Registrant will not purchase the securities of an issuer
if, as a result of such purchase, the Registrant would hold more than
5% of the value of Registrant's assets in such issuer.
The Registrant will not purchase more than 10% of the value of
any issuer's total outstanding voting securities.
The Registrant will not invest more than 5% of its assets in
any issuer having a record of less than 3 continuous years of
operation, including any predecessor's operation.
The Registrant will not purchase warrants of a value in excess
of 5% of Registrant's net assets except in certain circumstances.
(c) In return for the premium income received on a call
option, the Registrant forgoes the opportunity to profit from an
increase in the price of the underlying security above the option's
exercise price during the time the Registrant's position as an option
writer is open.
Generally, restricted securities will be subject to legal or
contractual delays on resale or restriction on resale and may sell at
a discount from the price they would bring if freely marketable.
Item 5. Management of the Registrant
(a) The Registrant is managed by a Board of Managing General
Partners. The Managing General Partners are responsible for managing
the Registrant's business affairs and for exercising all the
Registrant's powers except those reserved for the partners. An
Executive Committee of the Board of Managing General Partners handles
the Board's responsibilities between meetings of the Board.
(b) Investment decisions for the Registrant are made by
Federated Advisers, the Registrant's investment adviser (the
"Adviser"), subject to direction by the Managing General Partners.
The Adviser continually conducts investment research and supervision
for the Registrant and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the
Registrant.
The Adviser receives an annual investment advisory fee equal to
0.55% of the Registrant's average daily net assets, plus 4.5% of
gross income of the Registrant. Gross income includes, in general,
discount earned on U.S. Treasury bills and agency discount notes,
interest received or receivable on all interest-bearing obligations
and dividend income recorded on the ex-dividend date, but does not
include capital gains or losses or a reduction for expenses. The
Adviser may, from time to time and for such periods as it deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses of the Registrant) to the extent that the Registrant's
expenses exceed such lower expense limitation as the Adviser may, by
notice to the Registrant, voluntarily declare to be effective. The
Adviser has also undertaken to reimburse the Registrant for operating
expenses in excess of limitations established by certain states.
Federated Advisers, a Delaware business trust organized on
April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. It is a subsidiary of
Federated Investors. All of the Class A (voting) shares of Federated
Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment
companies and private accounts. Certain other subsidiaries also
provide administrative services to a number of investment companies.
Total assets under management or administration by these and other
subsidiaries of Federated Investors are approximately $70 billion.
(c) Peter R. Anderson has been the Registrant's senior
portfolio manager since December 1989. Mr. Anderson joined Federated
Investors in 1972 as, and is presently, a Senior Vice President of
the Fund's investment adviser. Mr. Anderson is a Chartered Financial
Analyst and received his M.B.A. in Finance from the University of
Wisconsin.
Frederick L. Plautz has been the Registrant's co-portfolio
manager since December, 1994. Mr. Plautz joined Federated
Investors in 1990 and has been a Vice President of the Fund's
investment adviser since October 1994. Prior to this, Mr.
Plautz served as an Assistant Vice President of the investment
adviser. Mr. Plautz was a portfolio manager at Banc One Asset
Management Corp. from 1986 until 1990. Mr. Plautz received his
M.S. in Finance from the University of Wisconsin.
Timothy E. Keefe has been the Registrant's co-portfolio manager
since February, 1995. Mr. Keefe joined Federated Investors in
1987 and has been an Assistant Vice President of the Fund's
investment adviser since 1993. Mr. Keefe served as an
Investment Analyst of the investment adviser from 1991 until
1993, and from 1987 until 1991 he acted as a Marketing
Representative in the Broker Dealer Department. Mr. Keefe is a
Chartered Financial Analyst and received his M.B.A. in Business
Administration from the University of Pittsburgh.
(d) Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary
to operate the Registrant. Federated Administrative Services
provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds") as specified below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Federated Funds
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be
at least $125,000 per portfolio and $30,000 per each additional class
of shares. Federated Administrative Services may choose voluntarily
to waive a portion of its fee.
The Registrant has adopted a Shareholder Services Plan (the
"Services Plan") under which it may make payments of up to 0.25% of
the average daily net asset value of the Registrant to obtain certain
personal services for shareholders and the maintenance of shareholder
accounts ("shareholder services"). The Registrant has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a
subsidiary of Federated Investors, under which Federated Shareholder
Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to
time by the Registrant and Federated Shareholder Services.
(e) Federated Services Company, Pittsburgh, Pennsylvania,
serves as transfer agent and dividend disbursing agent for the
Registrant. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by
shareholders. Federated Services Company also maintains the Fund's
accounting records. The fee paid for this service is based upon the
level of the Fund's average net assets for the period plus out-of-
pocket expenses.
(f) See response to Item 3.
(g) None.
Item 6. Capital Stock and Other Securities
(a) The Partners have the voting, approval, consent, or
similar rights required under the Investment Company Act of 1940, as
amended, for voting Shareholders. Partners have one vote for each
share held by them as reflected in the Partnership Agreement. At
each annual meeting, the Partners vote upon the election of each of
the General Partners. At their annual meeting held November 9, 1992,
the Partners approved an amendment to the Agreement of Limited
Partnership to eliminate the annual meeting requirement, except as
otherwise required by the Investment Company Act of 1940, as amended.
Partners may vote in person or by proxy. The presence in person
or by proxy of Partners holding more than 50% of the outstanding
shares as reflected in the Partnership Agreement constitutes a quorum
at any meeting. Other than the election of General Partners or a
vote to terminate the Partnership, actions of the Partners will
require the vote of the lesser of (i) a majority of the outstanding
shares or (ii) the vote of 67% or more of the shares represented in
person or by proxy at a meeting at which a quorum is present. In the
election of General Partners, if required, those candidates receiving
the highest number of votes cast, up to the number of General
Partners to be elected, shall be elected to serve until their
successors are duly elected and qualified. Action to terminate the
Partnership shall require the vote of a majority of the outstanding
shares. Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in the election of General
Partners can, if they choose to do so, elect all of the General
Partners, in which case the holders of the remaining shares will be
unable to elect any person as a General Partner.
The General Partners are divided into two classes: Managing
General Partners and Non-Managing General Partners. Only individuals
may act as Managing General Partners. All individual General
Partners shall act as Managing General Partners. A Non-Managing
General Partner as such shall generally take no part in the
management, conduct, or operation of the Registrant's business. The
Registrant will be managed by the Managing General Partners. The
Managing General Partners may appoint an Executive Committee of at
least two Managing General Partners who would exercise the powers of
the Managing General Partners between meetings of the Managing
General Partners. Except pursuant to such appointment or other
delegated authority of the Managing General Partners, the Registrant
shall act only by majority vote. A single Managing General Partner
or Managing General Partners constituting less than a majority of
Managing General Partners, shall not have authority to act on behalf
of the Registrant or to bind the Registrant, except when acting as an
Executive Committee or otherwise pursuant to delegated authority of
the Managing General Partners. The Managing General Partners are in
a fiduciary relationship with respect to the Limited Partners,
similar to that of the directors of a corporation to its
shareholders. All General Partners, including Managing and
Non-Managing General Partners, shall be subject to election and
removal by vote of the Partners.
Limited Partners generally are not personally liable for
liabilities of the Registrant. However, if the Registrant were
unable to pay its liabilities, recipients of distributions from the
Registrant could be liable to certain creditors of the Registrant to
the extent of such distributions, plus interest. The Partnership
will, to the extent of its net assets, indemnify the Limited Partners
or former Limited Partners against any liability which is incurred
because of the receipt of a distribution which has to be returned to
creditors in satisfaction of Partnership liability. If the
Partnership's net assets are insufficient to indemnify the Limited
Partners in full, the Partnership will attempt to recover from other
Limited Partners who received such distributions their proportionate
share of such liability. Each Limited Partner agrees to indemnify
each other Limited Partner against such liability to the extent of
his proportionate share of such liability. Each Limited Partner, by
becoming a Limited 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.
A Limited Partner has no right to and takes no part in control
of the Partnership business, but may exercise the rights and powers
of a Limited Partner under the Partnership Agreement, including,
without limitation, the voting rights and the giving of consents and
approvals provided for in the Partnership Agreement. The Partnership
Agreement authorizes Limited Partners to exercise the right to vote
on certain matters, including, without limitation, the voting rights
and the giving of consents and approvals provided for in the
Partnership Agreement. The Partnership Agreement authorizes Limited
Partners to exercise the right to vote on certain matters, including
the right to elect or remove General Partners, in reliance upon
certain provisions contained in The Uniform Limited Partnership Act
as enacted by the State of California, which in substantial form, has
been adopted by most other states. Although no absolute assurance
can be given, due to the lack of specific statutory authority
expressly covering certain of the voting rights given to Limited
Partners, including approval of the Investment Advisory Contract and
any Sub-Advisory Agreement and approval of the independent
accountants of the Registrant, and the fact that there are not
authoritative judicial decisions on the matter, it is the opinion of
California counsel that the existence or exercise of the voting
rights provided for in the Partnership Agreement does not subject the
Limited Partners to liability as General Partners under the
California Act. However, it is possible that, because of the
existence or exercise of such rights, the Limited Partners might be
found to be subject to such liability by the courts of another state.
In the event that a Limited Partner should be found to be liable as a
General Partner, then, to the extent the assets and insurance of the
Registrant and of the General Partners are insufficient to reimburse
a Limited Partner, he would be required to satisfy personally such a
claim.
The Registrant believes it is unlikely that Limited Partners
will receive distributions which will have to be returned or that
they will be subject to liability as General Partners because of the
extent of the assets of the Registrant, the nature of its business,
and its ability to contract with third parties to prevent any such
party from seeking recovery from any Limited Partner. The Registrant
will seek to include in all material contracts a provision limiting
the claims of creditors to the Registrant's assets. The Registrant
intends to obtain such insurance coverage as may be available for
claims asserted against the Registrant or its General Partners in an
amount deemed appropriate by the Managing General Partners. In any
event, the assets of the Registrant should at all times be sufficient
to satisfy the amount of any potential claims against the Registrant.
A Limited Partner can assign the whole or any portion of his
shares by a written instrument of assignment in a form satisfactory
to the Managing General Partners, provided that: (i) the assignee
agrees to become a Substituted Limited Partner and (ii) the Managing
General Partners consent to such assignment and substitution. Any
assignee who has filed with the Registrant the necessary papers to
become a substituted Limited Partner and who has obtained the
requisite consent of the Managing General Partners prior to the
record date for distributions will have the right to receive such
distributions even though the recording of an appropriate amendment
to the Partnership Agreement occurs after the record date. The
admission of an assignee as a substituted Limited Partner is
conditioned upon the assignment instrument being in a form and
substance satisfactory to the Managing General Partners, the
assignee's written acceptance and adoption of all of the terms and
provisions of the Partnership Agreement, and the recording of an
appropriate amendment to the Partnership Agreement. The Managing
General Partners have stated that it is their intention to consent to
assignments by way of gifts or personal estate planning (for example,
transfers to trusts). Since the shares are redeemable in whole or in
part at their net asset value, the giving or withholding of such
consent does not affect the ability of a Partner to realize gain or
loss on his investment.
The Registrant will continue in existence until December 31,
2071, unless sooner terminated by the happening of one of the
following events:
(1) The Registrant disposes of all of its assets; or
(2) The death, withdrawal, retirement, dissolution, assignment
for the benefit of creditors, filing of a petition for
bankruptcy, adjudication of bankruptcy, insanity or incompetency
of (i) any of the General Partners, unless the remaining General
Partners elect to continue the business of the Registrant, (ii)
all of the General Partners, unless a Special Meeting, as
provided for in Section 8.8 of the Partnership Agreement, is
held within six months, or (iii) all of the Managing General
Partners, unless a Special Meeting as provided in Section 8.8,
is held within 120 days of the date the last Managing General
Partner ceased to act in such capacity.
(3) Partners holding a majority of the outstanding shares vote
to terminate the Partnership.
Except by requiring the Registrant to redeem shares as
described hereunder, Limited Partners have no right to the return of
any part of their contributions until dissolution of the Registrant.
Distributions by the Registrant, whether upon dissolution or
otherwise, will be in proportion to the number of shares held,
without regard to the dollar amount contributed to the Registrant or
the amount of any profits of the Registrant received.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Partners may contact the Fund by writing to or calling
the Fund.
(f) The Managing General Partners may distribute net
investment income, exclusive of capital gains, to the holders of
shares of partnership interest annually or at more frequent
intervals. The Managing General Partners will determine annually
what portion, if any, of the Partnership's net realized capital gains
will be distributed.
(g) Each Partner is individually responsible for the payment
of any taxes on his/her share of the partnership's taxable income.
As a publicly traded partnership, this income can not be used to
offset losses of any other passive activity held by the partner.
Item 7. Purchase of Securities Being Offered
Not applicable.
Item 8. Redemption or Repurchase
(a) The Custodian Bank will redeem shares at net asset value
on any business day. Shares will be redeemed at the net asset value
next determined after the receipt of a redemption request in proper
form. A redemption request must be in writing and accompanied by
share certificates, if issued. Redemption requests and share
certificates must be endorsed by the redeeming Partner, with
signature guaranteed by a commercial bank or a trust company whose
deposits are insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC"); a
member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange; a savings bank or Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of
1934. The Registrant does not accept signatures guaranteed by a
notary public. In addition, in some cases, additional documents may
be required.
If a redemption request in proper form is received by the
Custodian prior to the close of the New York Stock Exchange, shares
will be redeemed at the net asset value determined at the close of
business on the New York Stock Exchange on the date of receipt. If
received after the close of the New York Stock Exchange or on days on
which the New York Stock Exchange is closed, shares will be redeemed
at the net asset value determined at the close of business on the
next day on which the New York Stock Exchange is open. Redemption
proceeds will be mailed (after the receipt of a redemption request in
proper form) as soon as they are processed, which is normally within
three days of receipt, and will be mailed in any event within seven
business days after receipt.
The Registrant reserves the right, in its complete discretion,
to redeem its shares wholly or partly in portfolio securities
("redemption in kind") instead of in cash, and to deliver one or more
portfolio securities in satisfaction of the redemption request
regardless of which securities were deposited by the Partner or the
composition of the portfolio of the Registrant at the time of
redemption.
Obviously, the value of the shares on redemption may be more or
less than a Partner's cost, depending upon the value of the portfolio
securities at the time of redemption. A Partner redeeming his shares
will realize a gain or loss for income tax purposes, measured with
respect to the adjusted basis of his shares at the time of
redemption, when he receives cash at redemption. In the opinion of
Dickstein, Shapiro & Morin, tax counsel for the Registrant, neither
the Registrant nor a redeeming Partner will recognize gain or loss
for Federal income tax purposes upon the distribution of securities
in kind to a redeeming Partner. The basis to a redeeming Partner of
securities received by him in redemption of all of his shares will be
the same as the basis of the shares he redeemed. The basis of
securities received by a Partner in redemption of a portion of his
shares will be the basis of such securities in the hands of the
Registrant immediately before such distribution (but not in excess of
the basis of all of his shares of the Registrant, both those redeemed
and not redeemed).
Investors who have not exchanged restricted securities for
shares may, by notice in writing to State Street Bank and Trust
Company (accompanied by appropriate stock powers and certificates, if
previously issued), elect to participate in a Systematic Withdrawal
Plan (the "Plan"). Participants in the Plan will receive quarterly
payments in cash as a partial redemption of their shares up to 3/4%
of the net asset value of their shares. The Registrant does not
intend to impose a charge upon investors for participating in the
Plan. Participants may withdraw from the Plan at any time by written
notice to State Street Bank and Trust Company. Although the
Registrant believes that its operations will generate sufficient cash
to satisfy the redemption payments required by the Plan, the Plan may
require the Registrant to obtain additional cash by selling portfolio
securities or borrowing. The burden of any taxes payable as a result
of such sales will be shared by all investors in the Registrant
regardless of their participation in the Plan. Participation in the
Plan will reduce the number of shares owned by an investor and the
value of his account.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 9. Pending Legal Proceedings
None.
PART B.
Item 10. Cover Page
Not applicable.
Item 11. Table of Contents
Not applicable.
Item 12. General Information and History
Not applicable.
Item 13. Investment Objectives and Policies
(a) See response to Item 4(a).
(b) The Registrant may not:
(1) Purchase any securities on margin, but the Registrant may
obtain such credits as may be necessary for the clearance of
purchases and sales of securities;
(2) Sell any securities short;
(3) Borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not
in excess of 10% of the value of its total assets. The
Registrant will not borrow for investment purposes. Investment
securities will not be purchased while any borrowings are
outstanding;
(4) Pledge securities;
(5) Purchase securities of an issuer if such purchase at the
time thereof would cause more than 5% of the value of the
Registrant's assets to be invested in the securities of any one
issuer;
(6) Purchase securities of an issuer if such purchase at the
time thereof would cause more than 10% of the voting securities
of any one issuer to be owned by the Registrant or more than 10%
of any other class of such issuer being owned by the Registrant
(for these purposes, all outstanding bonds and evidences of
indebtedness shall be deemed to be a single class of securities
of the issuer and all kinds of stock of an issuer which are
preferred over the common stock as to dividends or in
liquidation shall be deemed to constitute a single class
regardless of relative priorities, series, designations,
conversion rights or other differences);
(7) Purchase securities issued by any other open-end investment
company except pursuant to a merger, consolidation, or other
reorganization;
(8) Invest more than 5% of the assets of the Registrant in
securities of issuers which have a record of less than 3 years
of continuous operation, including the operation of any
predecessor;
(9) Purchase or retain securities of any issuer if, to the
knowledge of the Registrant, the General Partners of the
Registrant or the officers or directors of the Adviser who
individually own more than 1/2 of 1% of the securities of such
issuer together own more than 5% of the securities of such
issuer;
(10) Invest in commodities, commodity contracts, or real estate;
(11) Purchase or sell puts, calls, straddles, or spreads or any
combination thereof except that: (a) the Registrant may write
call options on securities constituting not more than 25% of the
value of its net assets if the option is listed on a national
securities exchange and at all times while the option is
outstanding the Registrant owns securities convertible into such
securities, and (b) the Registrant may purchase call options in
closing purchase transactions to liquidate its position as an
option writer;
(12) Engage in underwriting or agency distribution of securities
issued by others except insofar as it may be deemed to be an
underwriter under the Securities Act of 1933 by virtue of its
disposition of a particular block of securities;
(13) Lend any assets except portfolio securities. (This shall
not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness, or other debt securities of an
issuer; repurchase agreements; or other transactions which are
permitted by the Registrant's investment objective and policies
or Limited Partnership Agreement). There is the risk that when
lending portfolio securities, the securities may not be
available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court
action;
(14) Invest in securities of a company for the purpose of
exercising control or management. The Registrant, however, may
invest in up to 10% of the voting securities of any one issuer
and may exercise its voting powers consistent with the best
interests of the Registrant. From time to time, the Registrant,
together with other investment companies advised by Federated
Advisers (the "Adviser") or its affiliated companies, may
together buy and hold substantial amounts of the voting stock of
a company and all such stock may be voted together in regard to
such company's affairs. In some such cases, the Registrant and
the other investment companies, advised by the Adviser or its
affiliated companies holding such stock might collectively be
considered to be in control of such company. In some cases
Partners, agents, employees officers or other persons affiliated
with or acting for or on behalf of the Registrant, the Adviser
or its affiliated companies, might possibly become directors of
companies in which the Registrant holds stock;
(15) Purchase oil, gas, or other mineral leases or purchase a
partnership interest in oil, gas, or other mineral exploration
programs;
(16) Purchase warrants having a value in excess of 5% of the
Registrant's net assets or purchase warrants not listed on the
New York Stock Exchange or American Stock Exchange having a
value in excess of 2% of the Registrant's net assets; and
(17) Issue senior securities.
For purposes of its policies and limitations, the Registrant
considers certificates of deposit and demand and time deposits issued
by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at
the time of investment to be "cash items."
(c) Not applicable.
(d) Portfolio turnover: Although the Registrant does not intend to
invest for the purpose of seeking short-term profits, securities in
its portfolio will be sold whenever the Registrant's investment
adviser believes it is appropriate to do so in light of the
Registrant's investment objective, without regard to the length of
time a particular security may have been held.
The Registrant will not attempt to set or meet a portfolio turnover
rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Registrant's investment
objective. Portfolio turnover for the fiscal years ended December
31, 1994, and 1993, was 23% and 26%, respectively.
Item 14. Management of the Registrant
(a) Officers and Managing General Partners are listed with their
addresses, birthdates, present positions with Federated Exchange
Fund, Ltd., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: 7/28/24
President and Managing General Partner
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Registrant.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate:2/3/34
Managing General Partner
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate:6/23/37
Managing General Partner
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate:7/4/18
Managing General Partner
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate:5/18/22
Managing General Partner
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate:10/11/32
Managing General Partner
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate:6/18/24
Managing General Partner
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate:4/16/42
Managing General Partner
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate:10/6/26
Managing General Partner
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate:9/14/25
Managing General Partner
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate:6/21/35
Managing General Partner
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate:4/11/49
Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is
the son of John F. Donahue, President and Managing General Partner of the
Registrant.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate:5/17/23
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate:10/22/30
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
John E. Murray, Jr., J.D.,S.J.D.
President
Duquesne University
Pittsburgh, PA 15282
Birthdate:12/20/32
Managing General Partner
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate:10/26/38
Vice President and Secretary
Investors
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and Secretary,
Federated Research Corp. and Passport Research, Ltd.; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
* This Managing General Partner is deemed to be an "interested
person" as defined in the Investment Company Act of 1940, as
amended.
@ Member of the Registrant;'s Executive Committee. The Executive
Committee of the Board of Managing General Partners handles the
responsibilities of the Board of Managing General Partners between
meetings of the Board.
Managing General Partner Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
Partnership Registrant*# FROM FUND COMPLEX +
Thomas G. Bigley $1,250.00 $20,688 for the Fund and
50 other investment companies in the Fund
Complex
John T. Conroy, Jr. $5,200.00 $117,202 for the Fund and
65 other investment companies in the Fund
Complex
William J. Copeland $5,200.00 $117,202 for the Fund and
65 other investment companies in the Fund
Complex
James E. Dowd $5,200.00 $117,202 for the Fund and
65 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $5,000.00 $106,460 for the Fund and
65 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $5,200.00 $117,202 for the Fund and
65 other investment companies in the Fund
Complex
Peter E. Madden $4,258.00 $90,563 for the Fund and
65 other investment companies in the Fund
Complex
Gregor F. Meyer $5,000.00 $106,460 for the Fund and
65 other investment companies in the Fund
Complex
Wesley W. Posvar $5,000.00 $106,460 for the Fund and 65 other
investment companies in the Fund Complex
Marjorie P. Smuts $5,000.00 $106,460 for the Fund and
65 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended December 31, 1994.
+ The information is provided for the last calendar year.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
As used in the table above, "The Funds" and "Funds" mean the
following investment companies: American Leaders Fund, Inc.; Annuity
Management Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate
U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government
Income Securities, Inc.; High Yield Cash Trust; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; The Virtus Funds; and World Investment Series,
Inc.
(b) See response to (a).
(c) Not applicable.
Item 15. Control Persons and Principal Holders of Securities
(a) None.
(b) As of April 7, 1995 the following partner of record owned 5% or
more of the outstanding Shares of the Registrant:
Paulette M. Boiardi, New York, New York, owned approximately 91,356
Shares (7.89%).
(c) Officers and Managing General Partners own less than 1% of the
Registrant's outstanding shares.
Item 16. Investment Advisory and Other Services
(a) The Registrant's investment adviser is Federated Advisers. It is
a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are
John F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Registrant or any partner
for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by
its contract with the Registrant.
For its advisory services, Federated Advisers receives an annual
investment advisory fee as described in Part A. During the fiscal
years ended December 31, 1994, 1993, and 1992, the Adviser earned
$585,292, $610,479, and $626,071, respectively.
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Registrant's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net
assets, and 1 1/2% per year of the remaining average net assets, the
Adviser will reimburse the Registrant for its expenses over the
limitation.
If the Registrant's monthly projected operating expenses exceed
this limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount of
the investment advisory fee. This arrangement is not part of the
advisory contract and may be amended or rescinded in the future.
(b) Not applicable.
(c) Not applicable.
(d) Federated Administrative Services, a subsidiary of Federated
Investors, provides administrative and personnel services to the
Registrant for a fee as described in Part A. Prior to March 1, 1994,
Federated Administrative Services, Inc., also a subsidiary of
Federated Investors, served as the Fund's administrator. (For
purposes of Part B, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be
referred to as, the "Administrators".) For the fiscal year ended
December 31, 1994, the Administrators collectively earned $145,620,
none of which was waived. For the fiscal years ended December 31,
1993, and 1992, Federated Administrative Services, Inc., earned
$230,851, and $186,504, respectively, none of which was waived. Dr.
Henry J. Gailliot, an officer of Federated Advisers, the adviser to
the Registrant, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a
company which provides computer processing services to Federated
Administrative Services.
Pursuant to a Shareholder Services Plan, the Registrant is permitted
to pay fees to Federated Shareholder Services and, indirectly, to
financial institutions to cause services to be provided to
shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities
and services may include, but are not limited to, providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options,
account designations, and addresses. For the fiscal period ending
December 31, 1994, no payments were made pursuant to the Shareholder
Services Plan.
(e) Not applicable.
(f) Not applicable.
(g) See Item 17(a).
(h) State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Registrant. It also
provides certain accounting and recordkeeping services with respect
to the Registrant's portfolio of investments.
The independent auditors for the Registrant are Deloitte &
Touche, LLP, 125 Summer Street, Boston, Massachusetts.
(i) Federated Services Company, Pittsburgh, Pennsylvania, serves as
transfer agent and dividend disbursing agent for the Registrant. The
fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders. Federated
Services Company also maintains the Registrant's accounting records.
The fee paid for this service is based upon the level of the
Registrant's average net assets for the period plus out-of-pocket
expenses.
Item 17. Brokerage Allocation and Other Practices
(a) When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, the Adviser looks for prompt execution
of the order at a favorable price. In working with dealers, the
Adviser will generally utilize those who are recognized dealers in
specific portfolio instruments, except when a better price and
execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of
the Registrant and other Funds. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to
review by the Board of Managing General Partners.
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to
the Registrant or to the Adviser and may include:
* advice as to the advisability of investing in securities;
* security analysis and reports;
* economic studies;
* industry studies;
* receipt of quotations for portfolio evaluations; and
* similar services.
The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by
the Adviser or by affiliates of Federated Investors in advising the
Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their
expenses.
For the fiscal years ended December 31, 1994, 1993, and 1992, the
Registrant paid brokerage commissions of $45,450, $48,022, and
$90,699, respectively, on brokerage transactions.
(b) None.
(c) See response to (a).
(d) Not applicable.
(e) For the period ended December 31, 1994, the Registrant held
securities of the following of the Registrant's regular brokers or
dealers or the parents of such brokers or dealers that derive more
than 15% of gross revenue from securities related activities:
Dean Witter, Discover & Co., equity securities valued at $784,037 at
December 31, 1994.
Item 18. Capital Stock and Other Securities
(a) See response to Item 6.
(b) Not applicable.
Item 19. Purchase, Redemption, and Pricing of Securities Being Offered
(a) A Partner who redeems any portion of his shares during the first
five years of his participation in the Registrant will be paid either
in portfolio securities, cash, or a combination thereof as may be
determined at the complete discretion of the Managing General
Partners. To the extent the payment is made in securities, he will
receive securities of the same class of the same issuer as deposited
by him to the extent then available in the Registrant's portfolio.
If such securities are not so available, that part of the payment
represented by securities will be made in other portfolio securities.
Securities delivered in redemption in kind will be valued at the
amount at which they were valued in computing the redemption value of
shares redeemed. In the event a redeeming Partner receives
securities and sells such securities, he will, of course, incur
normal brokerage commissions upon such sale.
No portfolio security which is subject to restrictions on sale by
the Registrant by reason of any agreement of the depositor of such
securities, by reason of the provisions of the Securities Act of 1933
and the rules and regulations thereunder, or otherwise, will be
delivered in redemption in kind except to a redeeming Partner who had
previously deposited that particular security. Redeeming Partners
receiving securities which are restricted by reason of the provisions
of the Securities Act of 1933 and the rules and regulations
thereunder will be subject to legal or contractual delays on resale
or restrictions on resale. In general, restricted securities can be
sold in limited quantities in the public market after having been
beneficially held for at least two years after such securities are
received in redemption.
The Registrant may suspend the right of redemption or delay
payment more than seven days during any period when trading on the
New York Stock Exchange is restricted, when the New York Stock
Exchange is closed (other than customary weekend and holiday
closings), when an emergency exists as defined by rules and
regulations or the Securities and Exchange Commission, or when the
Securities and Exchange Commission has, by order, permitted such
suspension.
Please see Item 8(a).
(b) Effective January 1, 1980, the net asset value is determined by
or on behalf of the Managing General Partners. The net asset value
per share of the Registrant is determined at the close of business of
the New York Stock Exchange, on each business day when the New York
Stock Exchange is open, by adding the market value of all securities
and all other assets, subtracting liabilities and dividing by the
number of shares outstanding. Portfolio securities (for options
refer to the option accounting principles below) listed on the New
York Stock Exchange or any other national securities exchange which
closes at the same time as the New York Stock Exchange are valued at
the last sale price as furnished by an independent pricing service.
Unlisted portfolio securities and listed portfolio securities which
were not traded on that day are valued at the mean between bid and
asked prices. Short-term obligations are ordinarily valued at the
mean between bid and asked prices as furnished by an independent
pricing service. However, short-term obligations with remaining
maturities of 60 days or less, at the time of purchase, are valued at
amortized cost. All other securities (including restricted
securities) are valued at fair value as determined in good faith by
the Managing General Partners.
When the Registrant writes a call option, an amount equal to the
premium received by the Registrant is included in the Registrant's
Statement of Assets and Liabilities as an asset and a corresponding
liability. The amount of the liability will be subsequently marked-
to-market to reflect the current market value of the option written.
The current market value of a traded option is the last sale price on
the exchange where it is primarily traded, or, in the absence of a
last sale price, at the mean between the last bid and asked price, or
in the absence of these prices, fair value using consistently applied
methods determined in good faith by the Managing General Partners.
If an option expires on its stipulated expiration date or if the
Registrant enters into a closing purchase transaction, the Registrant
will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option will be
extinguished. If an option is exercised, the Registrant will realize
a gain or loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally
received.
(c) The Registrant reserves the right, in its complete discretion, to
redeem its shares wholly or partly in portfolio securities
("redemption in kind") instead of in cash, and to deliver one or more
portfolio securities in satisfaction of the redemption request
regardless of which securities were deposited by the Partner or the
composition of the portfolio of the Fund at the time of redemption.
Item 20. Tax Status
Registrant is a partnership for Federal income tax purposes. As
a partnership, the Registrant is not an entity subject to Federal
income tax. Partnership income, gains, losses, deductions and
credits will be allocated equally among the outstanding shares. A
holder of a share shall be allocated the proportionate part of such
items accrued on the books by the Partnership during the specific
days of the taxable year on which such share was owned by such
holder.
Without regard to whether they have received or will receive any
distributions from the Registrant, Partners must take into account in
computing their respective Federal income tax liabilities their
distributive share of Registrant income, gains, losses, deductions
and credits for any taxable year of the Registrant ending with or
during their respective taxable years as provided by the Partnership
Agreement.
Item 21. Underwriters
Not applicable.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The financial statements for the fiscal year ended December 31, 1994
are incorporated herein by reference from the Registrant's Annual Report
dated December 31, 1994,(File No. 811-2626). A copy of the Annual Report
may be obtained without charge by contacting the Registrant.
PART C. OTHER INFORMATION.
Item 24. Financial Statements of Exhibits:
(a) Financial Statements (7);
(b) Exhibits:
(1) Paper copy of Restated Certificate and Agreement of Limited
Partnership of the Registrant (2);
(2) Copy of By-Laws of the Registrant;+
(i) Copy of Amendment No. 1 to the By-Laws of the
Registrant;+
(ii) Conformed Copy of Amendment No. 2 to the By-Laws of
the Registrant (6);
(3) Not applicable;
(4) Copy of Specimen Certificate for Units of Limited
Partnership of the Registrant (5);
(5) Conformed Copy of Investment Advisory Contract of the
Registrant (6);
(6) Not applicable;
(7) Not applicable;
(8) (i) Conformed copy of the Custodian Agreement
of the Registrant;+
(9) (i) Conformed copy of Shareholder Services Plan of
the Registrant;+
(ii) Copy of Shareholder Services Sub-Contract of the
Registrant;+
(iii) Conformed copy of Shareholder Services
Agreement of the Registrant;+
(iv) Conformed copy of Administrative Services
Agreement of the Registrant;+
(v) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement;+
(10) Not applicable;
(11) Not applicable;
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Not applicable;
(16) Not applicable;
(17) Financial Data Schedule;+
(18) Not applicable.
(19) Conformed copy of Power of Attorney;+
+ All exhibits filed electronically.
2. Response is incorporated by reference to Registrant's Prospectus filed
pursuant to Rule 424(b) on September 8, 1976. (File No. 811-2626.)
5. Response is incorporated by reference to Registrant's Amendment No. 2 to its
Registration Statement filed on Form S-5 filed on August 24, 1976. (File
No. 811-2626.)
6. Response is incorporated by reference to Registrant's Amendment No. 10 to
its Registration Statement filed on Form N-1A on April 27, 1990.
7. Response is incorporated by reference to Registrant's Annual Report filed
pursuant to Rule 30(b) (2) of the Investment Company Act of 1940, and Rule
30b2-1 thereunder on February 24, 1995. (File No. 811-2626)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 7, 1995
Units of Limited Partnership 452
(no par value)
Item 27. Indemnification: (9)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment
adviser, see Item 5 in Part A. The affiliations with the Registrant
of four of the Trustees and one of the Officers of the investment
adviser are included in Part B of this Registration Statement under
Item 14. The remaining Trustee of the investment adviser, and his
principal occupation is: Mark D. Olson, Partner, Wilson, Holbrook &
Bayard, 107 West Market Street, Georgetown, Delaware, 19947.
The remaining Officers of the investment adviser are: William D.
Dawson, III, J. Thomas Madden, Mark L. Mallon, Executive Vice
Presidents; Henry J. Gailliot, Senior Vice President-Economist; Peter
R. Anderson, Gary J. Madich, J. Alan Minteer, Senior Vice Presidents;
J. Scott Albrecht, Randall A. Bauer, Jonathan C. Conley, Deborah A.
Cunningham, Michael P. Donnelly, Mark E. Durbiano, Kathleen M. Foody-
Malus, Thomas M. Franks, Edward C. Gonzales, Jeff A. Kozemchak,
Marian R. Marinack, John W. McGonigle, Gregory M. Melvin, Susan M.
Nason, Mary Jo Ochson, Robert J. Ostrowski, Frederick L. Plautz, Jr.,
Charles A. Ritter, James D. Roberge, and Christopher H. Wiles, Vice
Presidents, Edward C. Gonzales, Treasurer, and John W. McGonigle,
Secretary. The business address of each of the Officers of the
investment adviser is Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Item 14(a)
of this Registration Statement.
Item 29. Principal Underwriters:
Not applicable.
9. Response is incorporated by reference to Registrant's Amendment No. 13 to
its Registration Statement filed on Form N-1A on February 26, 1993.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 1119
Company Boston, MA
("Custodian")
Item 31. Management Services:
Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes, if requested to do so by the holders of
at least 10% of the registrant's outstanding shares, to call a
meeting of Partners for the purpose of voting upon the question of
removal of a General Partner or General Partners and to assist in
communications with other Partners as required by Section 16(c).
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant, FEDERATED EXCHANGE FUND, LTD., has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 28th day of April, 1995.
FEDERATED EXCHANGE FUND, LTD.
By: /s/Robert C. Rosselot
Robert C. Rosselot, Assistant Secretary
Attorney in Fact of John F. Donahue
April 28, 1995
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED EXCHANGE FUND,
LTD., and the Assistant General Counsel of Federated Investors, and each
of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place
and stead, in any and all capacities, to sign any and all documents to be
filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the
same, with all exhibits thereto and other documents in connection
thterewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be
done in connection thereiwth, as fully to all intents and purposes as each
of them might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue President and Managing February 22, 1995
John F. Donahue General Partner
/s/ Edward C. Gonzales Vice President & Treasurer February 22, 1995
Edward C. Gonzales
/s/ Thomas G. Bigley Managing General Partner February 22, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Managing General Partner February 22, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Managing General Partner February 22, 1995
William J. Copeland
/s/ James E. Dowd Managing General Partner February 22, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Managing General Partner February 22, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Managing General Partner February 22, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Managing General Partner February 22, 1995
Peter E. Madden
/s/ John E. Murray, Jr. Managing General Partner February 22, 1995
John E. Murray, Jr.
/s/ Gregor F. Meyer Managing General Partner February 22, 1995
Gregor F. Meyer
/s/ Wesley W. Posvar Managing General Partner February 22, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Managing General Partner February 22, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 22th day of February, 1995.
/s/ Marie M. Hamm
Notary Public
Exhibit 2 under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
BY-LAWS OF
FEDERATED EXCHANGE FUND, LTD.
ARTICLE I
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE.
The Managing General Partners, by resolution passed by a vote of at least a
majority of the Managing General Partners, may appoint an Executive
Committee, which shall consist of two (2) or more Managing General Partners
which number shall include the President who shall, ex officio, be a member
thereof to serve at the pleasure of the Managing General Partners.
Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring
in the Executive Committee from any cause shall be filled by the Managing
General Partners at any Meeting thereof by a vote of the majority of the
Managing General Partners or by unanimous written consent of the Managing
General Partners.
Section 3. EXECUTIVE COMMITTEE TO REPORT TO MANAGING GENERAL
PARTNERS. All action by the Executive Committee shall be reported to the
Managing General Partners at its Meeting next succeeding such action.
Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The Executive
Committee shall fix its own rules of procedure not inconsistent with the
Partnership Agreement, as amended, these By-Laws or with any directions of
the Managing General Partners. It shall meet at such times and places and
upon such notice as shall be provided by such rules or by resolution of the
Managing General Partners. The presence of a majority shall constitute a
quorum for the transaction of business, and in every case an affirmative
vote of a majority of all the members of the Committee present shall be
necessary for the taking of any action.
Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals
between the Meetings of the Managing General Partners, the Executive
Committee, except as limited by the Partnership Agreement, as amended,
these By-Laws or by specific directions of the Managing General Partners,
shall possess and may exercise all the powers of the Managing General
Partners in the management and directions of the business and conduct of
the affairs of the Partnership in such manner as the Executive Committee
shall deem for the best interests of the Partnership, and shall have power
to authorize the Seal of the Partnership to be affixed to all instruments
and documents requiring same. Notwithstanding the foregoing, the Executive
Committee shall not have the power to increase or decrease the number of
Managing General Partners, elect or remove any Agent or Officer, declare
dividends, issue units of Partnership Interest or recommend to Partners any
action requiting Partners' approval.
Section 6. OTHER COMMITTEES. From time to time the Managing General
Partners may appoint any other Committee or Committees for any purpose or
purposes to the extent lawful, which shall have such powers as shall be
specified in the resolution or appointment.
Section 7. COMPENSATION. The members of any duly appointed
Committee shall receive such compensation and/or fees as from time to time
may be fixed by the Managing General Partners.
Section 8. INFORMAL ACTION BY EXECUTIVE COMMITTEE OF OTHER
COMMITTEES. Any action require or permitted to be taken at may meeting of
the Executive Committee or any other duly appointed Committee may be taken
without a meeting if written consent to such action is signed by all
Members of such Committee and such written consent is filed with the
minutes of the proceedings of such Committee.
Section 9. ADVISORY BOARD. The Managing General Partners may
appoint an Advisory Board to consist in the first instance of not less than
three (3) members. Members of such Advisory Board shall not be General
Partners or Officers and need not be Partners. Members of this Board shall
hold office for such period as the Managing General Partners may be
resolution provide. Any Member of such Board may resign therefrom by
written instrument signed by him which shall take effect upon delivery to
the Managing General Partners. The Advisory Board shall have no legal
powers and shall not perform functions of Managing General Partners in any
manner, said Board being intended to act merely in an advisory capacity.
Such Advisory Board shall meet as such times and upon such notice as the
Managing General Partners may be resolution provide. The compensation of
the Members of the Advisory Board, if any, shall be as determined by the
Managing General Partners.
ARTICLE II
OFFICERS
Section 1. GENERAL PROVISIONS. The Officers of the Partnership
shall be a President, one or more Vice Presidents, a Treasurer and a
Secretary. The Managing General Partners may elect a Chairman of the
Managing General Partners and elect or appoint such other officers or
agents as the business of the Partnership may require including one or more
Assistant Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers. The same person may hold any two offices except
those of President and Vice President.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
Officers shall be elected annually by the Managing General Partners. Each
Officer shall hold office until the Annual Meeting in the next year and
until the election and qualification of his successor. Any vacancy in any
of the offices may be filled for the unexpired portion of the term by the
Managing General Partners at any Regular or Special Meeting of the Managing
General Partners. The Chairman of Managing General Partners and the
President shall be chosen from among the Managing General Partners. The
Managing General Partners may elect or appoint additional Officers or
agents at any Regular or Special Meeting of the Managing General Partners.
Section 3. REMOVAL. Any Officer elected by the Managing General
Partners may be removed with or without cause at any time upon a vote of
the majority of the Managing General Partners. Any other employee of the
Partnership may be removed or dismissed at any time by the President.
Section 4. RESIGNATIONS. Any Officer may resign at any time by
giving written notice to the Managing General Partners. Any such
resignation shall take effect at the date of receipt of each notice or at
any later time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. VACANCIES. A vacancy in any Office because of death,
resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term in the manner prescribed in these By-
Laws for regular election or appointment to such Office.
Section 6. CHAIRMAN OF THE MANAGING GENERAL PARTNERS. The Chairman
of the Managing General Partners, if there be a Chairman, shall preside at
the meetings of Partners and of the Managing General Partners. He shall
receive such information and reports as he may request from the Officers of
the Partnership. He shall counsel and advise the President on matters of
major importance.
Section 7. PRESIDENT. The President shall be the chief executive
officer of the Partnership. He shall, unless other provisions are made
therefor by the Managing General Partners or Executive Committee, employ
and define the duties of all employees or agents of the Partnership, shall
have the power to discharge any such employees, shall exercise general
supervision over the affairs of the Partnership and shall perform such
other duties as may be assigned to him from time to time by the Managing
General Partners. In the absence of the Chairman, the President shall
preside at the meetings of Partners and of the Managing General Partners.
Section 8. VICE PRESIDENT. The Vice President (or if more than one,
the senior Vice President) in the absence of the President shall perform
all duties and may exercise and of the powers of the President subject to
the control of the Managing General Partners. Each Vice President shall
perform such other duties as may be assigned to him from time to time by
the Managing General Partners or the Executive Committee.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept
in books provided for the purpose the Minutes of the Meetings of the
Partners, and of the Managing General Partners; shall see that all Notices
are duly given in accordance with the provisions of these By-laws and as
required by Law; shall be custodian of the records and of the Seal of the
Partnership and see that the Seal is affixed to all documents, the
execution of which on behalf of the Partnership under its Seal is duly
authorized; shall keep directly or through a transfer agent a register of
the post office address of each Partner, and make all proper changes in
such register, retaining and filing his authority for such entries; shall
see that the Partnership Agreement, books, reports, statements,
certificates and all other documents and records required by law are
properly kept and filed; and in general shall perform all duties incident
to the Office of Secretary and such other duties as may, from time to time,
be assigned to him by the Managing General Partners or by the Executive
Committee.
Section 10. TREASURER. The Treasurer shall have supervision of the
custody of the funds and securities of the Partnership subject to the
Partnership Agreement and applicable law. Whenever required by the
Managing General Partners, the Treasurer shall make and render a statement
of the accounts of the partnership and such other statements as may be
required. He shall cause to be kept in books of the Partnership a full and
accurate account of all monies received and paid out for the account of the
Partnership. He shall perform such other duties as may be from time to
time assigned to him by the Managing General Partners or by the Executive
Committee.
Section 11. ASSISTANT VICE PRESIDENT. The Assistant President or
Vice Presidents of the Partnership shall have such authority and perform
such duties as may be assigned to them by the Managing General Partners,
the Executive Committee, or the President of the Partnership.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretary or Secretaries and the Assistant Treasurer or
Treasurers shall perform the duties of the Secretary and of the Treasurer
respectively, in the absence of those Officers and shall have such further
powers and perform such other duties as may be assigned to them
respectively by the Managing General Partners or the Executive Committee or
by the President.
Section 13. SALARIES. The salaries of the Office shall be fixed from
time to time by the Managing General Partners. No officer shall be
prevented from receiving such salary by reason of the fact that he is also
a Managing General Partner of the Partnership.
ARTICLE III
SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES. Certificates may be issued for units of
Partnership interest ("Shares"). All certificates shall be signed by a
Managing General Partner or the President and sealed with the seal of the
Partnership. The signatures may be either manual or facsimile signature
and the seal may be wither facsimile or any other form of Seal.
Certificates for Shares for which the Partnership has appointed an
independent Transfer Agent and Registrar shall not be valid unless
countersigned by such Transfer Agent and registered by such Registrar. In
case any Managing General Partner or Officer who has signed any certificate
ceases to be a Managing General Partner or an Officer of the Partnership
before the certificate is issued, the certificate may nevertheless be
issued by the Partnership with the same effect as if the Managing General
Partner or Officer had not ceased to be such as of the date of its
issuance. Shares certificates shall be in such form not inconsistent with
law or the Partnership Agreement or these By-Laws as may be determined by
the Managing General Partners.
Section 2. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case any
certificate is lost, mutilated or destroyed, the Managing General Partners
may issue a new certificate in place thereof upon indemnity to the
Partnership against loss and upon such other terms and conditions as the
Managing General Partner may deem advisable.
Section. 3. TRANSFER AGENT AND REGISTRAR: REGULATIONS. The Managing
General Partners shall have power and authority to make all such rules and
regulations as they may deem expedient concerning the issuance, transfer
and registrations of certificates of Shares and may appoint a Transfer
Agent and/or Registrar of certificates of Shares, and may require all such
Share certificates to bear the signature of such Transfer Agent and/or of
such Registrar.
ARTICLE IV
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. AGREEMENTS, ECT. The Managing General Partners or the
Executive Committee may authorize any Officer or Officers, or Agent or
Agents of the Partnership to enter into any Agreement or execute and
deliver any instrument in the name of and on behalf of the Partnership, and
such authority may be general or confined to specific instances; and,
unless so authorized by the Managing General Partners or by the Executive
Committee or by these By-Laws, no Officer, Agent or Employee shall have any
power or authority to bind the Partnership by any Agreement or engagement
or to pledge its credit or to render it liable pencuniarily for any purpose
or to any amount.
Section 2. CHECKS, DRAFTS, ECT. All checks, drafts, or orders for
the payment of money, notes and other evidences of indebtedness shall be
signed by such Officer or Officers, Employee or Employees, or Agent or
Agents as shall be from time to time designated by the Managing General
Partners or the Executive Committee, or as may be specified in or pursuant
to the agreement between the Partnership and the Bank or Trust Company
appointed as custodian, pursuant to the provisions of the Partnership
Agreement.
Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES.
All endorsements, assignments, stock powers or other instruments of
transfer of securities standing in the name of the Partnership or its
nominee directions for the transfer of securities belonging to the
Partnership shall be made by such Officer or Officers, Employee or
Employees, or Agent or Agents as may be authorized by the Managing General
Partners or the Executive Committee.
Section 4. EVIDENCE OF AUTHORITY. Anyone dealing with the
Partnership shall be fully justified in relying on a copy of a resolution
of the Managing General Partners or of any Committee thereof empowered to
act in the premises which is certified as true by the Secretary or an
Assistant Secretary under the seal of the Partnership.
Section 5. DESIGNATION OF A CUSTODIAN. The Partnership shall place
and at all times maintain in the custody of a Custodian all funds,
securities and similar investments owned by the Partnership, with the
exception of securities loaned under a properly authorized Securities Loan
Agreement. The Custodian shall be a bank having not less than $2,000,000
aggregate capital, surplus and undivided profits and shall be appointed
from time to time by the Managing General Partners, which shall fix its
remuneration.
Section 6. ACTION UPON TERMINATION OF A CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Managing General Partners shall promptly appoint a
successor custodian, but in the event that no successor custodian can be
found who has the required qualifications and is willing to serve, the
Managing General Partners shall call as promptly as possible a special
meeting of the Partners to determine whether the Partnership shall function
without a custodian or shall be dissolved.
ARTICLE V
MISCELLANEOUS
Section 1. SEAL. The Seal of the Partnership shall be a disk
inscribed with the words "Federated Exchange Fund, Ltd. 1976."
Section 2. AMENDMENTS BY MANAGING GENERAL PARTNERS. The Managing
General Partners shall have the power, at any Regular or Special Meeting or
by unanimous consent, to alter, amend or repeal any By-Laws of the
Partnership or to make new By-Laws.
Section 3. AMENDMENT BY PARTNERS. The Partners shall have the
power, at any Annual or Special Meeting, if notice thereof be included in
the notice of such meeting, to alter, amend or repeal any By-Laws of the
Partnership or to make new By-Laws.
Section 4. COMPENSATION OF MANAGING GENERAL PARTNERS. The Managing
General Partners may receive a stated salary for their services as Managing
General Partners , and by resolution of the Managing General Partners a
fixed fee and expense of attendance may be allowed for attendance at each
meeting. Nothing herein contained shall be construed to preclude any
Managing General Partner from serving the Fund in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Exhibit 2(i) under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
Amendment No. 1 to By-Laws
FEDERATED EXCHANGE FUND, LTD.
Effective February 17, 1984
ARTICLE I
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE.
The Managing General Partners, by resolution passed by a vote of at least a
majority of the Managing General Partners, may appoint an Executive
Committee, which shall consist of two (2) or more Managing General
Partners.
ARTICLE II
OFFICERS
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATION. The Officers
shall be elected annually by the Managing General Partners. Each Officer
shall hold office until the Annual Meeting in the next year and until the
election and qualification of his successor. Any vacancy in any of the
offices may be filled for the unexpired portion of the term by the Managing
General Partners at any Regular or Special Meeting of the Managing General
Partners. The Managing General Partners may elect or appoint additional
Officers or agents at any Regular or Special Meeting of the Managing
General Partners.
Section 7. PRESIDENT. The President shall be the chief executive
officer of the Partnership. He shall, unless other provisions are made
therefor by the Managing General Partners or Executive Committee, employ
and define the duties of all employees of the Partnership, shall have the
power to discharge any such employees, shall exercise general supervision
over the affairs of the Partnership and shall perform other duties as may
be assigned to him from time to time by the Managing General Partners. In
the absence of the Chairman of the Managing General Partners, the President
shall preside at all meeting of Partners.
Exhibit 2(i)
Amendment No. 1 to By-Laws
FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST
Effective February 2, 1987
ARTICLE II
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
Section 2. Chairman of the Trustees ("Chairman"). The Chairman
shall be the chief executive officer of the Trust. He shall have general
supervision over the business of the Trust and policies of the Trust. He
shall employ and define the duties of all employees of the Trust, shall
have power to discharge any such employees, shall exercise general
supervision over the affairs of the Trust and shall perform such other
duties as may be assigned to him from time to time by the Trustees. He
shall preside at the meetings of shareholders and of the Trustees. The
Chairman shall appoint a Trustee or officer to preside at such meetings in
his absence.
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the Funds
Held by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. 9
2.10 Payments for Repurchases or Redemptions of Shares of a
Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public Accountants/Auditors 16
6. Reports to Trust by Independent Public Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund")
of the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian", and FEDERATED SERVICES COMPANY, a Delaware business
trust company, having its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, hereinafter called
("Company").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets
of each of the Funds of the Trust. Except as otherwise expressly
provided herein, the securities and other assets of each of the Funds
shall be segregated from the assets of each of the other Funds and
from all other persons and entities. The Trust will deliver to the
Custodian all securities and cash owned by the Funds and all payments
of income, payments of principal or capital distributions received by
them with respect to all securities owned by the Funds from time to
time, and the cash consideration received by them for shares
("Shares") of beneficial interest/capital stock of the Funds as may
be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Funds held or received by the
Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions,
provided that the Custodian shall have no more or less responsibility
or liability to the Trust or any of the Funds on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than
securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities
System", or securities which are subject to a joint repurchase
agreement with affiliated funds pursuant to Section 2.14. The
Custodian shall maintain records of all receipts, deliveries
and locations of such securities, together with a current
inventory thereof, and shall conduct periodic physical
inspections of certificates representing stocks, bonds and
other securities held by it under this Contract in such manner
as the Custodian shall determine from time to time to be
advisable in order to verify the accuracy of such inventory.
With respect to securities held by any agent appointed
pursuant to Section 2.11 hereof, and with respect to
securities held by any sub-custodian appointed pursuant to
Section 1 hereof, the Custodian may rely upon certificates
from such agent as to the holdings of such agent and from such
sub-custodian as to the holdings of such sub-custodian, it
being understood that such reliance in no way relieves the
Custodian of its responsibilities under this Contract. The
Custodian will promptly report to the Trust the results of
such inspections, indicating any shortages or discrepancies
uncovered thereby, and take appropriate action to remedy any
such shortages or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by a Fund held by the Custodian or in
a Securities System account of the Custodian only upon receipt
of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the
following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Trust;
(3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 2.12
hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of a Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.11 or into the name
or nominee name of any sub-custodian appointed pursuant to
Section 1; or for exchange for a different number of
bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided
that, in any such case, the new securities are to be
delivered to the Custodian;
(7) Upon the sale of such securities for the account of a
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery custom"; provided that in any such case, the
Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities
prior to receiving payment for such securities except as
may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any
higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard
of reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified
by the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund
or in the name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for transfer, or
(c) securities of a description specified by the Trust,
transferred through a Securities System in accordance with
Section 2.12 hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released for the
purpose;
(12)For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian and a
broker-dealer registered under the Securities Exchange Act
of 1934, as amended, (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations,
regarding account deposits in connection with transaction
for a Fund;
(14)Upon receipt of instructions from the transfer agent
("Transfer Agent") for a Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, in satisfaction of requests by
holders of Shares for repurchase or redemption; and
(15)For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Executive Committee
of the Trust on behalf of a Fund signed by an officer of
the Trust and certified by its Secretary or an Assistant
Secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery
of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian
(other than bearer securities) shall be registered in the name
of a particular Fund or in the name of any nominee of the Fund
or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Fund, unless the Trust has
authorized in writing the appointment of a nominee to be used
in common with other registered investment companies
affiliated with the Fund, or in the name or nominee name of
any agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to
Section 1. All securities accepted by the Custodian on behalf
of a Fund under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the name of each Fund,
subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of each Fund,
other than cash maintained in a joint repurchase account with
other affiliated funds pursuant to Section 2.14 of this
Contract or by a particular Fund in a bank account established
and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940, as amended, (the "1940 Act"). Funds held
by the Custodian for a Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian
or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act and that each such bank
or trust company and the funds to be deposited with each such
bank or trust company shall be approved by vote of a majority
of the Board of Trustees/Directors ("Board") of the Trust.
Such funds shall be deposited by the Custodian in its capacity
as Custodian for the Fund and shall be withdrawable by the
Custodian only in that capacity. If requested by the Trust,
the Custodian shall furnish the Trust, not later than twenty
(20) days after the last business day of each month, an
internal reconciliation of the closing balance as of that day
in all accounts described in this section to the balance shown
on the daily cash report for that day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such
arrangements with the Transfer Agent of each Fund, as will
enable the Custodian to receive the cash consideration due to
each Fund and will deposit into each Fund's account such
payments as are received from the Transfer Agent. The
Custodian will provide timely notification to the Trust and
the Transfer Agent of any receipt by it of payments for Shares
of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between
the Trust and the Custodian, the Custodian shall make federal
funds available to the Funds as of specified times agreed upon
from time to time by the Trust and the Custodian in the amount
of checks, clearing house funds, and other non-federal funds
received in payment for Shares of the Funds which are
deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income
and other payments with respect to registered securities
held hereunder to which each Fund shall be entitled either
by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such
income, as collected, to each Fund's custodian account.
Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when
they become due and shall collect interest when due on
securities held hereunder. The collection of income due
the Funds on securities loaned pursuant to the provisions
of Section 2.2 (10) shall be the responsibility of the
Trust. The Custodian will have no duty or responsibility
in connection therewith, other than to provide the Trust
with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to
the Custodian of the income to which each Fund is properly
entitled.
(2) The Custodian shall promptly notify the Trust whenever
income due on securities is not collected in due course
and will provide the Trust with monthly reports of the
status of past due income unless the parties otherwise
agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out moneys of each
Fund in the following cases only:
(1) Upon the purchase of securities, futures contracts or
options on futures contracts for the account of a Fund but
only (a) against the delivery of such securities, or
evidence of title to futures contracts, to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under
the 1940 Act to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered
in the name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper
form for transfer, (b) in the case of a purchase effected
through a Securities System, in accordance with the
conditions set forth in Section 2.12 hereof or (c) in the
case of repurchase agreements entered into between the
Trust and any other party, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase for the account of the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2
hereof;
(3) For the redemption or repurchase of Shares of a Fund
issued by the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a
Fund, including but not limited to the following payments
for the account of the Fund: interest; taxes; management,
accounting, transfer agent and legal fees; and operating
expenses of the Fund, whether or not such expenses are to
be in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends on Shares of a Fund
declared pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect
of securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on
behalf of a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person
or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase
of securities for the account of a Fund is made by the
Custodian in advance of receipt of the securities purchased,
in the absence of specific written instructions from the Trust
to so pay in advance, the Custodian shall be absolutely liable
to the Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose of
repurchasing or redeeming Shares of a Fund, but subject to the
limitations of the Declaration of Trust/Articles of
Incorporation and any applicable votes of the Board of the
Trust pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for
payment to holders of shares of such Fund who have delivered
to the Transfer Agent a request for redemption or repurchase
of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means.
In connection with the redemption or repurchase of Shares of
the Funds, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming
shareholders.
2.11Appointment of Agents. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any
other bank or trust company which is itself qualified under
the 1940 Act and any applicable state law or regulation, to
act as a custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities
or liabilities hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian
may deposit and/or maintain securities owned by the Funds in a
clearing agency registered with the Securities and Exchange
Commission ("SEC") under Section 17A of the Exchange Act,
which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets
of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of
the Funds which are maintained in a Securities System
shall identify by book-entry those securities belonging to
each Fund;
(3) The Custodian shall pay for securities purchased for the
account of each Fund upon (i) receipt of advice from the
Securities System that such securities have been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The
Custodian shall transfer securities sold for the account
of a Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies
of all advices from the Securities System of transfers of
securities for the account of a Fund shall identify the
Fund, be maintained for the Fund by the Custodian and be
provided to the Trust at its request. Upon request, the
Custodian shall furnish the Trust confirmation of each
transfer to or from the account of a Fund in the form of a
written advice or notice and shall furnish to the Trust
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of a
Fund.
(4) The Custodian shall provide the Trust with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to a Fund resulting from use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Trust, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that a Fund has not been made
whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and
diligence in making use of any Securities System.
2.13Segregated Account. The Custodian shall upon receipt of
Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of each Fund, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Section 2.12 hereof, (i) in accordance with the
provisions of any agreement among the Trust, the Custodian and
a broker-dealer registered under the Exchange Act and a member
of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions
for a Fund, (ii) for purpose of segregating cash or government
securities in connection with options purchased, sold or
written for a Fund or commodity futures contracts or options
thereon purchased or sold for a Fund, (iii) for the purpose of
compliance by the Trust or a Fund with the procedures required
by any release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of
the Board or of the Executive Committee signed by an officer
of the Trust and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper
corporate purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any
assets of a Fund and any affiliated funds which are subject to
joint repurchase transactions in an account established solely
for such transactions for the Fund and its affiliated funds.
For purposes of this Section 2.14, "affiliated funds" shall
include all investment companies and their portfolios for
which subsidiaries or affiliates of Federated Investors serve
as investment advisers, distributors or administrators in
accordance with applicable exemptive orders from the SEC. The
requirements of segregation set forth in Section 2.1 shall be
deemed to be waived with respect to such assets.
2.15Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
of income or other payments with respect to securities of a
Fund held by it and in connection with transfers of
securities.
2.16Proxies. The Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are
registered otherwise than in the name of a Fund or a nominee
of a Fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver
to the Trust such proxies, all proxy soliciting materials and
all notices relating to such securities.
2.17Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls
and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If
the Trust desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian in writing at least three
business days prior to the date on which the Custodian is to
take such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the event
that notification is received three business days or less
prior to the date on which action is required.
2.18Proper Instructions. Proper Instructions as used throughout
this Section 2 means a writing signed or initialed by one or
more person or persons as the Board shall have from time to
time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a)
the Custodian reasonably believes them to have been given by a
person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved,
and (b) the Trust promptly causes such oral instructions to be
confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by
the Board of the Trust accompanied by a detailed description
of procedures approved by the Board, Proper Instructions may
include communications effected directly between electro-
mechanical or electronic devices provided that the Board and
the Custodian are satisfied that such procedures afford
adequate safeguards for a Fund's assets.
2.19Actions Permitted Without Express Authority. The Custodian
may in its discretion, without express authority from the
Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such
payments shall be accounted for to the Trust in such form
that it may be allocated to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks,
drafts and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of each Fund except as otherwise directed by
the Trust.
2.20Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed on
behalf of a Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of the Trust as
conclusive evidence (a) of the authority of any person to act
in accordance with such vote or (b) of any determination of or
any action by the Board pursuant to the Declaration of
Trust/Articles of Incorporation as described in such vote, and
such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Trust of any
receipt of cash, income or payments to the Trust and the
release of cash or payment by the Trust.
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information
to the entity or entities appointed by the Board of the Trust to keep
the books of account of each Fund and/or compute the net asset value
per share of the outstanding Shares of each Fund or, if directed in
writing to do so by the Trust, shall itself keep such books of
account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of
a Fund as described in the Fund's currently effective prospectus and
Statement of Additional Information ("Prospectus") and shall advise
the Trust and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the Trust
to do so, shall advise the Transfer Agent periodically of the
division of such net income among its various components. The
calculations of the net asset value per share and the daily income of
a Fund shall be made at the time or times described from time to time
in the Fund's currently effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act,
with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, and specifically including identified cost records
used for tax purposes. All such records shall be the property of the
Trust and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees or agents of the Trust and employees and agents of the SEC.
In the event of termination of this Contract, the Custodian will
deliver all such records to the Trust, to a successor Custodian, or
to such other person as the Trust may direct. The Custodian shall
supply daily to the Trust a tabulation of securities owned by a Fund
and held by the Custodian and shall, when requested to do so by the
Trust and for such compensation as shall be agreed upon between the
Trust and the Custodian, include certificate numbers in such
tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions
from each Fund's independent public accountants/auditors with respect
to its activities hereunder in connection with the preparation of the
Fund's registration statement, periodic reports, or any other reports
to the SEC and with respect to any other requirements of such
Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian for the Fund under
this Contract; such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Trust, to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination and, if there are no such inadequacies,
the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in
carrying out the provisions of this Contract; provided, however, that
the Custodian shall be held to any higher standard of care which
would be imposed upon the Custodian by any applicable law or
regulation if such above stated standard of reasonable care was not
part of this Contract. The Custodian shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for the Trust)
on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice, provided that
such action is not in violation of applicable federal or state laws
or regulations, and is in good faith and without negligence. Subject
to the limitations set forth in Section 15 hereof, the Custodian
shall be kept indemnified by the Trust but only from the assets of
the Fund involved in the issue at hand and be without liability for
any action taken or thing done by it in carrying out the terms and
provisions of this Contract in accordance with the above standards.
In order that the indemnification provisions contained in this
Section 8 shall apply, however, it is understood that if in any case
the Trust may be asked to indemnify or save the Custodian harmless,
the Trust shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood
that the Custodian will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification. The Trust shall have the option to defend the
Custodian against any claim which may be the subject of this
indemnification, and in the event that the Trust so elects it will so
notify the Custodian and thereupon the Trust shall take over complete
defense of the claim, and the Custodian shall in such situation
initiate no further legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the
Trust will be asked to indemnify the Custodian except with the
Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance
with a separate Agreement entered into between the Custodian and the
Trust.
If the Trust requires the Custodian to take any action with respect
to securities, which action involves the payment of money or which
action may, in the reasonable opinion of the Custodian, result in the
Custodian or its nominee assigned to a Fund being liable for the
payment of money or incurring liability of some other form, the
Custodian may request the Trust, as a prerequisite to requiring the
Custodian to take such action, to provide indemnity to the Custodian
in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee
from and against all taxes, charges, expenses, assessments, claims
and liabilities (including counsel fees) (referred to herein as
authorized charges) incurred or assessed against it or its nominee in
connection with the performance of this Contract, except such as may
arise from it or its nominee's own failure to act in accordance with
the standard of reasonable care or any higher standard of care which
would be imposed upon the Custodian by any applicable law or
regulation if such above-stated standard of reasonable care were not
part of this Contract. To secure any authorized charges and any
advances of cash or securities made by the Custodian to or for the
benefit of a Fund for any purpose which results in the Fund incurring
an overdraft at the end of any business day or for extraordinary or
emergency purposes during any business day, the Trust hereby grants
to the Custodian a security interest in and pledges to the Custodian
securities held for the Fund by the Custodian, in an amount not to
exceed 10 percent of the Fund's gross assets, the specific securities
to be designated in writing from time to time by the Trust or the
Fund's investment adviser. Should the Trust fail to make such
designation, or should it instruct the Custodian to make advances
exceeding the percentage amount set forth above and should the
Custodian do so, the Trust hereby agrees that the Custodian shall
have a security interest in all securities or other property
purchased for a Fund with the advances by the Custodian, which
securities or property shall be deemed to be pledged to the
Custodian, and the written instructions of the Trust instructing
their purchase shall be considered the requisite description and
designation of the property so pledged for purposes of the
requirements of the Uniform Commercial Code. Should the Trust fail
to cause a Fund to repay promptly any authorized charges or advances
of cash or securities, subject to the provision of the second
paragraph of this Section 8 regarding indemnification, the Custodian
shall be entitled to use available cash and to dispose of pledged
securities and property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument
in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than sixty (60) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Trust has approved the initial use of
a particular Securities System as required in each case by Rule 17f-4
under the 1940 Act; provided further, however, that the Trust shall
not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the
Declaration of Trust/Articles of Incorporation, and further provided,
that the Trust may at any time by action of its Board (i) substitute
another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this
Contract in the event of the appointment of a conservator or receiver
for the Custodian by the appropriate banking regulatory agency or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the
Trust, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and
in the form for transfer, all securities then held by it hereunder
for each Fund and shall transfer to separate accounts of the
successor custodian all of each Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of
the Board of the Trust, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance
with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board shall have been delivered to
the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the 1940
Act, (delete "doing business ... Massachusetts" unless SSBT is the
Custodian) doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$100,000,000, all securities, funds and other properties held by the
Custodian and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract for each Fund
and to transfer to separate accounts of such successor custodian all
of each Fund's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination hereof
owing to failure of the Trust to procure the certified copy of the
vote referred to or of the Board to appoint a successor custodian,
the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian
shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Contract as may in their
joint opinion be consistent with the general tenor of this Contract.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Declaration of Trust/Articles of Incorporation. No interpretive or
additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to the Custodian at address for SSBT only: 225 Franklin Street,
Boston, Massachusetts, 02110, or to such other address as the Trust
or the Custodian may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust of
those Trusts which are business trusts and agrees that the
obligations and liabilities assumed by the Trust and any Fund
pursuant to this Contract, including, without limitation, any
obligation or liability to indemnify the Custodian pursuant to
Section 8 hereof, shall be limited in any case to the relevant Fund
and its assets and that the Custodian shall not seek satisfaction of
any such obligation from the shareholders of the relevant Fund, from
any other Fund or its shareholders or from the Trustees, Officers,
employees or agents of the Trust, or any of them. In addition, in
connection with the discharge and satisfaction of any claim made by
the Custodian against the Trust, for whatever reasons, involving more
than one Fund, the Trust shall have the exclusive right to determine
the appropriate allocations of liability for any such claim between
or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed effective as of the 1st day of December,
1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle By /s/John G. Donahue
--------- -------------
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie By /s/ F. J. Sidoti, Jr.
-------------- -----------
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By /s/ James J. Dolan
------ ----------------
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
12/1/93 Federated Exchange Fund, Ltd.
</TABLE>
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as of this 1st day
of March, 1994, by the Boards of Directors or Trustees, as applicable (the
"Boards"), of those investment companies listed on Exhibit 1 hereto as may
be amended from time to time, having their principal office and place of
business at Federated Investors Tower, Pittsburgh, PA 15222-3779
(individually referred to herein as a "Fund" and collectively as "Funds").
1. This Plan is adopted to allow the Funds to make payments as
contemplated herein to obtain certain personal services for shareholders
and/or the maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate Federated Shareholder
Services ("FSS") for providing personal services and/or the maintenance of
shareholder accounts to the Funds and their shareholders. In compensation
for the services provided pursuant to this Plan, FSS may be paid a monthly
fee computed at the annual rate not to exceed .25 of 1% of the average
aggregate net asset value of the shares of each Fund held during the month.
3. Any payments made by the Funds to FSS pursuant to this Plan
will be made pursuant to a "Shareholder Services Agreement" between FSS and
each of the Funds.
4. Quarterly in each year that this Plan remains in effect, FSS
shall prepare and furnish to the Boards of the Funds, and the Boards shall
review, a written report of the amounts expended under the Plan.
5. This Plan shall become effective with regard to each Fund
(i) after approval by majority votes of: (a) such Fund's Board; and (b)
the members of the Board of such Fund who are not interested persons of
such Fund and have no direct or indirect financial interest in the
operation of such Fund's Plan or in any related documents to the Plan
("Independent Trustees or Directors"), cast in person at a meeting called
for the purpose of voting on the Plan.
6. This Plan shall remain in effect with respect to each Fund
presently set forth on an exhibit and any subsequent Fund added pursuant to
an exhibit during the initial year of this Plan for the period of one year
from the date set forth above and may be continued thereafter if this Plan
is approved with respect to each Fund at least annually by a majority of
the relevant Fund's Board and a majority of the Independent Trustees or
Directors, of such Fund as applicable, cast in person at a meeting called
for the purpose of voting on the renewal of such Plan. If this Plan is
adopted with respect to a fund after the first annual approval by the
Trustees or Directors as described above, this Plan will be effective as to
that Fund at such time as Exhibit 1 hereto is amended to add such Fund and
will continue in effect until the next annual approval of this Plan by the
Funds' Boards and thereafter for successive periods of one year subject to
approval as described above.
7. All material amendments to this Plan must be approved by a vote
of the Board of each Fund and of the Independent Directors or Trustees of
such Fund, cast in person at a meeting called for such purpose.
8. This Plan may be terminated as follows:
(a) at any time, without the payment of any penalty, by the
vote of a majority of the Independent Board Members of any Fund or
by a vote of a majority of the outstanding voting securities of any
Fund as defined in the Investment Company Act of 1940 on sixty (60)
days' written notice to the parties to this Agreement; or
(b) by any party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of its
intention to terminate.
9. While this Plan shall be in effect, the selection and
nomination of Independent Directors or Trustees of each Fund shall be
committed to the discretion of the Independent Directors or Trustees then
in office.
10. All agreements with any person relating to the implementation
of this Plan shall be in writing and any agreement related to this Plan
shall be subject to termination, without penalty, pursuant to the
provisions of Paragraph 8 herein.
11. This Plan shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
Witness the due execution hereof this as of the date set forth above.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 1
Federated Exchange Fund, Ltd.
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES SUB-CONTRACT
This Agreement is made between the Financial Institution executing
this Agreement ("Provider") and Federated Shareholder Services ("FSS") on
behalf of the investment companies listed in Exhibit A hereto (the
"Funds"), for whom FSS administers the Shareholder Services Plan ("Plan")
and who have approved this form of Agreement. In consideration of the
mutual covenants hereinafter contained, it is hereby agreed by and between
the parties hereto as follows:
1. FSS hereby appoints Provider to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance of
accounts of shareholders of the Funds ("Services"). Provider agrees to
provide Services which, in its best judgment, are necessary or desirable
for its customers who are investors in the Funds. Provider further agrees
to provide FSS, upon request, a written description of the Services which
Provider is providing hereunder.
2. During the term of this Agreement, the Funds will pay the
Provider fees as set forth in a written schedule delivered to the Provider
pursuant to this Agreement. The fee schedule for Provider may be changed
by FSS sending a new fee schedule to Provider pursuant to Paragraph 9 of
this Agreement. For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the fee
on the basis of the number of days that this Agreement is in effect during
the quarter. To enable the Funds to comply with an applicable exemptive
order, Provider represents that the fees received pursuant to this
Agreement will be disclosed to its customers, will be authorized by its
customers, and will not result in an excessive fee to the Provider.
3. The Provider understands that the Department of Labor views
ERISA as prohibiting fiduciaries of discretionary ERISA assets from
receiving shareholder service fees or other compensation from funds in
which the fiduciary's discretionary ERISA assets are invested. To date,
the Department of Labor has not issued any exemptive order or advisory
opinion that would exempt fiduciaries from this interpretation. Without
specific authorization from the Department of Labor, fiduciaries should
carefully avoid investing discretionary assets in any fund pursuant to an
arrangement where the fiduciary is to be compensated by the fund for such
investment. Receipt of such compensation could violate ERISA provisions
against fiduciary self-dealing and conflict of interest and could subject
the fiduciary to substantial penalties.
4. The Provider agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Fund in opposition to proxies solicited by management of
the Fund, unless a court of competent jurisdiction shall have determined
that the conduct of a majority of the Board of Trustees or Directors of the
Fund constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This paragraph 4 will survive the term
of this Agreement.
5. This Agreement shall continue in effect for one year from the
date of its execution, and thereafter for successive periods of one year if
the form of this Agreement is approved at least annually by the Board of
each Fund, including a majority of the members of the Board of the Fund who
are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Fund's Plan or in any related
documents to the Plan ("Disinterested Board Members") cast in person at a
meeting called for that purpose.
6. Notwithstanding paragraph 5, this Agreement may be terminated
as follows:
(a) at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Board Members of the Fund
or by a vote of a majority of the outstanding voting securities of
the Fund as defined in the Investment Company Act of 1940 on not
more than sixty (60) days' written notice to the parties to this
Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by either party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice of
its intention to terminate.
7. The Provider agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to
provide the Fund or its designee with timely written notice of any failure
to obtain such taxpayer identification number certification in order to
enable the implementation of any required backup withholding.
8. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any
of the Trustees or shareholders of FSS, but bind only the trust property of
FSS as provided in the Declaration of Trust of FSS.
9. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to
Provider at the address set forth below and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
10. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this Agreement
shall be held or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Sections 5 and 6, hereof,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein shall be construed
in a manner inconsistent with the Investment Company Act of 1940 or any
rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
11. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
12. This Agreement shall not be assigned by any party without the
prior written consent of FSS in the case of assignment by Provider, or of
Provider in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
13. This Agreement may be amended by FSS from time to time by the
following procedure. FSS will mail a copy of the amendment to the
Provider's address, as shown below. If the Provider does not object to the
amendment within thirty (30) days after its receipt, the amendment will
become part of the Agreement. The Provider's objection must be in writing
and be received by FSS within such thirty days.
14. This Agreement may be terminated with regard to a particular
Fund or Class at any time, without the payment of any penalty, by FSS or by
the vote of a majority of the Disinterested Trustees or Directors, as
applicable, or by a majority of the outstanding voting securities of the
particular Fund or Class on not more than sixty (60) days' written notice
to the Provider. This Agreement may be terminated by Provider on sixty
(60) days' written notice to FSS.
15. The Provider acknowledges and agrees that FSS has entered into
this Agreement solely in the capacity of agent for the Funds and
administrator of the Plan. The Provider agrees not to claim that FSS is
liable for any responsibilities or amounts due by the Funds hereunder.
[Provider]
Address
City State Zip Code
Dated: By:
Authoried Signature
Title
Print Name of Authorized Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
EXHIBIT A to Shareholder Services Sub-Contract with
Funds covered by this Agreement:
Federated Exchange Fund, Ltd.
Shareholder Service Fees
1. During the term of this Agreement, FSS will pay Provider a
quarterly fee. This fee will be computed at the annual rate of of
------
the average net asset value of shares of the Funds held during the quarter
in accounts for which the Provider provides Services under this Agreement,
so long as the average net asset value of Shares in the Funds during the
quarter equals or exceeds such minimum amount as FSS shall from time to
time determine and communicate in writing to the Provider.
2. For the quarterly period in which the Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the quarter.
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the first day of March, 1994, by and between
those investment companies listed on Exhibit 1, as may be amended from time
to time, having their principal office and place of business at Federated
Investors Tower, Pittsburgh, PA 15222-3779 and who have approved a
Shareholder Services Plan (the "Plan") and this form of Agreement
(individually referred to herein as a "Fund" and collectively as "Funds")
and Federated Shareholder Services, a Delaware business trust, having its
principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance of
accounts of shareholders of the Funds ("Services"). In addition to
providing Services directly to shareholders of the Funds, FSS is hereby
appointed the Funds' agent to select, negotiate and subcontract for the
performance of Services. FSS hereby accepts such appointments. FSS agrees
to provide or cause to be provided Services which, in its best judgment
(subject to supervision and control of the Funds' Boards of Trustees or
Directors, as applicable), are necessary or desirable for shareholders of
the Funds. FSS further agrees to provide the Funds, upon request, a
written description of the Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and
FSS agrees to accept as full compensation for its services rendered
hereunder a fee at an annual rate, calculated daily and payable monthly, up
to 0.25% of 1% of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month. To
enable the Funds to comply with an applicable exemptive order, FSS
represents that the fees received pursuant to this Agreement will be
disclosed to and authorized by any person or entity receiving Services, and
will not result in an excessive fee to FSS.
3. This Agreement shall continue in effect for one year from the
date of its execution, and thereafter for successive periods of one year
only if the form of this Agreement is approved at least annually by the
Board of each Fund, including a majority of the members of the Board of the
Fund who are not interested persons of the Fund and have no direct or
indirect financial interest in the operation of the Funds' Plan or in any
related documents to the Plan ("Independent Board Members") cast in person
at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated
as follows:
(a) at any time, without the payment of any penalty, by the
vote of a majority of the Independent Board Members of any Fund or
by a vote of a majority of the outstanding voting securities of any
Fund as defined in the Investment Company Act of 1940 on sixty (60)
days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of its
intention to terminate.
5. FSS agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it provides
Services that is required under Section 3406 of the Internal Revenue Code,
and any applicable Treasury regulations, and to provide each Fund or its
designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. FSS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for such Fund) on all matters,
and shall be without liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an officer, trustee,
partner, employee or agent of FSS, who may be or become a member of such
Fund's Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
8. FSS is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust of each Fund that is a
Massachusetts business trust and agrees that the obligations assumed by
each such Fund pursuant to this Agreement shall be limited in any case to
such Fund and its assets and that FSS shall not seek satisfaction of any
such obligations from the shareholders of such Fund, the Trustees,
Officers, Employees or Agents of such Fund, or any of them.
9. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any
of the Trustees or shareholders of FSS, but bind only the trust property of
FSS as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to
any Fund and to such Fund at the following address: Federated Investors
Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered
to FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this Agreement
shall be held or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Sections 3 and 4, hereof,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein shall be construed
in a manner inconsistent with the Investment Company Act of 1940 or any
rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the
prior written consent of FSS in the case of assignment by any Fund, or of
the Funds in the case of assignment by FSS, except that any party may
assign to a successor all of or a substantial portion of its business to a
party controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 1
Federated Exchange Fund, Ltd.
Exhibit 9(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this first day
of March, 1994, between those investment companies listed on Exhibit 1, as
may be amended from time to time, having their principal office and place
of business at Federated Investors Tower, Pittsburgh PA 15222-3779
(individually referred to herein as "Fund" and collectively referred to as
"Funds), on behalf of the portfolios of the Funds, and Federated
Administrative Services, a Delaware business trust (herein called "FAS").
WHEREAS, the Funds desire to retain FAS as their Administrator to
provide them with Administrative Services (as herein defined), and FAS is
willing to render such services;
WHEREAS, the Funds are registered as open-end management investment
companies under the Investment Company Act of 1940, as amended (the "1940
Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares"); and
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Funds hereby appoint FAS as
Administrator of the Funds on the terms and conditions set forth in this
Agreement; and FAS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to the
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable (the "Boards"), FAS will provide facilities, equipment, and
personnel to carry out the following administrative services for operation
of the business and affairs of the Funds and each of their portfolios:
(a) prepare, file, and maintain the
Funds' governing documents and any amendments thereto,
including the Declaration of Trust or Articles of
Incorporation, as appropriate,(which has already been
prepared and filed), the By-laws and minutes of meetings of
their Boards, Committees, and shareholders;
(b) prepare and file with the
Securities and Exchange Commission and the appropriate state
securities authorities the registration statements for the
Funds and the Funds' shares and all amendments thereto,
reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all
as may be necessary to enable the Funds to make continuous
offerings of their shares, as applicable;
(c) prepare, negotiate, and administer
contracts on behalf of the Funds with, among others, each
Fund's investment adviser, distributor, custodian, and
transfer agent, subject to any applicable restrictions of the
Boards or the 1940 Act;
(d) supervise the Funds' custodians in
the maintenance of the Funds' general ledgers and in the
preparation of the Funds' financial statements, including
oversight of expense accruals and payments, the determination
of the net asset value of the Funds and the declaration and
payment of dividends and other distributions to shareholders;
(e) calculate performance data of the
Funds for dissemination to information services covering the
investment company industry;
(f) prepare and file the Funds' tax
returns;
(g) examine and review the operations
of the Funds' custodians and transfer agents;
(h) coordinate the layout and printing
of publicly disseminated prospectuses and reports;
(i) perform internal audit examinations
in accordance with a charter to be adopted by FAS and the
Funds;
(j) assist with the design,
development, and operation of the Funds;
(k) provide individuals reasonably
acceptable to the Funds' Boards for nomination, appointment,
or election as officers of the Funds, who will be responsible
for the management of certain of the Funds' affairs as
determined by the Funds' Boards; and
(l) consult with the Funds and their
Boards of Trustees or Directors, as appropriate, on matters
concerning the Funds and their affairs.
The foregoing, along with any additional services that FAS shall
agree in writing to perform for the Funds hereunder, shall hereafter be
referred to as "Administrative Services." Administrative Services shall
not include any duties, functions, or services to be performed for any
Fund by such Fund's investment adviser, distributor, custodian, transfer
agent, or shareholder service agent, pursuant to their respective
agreements with such Fund.
3. Expenses. FAS shall be responsible for expenses incurred in
providing office space, equipment, and personnel as may be necessary or
convenient to provide the Administrative Services to the Fund, including
the compensation of FAS employees who serve on the Funds' Boards, or as
officers of the Funds. Each Fund shall be responsible for all other
expenses incurred by FAS on behalf of such Fund, including without
limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, insurance premiums, fees payable to members of such
Fund's Board who are not FAS employees, and trade association dues.
4. Compensation. For the Administrative Services provided, each
Fund hereby agrees to pay and FAS hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee at
an annual rate, payable daily, as specified below, based upon the total
assets of all of the Funds:
Maximum Administrative Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of
$750 million
However, in no event shall the administrative fee received during
any year of this Agreement be less than, or be paid at a rate less than
would aggregate, $125,000, per individual Fund, with an additional $30,000
for each class of shares added to any such Fund after the date hereof.
5. Standard of Care.
(a) FAS shall not be liable for any
error of judgment or mistake of law or for any loss suffered
by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. FAS shall
be entitled to rely on and may act upon advice of counsel
(who may be counsel for such Fund) on all matters, and shall
be without liability for any action reasonably taken or
omitted pursuant to such advice. Any person, even though
also an officer, trustee, partner, employee or agent of FAS,
who may be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of
such Fund (other than services or business in connection with
the duties of FAS hereunder) to be rendering such services to
or acting solely for such Fund and not as an officer,
trustee, partner, employee or agent or one under the control
or direction of FAS even though paid by FAS.
(b) This Section 5 shall survive
termination of this Agreement.
6. Duration and Termination. The initial term of this Agreement
with respect to each Fund shall commence on the date hereof, and extend
for a period of one year, renewable annually by the approval of the Board
of Directors/Trustees of each Fund.
7. Amendment. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which an enforcement of the change,
waiver, discharge or termination is sought.
8. Limitations of Liability of Trustees or Officers, Employees,
Agents and Shareholders of the Funds. FAS is expressly put on notice of
the limitation of liability as set forth in the Declaration of Trust of
each Fund that is a Massachusetts business trust and agrees that the
obligations assumed by each such Fund pursuant to this Agreement shall be
limited in any case to such Fund and its assets and that FAS shall not
seek satisfaction of any such obligations from the shareholders of such
Fund, the Trustees, Officers, Employees or Agents of such Fund, or any of
them.
9. Limitations of Liability of Trustees and Shareholders of FAS.
The execution and delivery of this Agreement have been authorized by the
Trustees of FAS and signed by an authorized officer of FAS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FAS, but bind only the trust property of FAS
as provided in the Declaration of Trust of FAS.
10. Notices. Notices of any kind to be given hereunder shall
be in writing (including facsimile communication) and shall be duly given
if delivered to any Fund at the following address: Federated Investors
Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered
to FAS at Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President.
11. Miscellaneous. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior agreement
with respect to the subject hereof whether oral or written. The captions
in this Agreement are included for convenience of reference only and in no
way define or delimit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this Agreement shall be
held or made invalid by a court or regulatory agency decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby. Subject to the provisions of Section 5, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. Counterparts. This Agreement may be executed by different
parties on separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
13. Assignment; Successors. This Agreement shall not be assigned
by any party without the prior written consent of FAS, in the case of
assignment by any Fund, or of the Funds, in the case of assignment by FAS,
except that any party may assign to a successor all of or a substantial
portion of its business to a party controlling, controlled by, or under
common control with such party. Nothing in this Section 14 shall prevent
FAS from delegating its responsibilities to another entity to the extent
provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Administrative Services
By: /s/ Edward C. Gonzales
Edward C. Gonzales
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 1
Federated Exchange Fund, Ltd.
Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively
as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a Delaware
business trust, having its principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (the
"Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company is willing to furnish such
services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer
agent, dividend disbursing agent if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market
quotations, including the use of matrix pricing, supplied by
the independent pricing services selected by the Company in
consultation with the adviser, or sources selected by the
adviser, and reviewed by the board; secondarily, if a
designated pricing service does not provide a price for a
security which the Company believes should be available by
market quotation, the Company may obtain a price by calling
brokers designated by the investment adviser of the fund
holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to
find brokers to price those securities; thirdly, for
securities for which no market price is available, the Pricing
Committee of the Board will determine a fair value in good
faith. Consistent with Rule 2a-4 of the 40 Act, estimates may
be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside
pricing services and designated brokers or other outside
sources, is to exercise reasonable care in the supervision of
the pricing agent. The Company is not the guarantor of the
securities prices received from such agents and the Company is
not liable to the Fund for potential errors in valuing a
Fund's assets or calculating the net asset value per share of
such Fund or Class when the calculations are based upon such
prices. All of the above sources of prices used as described
are deemed by the Company to be authorized sources of security
prices. The Company provides daily to the adviser the
securities prices used in calculating the net asset value of
the fund, for its use in preparing exception reports for those
prices on which the adviser has comment. Further, upon receipt
of the exception reports generated by the adviser, the Company
diligently pursues communication regarding exception reports
with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or
Class, at the time and in the manner from time to time
determined by the Board and as set forth in the Prospectus and
Statement of Additional Information ("Prospectus") of each
Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund,
and/or Class, as required under Section 31(a) of the 1940 Act
and the Rules thereunder in connection with the services
provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records to be maintained by Rule 31a-1 under the
1940 Act in connection with the services provided by the
Company. The Company further agrees that all such records it
maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust such records
upon the Trust's request;
G. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by
the Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services
rendered pursuant to Section One of this Agreement in
accordance with the fees agreed upon from time to time between
the parties hereto. Such fees do not include out-of-pocket
disbursements of the Company for which the Funds shall
reimburse the Company upon receipt of a separate invoice. Out-
of-pocket disbursements shall include, but shall not be
limited to, the items agreed upon between the parties from
time to time.
B. The Fund and/or the Class, and not the Company, shall bear the
cost of: custodial expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency
expenses; investment advisory expenses; costs of printing and
mailing stock certificates, Prospectuses, reports and notices;
administrative expenses; interest on borrowed money; brokerage
commissions; taxes and fees payable to federal, state and
other governmental agencies; fees of Trustees or Directors of
the Trust; independent auditors expenses; Federated
Administrative Services and/or Federated Administrative
Services, Inc. legal and audit department expenses billed to
Federated Services Company for work performed related to the
Trust, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly
payable by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request
of the Company. The Company will maintain detailed information
about the compensation and out-of-pocket expenses by Fund and
Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
E. The fee for the period from the effective date of this
Agreement with respect to a Fund or a Class to the end of the
initial month shall be prorated according to the proportion
that such period bears to the full month period. Upon any
termination of this Agreement before the end of any month, the
fee for such period shall be prorated according to the
proportion which such period bears to the full month period.
For purposes of determining fees payable to the Company, the
value of the Fund's net assets shall be computed at the time
and in the manner specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited
to assist it in performing services under this Section One.
Such person or persons may be third-party service providers,
or they may be officers and employees who are employed by both
the Company and the Funds. The compensation of such person or
persons shall be paid by the Company and no obligation shall
be incurred on behalf of the Trust, the Funds, or the Classes
in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be amended
in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of
the relevant Fund, (the "Custodian"). The Company shall
notify the Fund and the Custodian on a daily basis of the
total amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes,
subject to any Proper Instructions regarding the delivery
of certificates.
(4) In the event that any check or other order for the
purchase of Shares of the Fund and/or Class is returned
unpaid for any reason, the Company shall debit the Share
account of the Shareholder by the number of Shares that
had been credited to its account upon receipt of the check
or other order, promptly mail a debit advice to the
Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares
exceeds proceeds of the redemption of such Shares plus the
amount of any dividends paid with respect to such Shares,
the Fund and/the Class or its distributor will reimburse
the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with
the provisions of its governing document and the then-
current Prospectus of the Fund. The Company shall prepare
and mail or credit income, capital gain, or any other
payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the
estimated amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash
amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received
with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any
such distribution or dividend, appropriate credits shall
be made to the Shareholder's account, for certificated
Funds and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each
Fund and Class and advise the Trust, each Fund and Class
and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and
redemption directions and, if such redemption requests
comply with the procedures as may be described in the Fund
Prospectus or set forth in Proper Instructions, deliver
the appropriate instructions therefor to the Custodian.
The Company shall notify the Funds on a daily basis of the
total amount of redemption requests processed and monies
paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-
current Prospectus of the Fund.
(3) If any certificate returned for redemption or other
request for redemption does not comply with the procedures
for redemption approved by the Fund, the Company shall
promptly notify the Shareholder of such fact, together
with the reason therefor, and shall effect such redemption
at the price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the Securities and Exchange Commission ("SEC") a
record of the total number of Shares of the Fund and/or
Class which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. The Company shall
also provide the Fund on a regular basis or upon
reasonable request with the total number of Shares which
are authorized and issued and outstanding, but shall have
no obligation when recording the issuance of Shares,
except as otherwise set forth herein, to monitor the
issuance of such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant
to applicable rules of the SEC relating to the services to
be performed hereunder in the form and manner as agreed to
by the Trust or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case of
a foreign account or an account for which withholding
is required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by
this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the
periods prescribed in said rules as specifically noted
below. Such record retention shall be at the expense of
the Company, and such records may be inspected by the Fund
at reasonable times. The Company may, at its option at any
time, and shall forthwith upon the Fund's demand, turn
over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the
Company pursuant to this Agreement, which are no longer
needed by the Company in performance of its services or
for its protection. If not so turned over to the Fund,
such records and documents will be retained by the Company
for six years from the year of creation, during the first
two of which such documents will be in readily accessible
form. At the end of the six year period, such records and
documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in
each state for "blue sky" purposes as determined
according to Proper Instructions delivered from time
to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from time
to time.
(2) The Company shall prepare in the appropriate form, file
with the Internal Revenue Service and appropriate state
agencies, and, if required, mail to Shareholders, such
notices for reporting dividends and distributions paid as
are required to be so filed and mailed and shall withhold
such sums as are required to be withheld under applicable
federal and state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account
or similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports
and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien accounts),
preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms
required with respect to dividends and distributions
by federal authorities for all Shareholders,
preparing and mailing confirmation forms and
statements of account to Shareholders for all
purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class
sold in each state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated
as exempt from the blue sky reporting for each state
and (ii) verify the classification of transactions
for each state on the system prior to activation and
thereafter monitor the daily activity for each state.
The responsibility of the Company for each Fund's
and/or Class's state blue sky registration status is
limited solely to the recording of the initial
classification of transactions or accounts with
regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to
the Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund
in connection with Shareholder Meetings of each Fund;
receive, examine and tabulate returned proxies, and
certify the vote of the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account
of, such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized
by the Trust and shall bear the seal of the Trust or facsimile
thereof; and notwithstanding the death, resignation or removal of
any officer of the Trust authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject
to written agreement between the Trust and the Company. Pursuant
to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund
into Classes or other sub-components for recordkeeping purposes.
The Company will charge the Fund the same fees for each such
Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request
of the Company. The Company will maintain detailed information
about the compensation and out-of-pocket expenses by Fund and
Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
A. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
B. The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17A(c)(1)
of the Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS
subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other
provider of services duly registered as a transfer agent under
Section 17A(c)(1) as Company shall select; provided, however,
that the Company shall be as fully responsible to the Trust
for the acts and omissions of any subcontractor as it is for
its own acts and omissions; or
C. The Company shall upon instruction from the Trust subcontract
for the performance hereof with an Agent selected by the
Trust, other than BFDS or a provider of services selected by
Company, as described in (2) above; provided, however, that
the Company shall in no way be responsible to the Trust for
the acts and omissions of the Agent.
SECTION THREE: Custody Services Procurement.
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved
by the Board as eligible for selection by the Company as a custodian (the
"Eligible Custodian"). The Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
A. evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust
as Custodian of the Trust's assets substantially on the terms
set forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
D. establish procedures to monitor the nature and the quality of
the services provided by the Custodians;
E. continuously monitor the nature and the quality of services
provided by the Custodians; and
F. periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with
respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable it
to fulfill its duties and obligations under Sections 17(f) and
36(b) of the 1940 Act and other duties and obligations
thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three
of this Agreement, the Trust and/or the Fund agree to pay the
Company an annual fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time
to time. In addition, any other expenses incurred by the Company
at the request or with the consent of the Trust and/or the Fund,
will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request
of the Company. The Company will maintain detailed information
about the compensation and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to
enter into this arrangement and to provide the services contemplated in
Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates
of the Trust or the Funds in the forms approved by the
Board of the Trust with a certificate of the Secretary of
the Trust as to such approval;
(4) All account application forms and other documents relating
to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(3) A certified copy of each amendment to the governing
document and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement,
and shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing
Shares of any Fund, accompanied by Board resolutions
approving such forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State
of Delaware.
(3) It is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
(6) It is in compliance with federal securities law
requirements and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing
and in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform its obligations
under this Agreement;
(3) All corporate proceedings required by said Charter and By-
Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;
(4) The Trust is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings
have been made and will continue to be made, with respect
to all Shares of each Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in
carrying out the provisions of this Contract. The Company shall
be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted
pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and
is in good faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and
affiliates, harmless against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-
adviser or other party contracted by or approved by the
Trust or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of
the Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of
the Funds; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other
third parties contracted by or approved by the Trust
of Fund for use in the performance of services under
this Agreement;
(d) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on behalf
of the Trust.
(3) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Trust or the Fund.
(4) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations of any
state that such Shares be registered in such state or in
violation of any stop order or other determination or
ruling by any federal agency or any state with respect to
the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.A. from liability for any act or
omission resulting from the Company's willful misfeasance,
bad faith, negligence or reckless disregard of its duties
of failure to meet the standard of care set forth in 15.A.
above.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company
and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the
proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other
party may be required to indemnify it except with the other
party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust exercise
its rights to terminate, all out-of-pocket expenses associated with the
movement of records and materials will be borne by the Trust or the
appropriate Fund. Additionally, the Company reserves the right to charge
for any other reasonable expenses associated with such termination. The
provisions of Article 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions interpretive of
or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Charter. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to
such other address as the Trust or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by an authorized officer of the
Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Trust, but bind only the
appropriate property of the Fund, or Class, as provided in the
Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Company, but bind only
the property of the Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to such
successor agent at the office of the Company all properties of the Trust
held by it hereunder. If no such successor agent shall be appointed, the
Company shall at its office upon receipt of Proper Instructions deliver
such properties in accordance with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or before
the date when such termination shall become effective, then the Company
shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by the
Company under this Agreement. Thereafter, such bank or trust company
shall be the successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result of
work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility of
performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign
to a successor all of or a substantial portion of its business, or to a
party controlling, controlled by, or under common control with such
party. Nothing in this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to the extent provided
herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES
(listed on Exhibit 1)
/s/ John W. McGonigle By: /s/ John F. Donahue
------- -- ---
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By: /s/ James J. Dolan
- -----
Jeannette Fisher-Garber James J. Dolan
Secretary President
- --------------------------------------------------------------------------------
FEDERATED
- --------------------------------------------------------------------------------
EXCHANGE
- --------------------------------------------------------------------------------
FUND, LTD.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314175100
8020104 (2/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated Exchange
Fund, Ltd. (the "Fund") for the twelve-month period ended December 31, 1994. The
report begins with an Investment Review by the portfolio manager, and is
followed by a complete listing of the Fund's Financial Statements.
The Fund remained highly diversified in common stocks across 11 different
industries. Many of these stocks are issued by companies that are household
names, such as Chrysler, Ford, General Motors, Mattel, Reebok, Sears, Chevron,
Citicorp, Bristol-Meyers, and IBM. In addition to stocks, the Fund was invested
in convertible securities and a repurchase agreement.
During the twelve-month reporting period, the Fund paid dividends of $1.14 per
share, and capital gain distributions of $1.20 per share, for a total
distribution to you of $2.34 per share. Reflecting the rising interest rate
environment, which tended to impact all financial markets, the net asset value
of your shares decreased from $71.39 on the first day of the period to $68.84 on
the last day of the period. Total Fund assets stood at $81.4 million at the end
of the period.
Thank you for your confidence in Federated Exchange Fund, Ltd. We will continue
to keep you informed about your investment. As always, we welcome your
questions, comments, or suggestions. Simply call Federated Investors Services
Department at 1-800-245-2423 and ask to speak with one of the Fund's
representatives.
Sincerely,
John F. Donahue
President
February 15, 1995
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The fourth quarter of 1994 proved to be difficult for U.S. equity fund managers.
While the Standard & Poors' 500 Index* ("S&P 500") showed little change, with a
total
return of (0.02%)* for the quarter, the average stock fund recorded a (1.28%)
total return, reflecting continuing unfavorable breadth, as there were more
stocks declining than advancing. Breadth began to erode in the first quarter of
1994, and for the year the average stock fund's total return was (1.69%) vs.
1.31% for the S&P 500. After showing positive relative performance in the first
nine months of 1994, the Fund underperformed in the fourth quarter. For the
year, the Fund recorded a total return of (0.30%).** The average "Growth and
Income" fund's 1994 total return was (0.94%).***
The U.S. economy continued to show strong growth in the fourth quarter of 1994
with real Gross Domestic Product ("GDP") up an estimated 4% plus (annual rate),
lead by capital spending and exports. Consumer spending continues to be strong
supported by employment gains, although spending on consumer durables such as
autos and housing, may be plateauing, as higher interest rates have begun to
impact these areas. Many commodity prices have risen sharply, although overall
inflation does not yet appear to be a problem, remaining in the area of 3% per
year. The Federal Reserve Board, (the "Fed") obviously, is less confident, about
inflation in 1995, and would like to see real GDP growth slow to a more
sustainable 2.5% rate. Thus, one of the big events of the fourth quarter was the
further tightening of monetary policy by the Fed in November, boosting the Fed
funds rate by 3/4% to 5.5% compared to 3% a year ago. A further boost in short
rates in 1995 cannot be ruled out. We believe that U.S. economic growth will
slow eventually in 1995, and that a "soft landing" is possible. In this
environment, we believe that earnings may rise 10 to 12% in 1995.
By any historic measure such as absolute dividend yields, price to book ratios
or trailing P/Es the market is by no means inexpensive. However, if the economy
slows without going into recession, these levels of valuation are sustainable.
We believe that this scenario is intact, but given the fact that the markets
will be "fighting the Fed" investors should be prepared for higher levels of
volatility in 1995 than they saw in 1994. The Fund's management believes that
this environment offers opportunities, but also calls for increased selectivity.
Current areas of emphasis in the Fund's portfolio include the consumer durables
and technology. In consumer durables, the auto stocks appear extremely
attractive due to low valuations and continued strong earnings gains. The Fund
currently holds both Chrysler and Ford. In technology, defense related companies
appear cheap and continue to cut cost and improve margins. The Fund currently
holds Martin Marietta, Raytheon, and Rockwell International. The Fund continues
to be underweighted in the utility and consumer services sectors.
* This index is unmanaged.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investors shares, when redeemed,
may be worth more or less than their original cost.
*** Lipper Growth and Income Funds Average.
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED EXCHANGE FUND, LTD.
The graph below illustrates the hypothetical investment of $10,000 in
Federated Exchange Fund, Ltd. (the "Fund") from December 31, 1984, to December
31, 1994 compared to the Standard and Poors' 500 Index (S&P 500)+ and the Lipper
Growth and Income Funds Average (LGIFA)++.
Graphic representation omitted see Appendix A.
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year......................................................... (.30%)
5 Year......................................................... 8.52%
10 Year........................................................ 12.45%
Start of Performance (January 1, 1977)......................... 12.73%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT WHEN SHARES ARE REDEEMED THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
SEPTEMBER 2, 1976, AND, TOGETHER WITH THE FINANCIAL STATEMENTS CONTAINED
THEREIN, CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and LGIFA are adjusted to reflect reinvestment of
dividends on securities in the index and average. The index and average are
unmanaged.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the Securities and Exchange Commission ("SEC") requires to be reflected
in the funds performance.
++ The LGIFA is a compilation of mutual fund total returns reported to Lipper
Analytical Services, Inc. Each fund is reported net of sales loads, expenses
or other fees that the SEC requires to be reflected in the Fund's
performance.
FEDERATED EXCHANGE FUND, LTD.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--93.7%
- -------------------------------------------------------------------------------------
BASIC INDUSTRY--8.1%
-------------------------------------------------------------------
19,700 Eastman Chemical Co. $ 994,850
-------------------------------------------------------------------
32,800 FMC Corp. 1,894,200
-------------------------------------------------------------------
700 Lubrizol Corp. 23,712
-------------------------------------------------------------------
35,100 Phelps Dodge Corp. 2,171,812
-------------------------------------------------------------------
74,000 Praxair, Inc. 1,517,000
------------------------------------------------------------------- -----------
Total 6,601,574
------------------------------------------------------------------- -----------
CONSUMER DURABLES--12.2%
-------------------------------------------------------------------
38,000 Chrysler Corp. 1,862,000
-------------------------------------------------------------------
39,000 Eastman Kodak Co. 1,862,250
-------------------------------------------------------------------
59,000 Ford Motor Co. 1,652,000
-------------------------------------------------------------------
64,300 General Motors Corp. 2,475,550
-------------------------------------------------------------------
82,150 Mattel, Inc. 2,064,019
------------------------------------------------------------------- -----------
Total 9,915,819
------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--7.4%
-------------------------------------------------------------------
29,900 Avon Products, Inc. 1,786,525
-------------------------------------------------------------------
39,000 Philip Morris Cos., Inc. 2,242,500
-------------------------------------------------------------------
51,000 Reebok International, Ltd. 2,014,500
------------------------------------------------------------------- -----------
Total 6,043,525
------------------------------------------------------------------- -----------
CONSUMER SERVICES--5.7%
-------------------------------------------------------------------
75,600 American Stores Co. 2,031,750
-------------------------------------------------------------------
56,800 Sears Roebuck and Co. 2,612,800
------------------------------------------------------------------- -----------
Total 4,644,550
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
ENERGY--11.3%
-------------------------------------------------------------------
62,700 Baker Hughes $ 1,144,275
-------------------------------------------------------------------
47,000 Chevron Corp. 2,097,375
-------------------------------------------------------------------
27,300 Mapco, Inc. 1,399,125
-------------------------------------------------------------------
35,700 Texaco Inc. 2,137,537
-------------------------------------------------------------------
100,000 USX-Marathon Group 1,637,500
-------------------------------------------------------------------
20,061 Western Atlas, Inc. 754,795
------------------------------------------------------------------- -----------
Total 9,170,607
------------------------------------------------------------------- -----------
FINANCE--9.6%
-------------------------------------------------------------------
40,500 Bank of Boston Corp. 1,047,938
-------------------------------------------------------------------
25,900 Citicorp 1,071,613
-------------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 784,037
-------------------------------------------------------------------
13,400 First Interstate Bancorp 906,175
-------------------------------------------------------------------
33,000 Mellon Bank Corp. 1,010,625
-------------------------------------------------------------------
19,200 Nationsbank Corp. 866,400
-------------------------------------------------------------------
29,500 Providian Corp. 910,812
-------------------------------------------------------------------
36,266 Travelers, Inc. 1,178,645
------------------------------------------------------------------- -----------
Total 7,776,245
------------------------------------------------------------------- -----------
HEALTH CARE--9.9%
-------------------------------------------------------------------
38,800 American Home Products Corp. 2,434,700
-------------------------------------------------------------------
37,000 Becton, Dickinson & Co. 1,776,000
-------------------------------------------------------------------
34,600 Bristol-Myers Squibb Co. 2,002,475
-------------------------------------------------------------------
43,725 U.S. Healthcare, Inc. 1,803,656
------------------------------------------------------------------- -----------
Total 8,016,831
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
INDUSTRIAL/MANUFACTURING--11.2%
-------------------------------------------------------------------
18,500 Caterpillar, Inc. $ 1,019,813
-------------------------------------------------------------------
11,700 Deere & Co. 775,125
-------------------------------------------------------------------
26,100 General Electric Co. 1,331,100
-------------------------------------------------------------------
22,161 Litton Industries, Inc. 819,957
-------------------------------------------------------------------
19,300 Loews Corp. 1,676,688
-------------------------------------------------------------------
31,752 Mine Safety Appliances Co. 1,428,840
-------------------------------------------------------------------
41,700 Textron, Inc. 2,100,638
------------------------------------------------------------------- -----------
Total 9,152,161
------------------------------------------------------------------- -----------
TECHNOLOGY--11.6%
-------------------------------------------------------------------
18,700 Hewlett Packard Co. 1,867,662
-------------------------------------------------------------------
14,000 International Business Machines 1,029,000
-------------------------------------------------------------------
44,000 Martin Marietta Corp. 1,952,500
-------------------------------------------------------------------
38,300 Raytheon Co. 2,446,413
-------------------------------------------------------------------
60,700 Rockwell International Corp. 2,170,025
------------------------------------------------------------------- -----------
Total 9,465,600
------------------------------------------------------------------- -----------
TRANSPORTATION--1.6%
-------------------------------------------------------------------
58,900 Ryder Systems, Inc. 1,295,800
------------------------------------------------------------------- -----------
UTILITIES--5.1%
-------------------------------------------------------------------
40,000 AT & T Corp. 2,010,000
-------------------------------------------------------------------
33,600 Enron Corp. 1,024,800
-------------------------------------------------------------------
60,800 MCI Communications Corp. 1,117,200
------------------------------------------------------------------- -----------
Total 4,152,000
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $61,593,976) 76,234,712
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CONVERTIBLE SECURITIES--2.4%
- -------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.2%
-------------------------------------------------------------------
165,000 RJR Nabisco Holdings, Pfd., Series C $ 990,000
------------------------------------------------------------------- -----------
FINANCE--1.2%
-------------------------------------------------------------------
52,000 Citicorp, Conv. Pfd., Series P, 8.25% 994,500
------------------------------------------------------------------- -----------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST, $1,839,500) 1,984,500
------------------------------------------------------------------- -----------
*REPURCHASE AGREEMENT--5.2%
- -------------------------------------------------------------------------------------
$4,210,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due 1/3/95
(at amortized cost) 4,210,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $67,643,476) $82,429,212+
------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
+ The cost for federal tax purposes amounts to $67,643,476. The net unrealized
appreciation of investments on a federal tax basis amounts to $14,785,736,
which is comprised of $17,720,847 appreciation and $2,935,111 depreciation at
December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($81,377,017) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------
Investments, at value (identified cost and tax cost $67,643,476) $82,429,212
- --------------------------------------------------------------------------------------
Cash 4,220
- --------------------------------------------------------------------------------------
Dividends and interest receivable 212,253
- -------------------------------------------------------------------------------------- -----------
Total assets 82,645,685
- --------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------
Distribution payable January 6, 1995 on shares requesting payment in cash--
- --------------------------------------------------------------------------------------
From net investment income ($0.32 per share) $ 292,726
- -------------------------------------------------------------------------
From net realized gain on investment transactions ($1.20 per share) 939,120
- -------------------------------------------------------------------------
Payable for shares of partnership interest redeemed 16,914
- -------------------------------------------------------------------------
Accrued expenses 19,908
- ------------------------------------------------------------------------- ----------
Total liabilities 1,268,668
- -------------------------------------------------------------------------------------- -----------
NET ASSETS for 1,182,060 shares of partnership interest $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments, less the excess of cost
of partnership interest redeemed over proceeds from sales of partnership interest
(including shares issued to partners electing to receive payment of distributions
in shares) $66,537,926
- --------------------------------------------------------------------------------------
Unrealized appreciation of investments 14,785,736
- --------------------------------------------------------------------------------------
Undistributed net investment income 53,355
- -------------------------------------------------------------------------------------- -----------
Total $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSETS applicable to shares of partnership interest owned by:
- --------------------------------------------------------------------------------------
Limited partners (1,164,457 shares) $80,165,167
- --------------------------------------------------------------------------------------
Managing General partners--
- --------------------------------------------------------------------------------------
Managing partners (22 shares) 1,514
- -------------------------------------------------------------------------
Non-managing general partner (17,581 shares) 1,210,336 1,211,850
- ------------------------------------------------------------------------- ---------- -----------
Net Assets (1,182,060 shares) $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSET VALUE and redemption price per share of partnership interest $68.84
- -------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Dividends $ 2,283,896
- --------------------------------------------------------------------------------
Interest 123,403
- -------------------------------------------------------------------------------- -----------
Total investment income 2,407,299
- -------------------------------------------------------------------------------- -----------
EXPENSES--
- --------------------------------------------------------------------------------
Investment advisory fee $585,292
- ---------------------------------------------------------------------
Fees of managing general partners not affiliated with the investment
adviser 43,002
- ---------------------------------------------------------------------
Administrative personnel and service fee 145,638
- ---------------------------------------------------------------------
Custodian and portfolio accounting fees 65,124
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 22,472
- ---------------------------------------------------------------------
Auditing fees 19,568
- ---------------------------------------------------------------------
Legal fees 8,497
- ---------------------------------------------------------------------
Printing and postage 7,470
- ---------------------------------------------------------------------
Local taxes 16,708
- ---------------------------------------------------------------------
Insurance 5,266
- ---------------------------------------------------------------------
Registration fees 208
- ---------------------------------------------------------------------
Shareholder services fee 71,901
- ---------------------------------------------------------------------
Miscellaneous 1,287
- --------------------------------------------------------------------- --------
Total expenses 992,433
- -------------------------------------------------------------------------------- -----------
Net investment income 1,414,866
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- 5,307,218
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (6,996,355)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (1,689,137)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (274,271)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1994 1993
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 1,414,866 $ 1,437,832
- ----------------------------------------------------------------
Net realized gain on investment transactions ($3,740,852 and
$2,726,450, respectively, as computed for federal income tax
purposes) 5,307,218 5,865,570
- ----------------------------------------------------------------
Change in unrealized appreciation of investments (6,996,355) 2,529,035
- ---------------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations (274,271) 9,832,437
- ---------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO PARTNERS
- ----------------------------------------------------------------
Distributions to partners from net investment income (1,361,721) (1,472,885)
- ----------------------------------------------------------------
Distributions to partners from net realized gain on investment
transactions (1,407,972) (874,647)
- ---------------------------------------------------------------- ----------- ------------
Change in net assets from distributions to partners (2,769,693) (2,347,532)
- ---------------------------------------------------------------- ----------- ------------
TRANSACTIONS IN SHARES OF PARTNERSHIP INTEREST
- ----------------------------------------------------------------
Cost of shares of partnership interest redeemed (5,296,494) (10,731,004)
- ----------------------------------------------------------------
Net asset value of shares issued or issuable to partners
electing to receive payment of distributions in shares 768,903 644,148
- ---------------------------------------------------------------- ----------- ------------
Change in net assets from transactions in shares of
partnership interest (4,527,591) (10,086,856)
- ---------------------------------------------------------------- ----------- ------------
Change in net assets (7,571,555) (2,601,951)
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 88,948,572 91,550,523
- ---------------------------------------------------------------- ----------- ------------
End of period (including undistributed net investment income
of $53,355 and $210, respectively) $81,377,017 $ 88,948,572
- ---------------------------------------------------------------- ----------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $71.39 $65.83 $61.65 $50.56 $54.93
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 1.18 1.13 1.36 1.16 1.46
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments (1.39) 6.30 5.57 12.62 (3.86)
- ----------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (0.21) 7.43 6.93 13.78 (2.40)
- ----------------------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends to partners from net investment
income (1.14) (1.16) (1.38) (1.15) (1.51)
- -----------------------------------------------
Distributions to partners from net realized
gain on investment transactions (1.20) (0.71) (1.37) (1.54) (0.46)
- ----------------------------------------------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (2.34) (1.87) (2.75) (2.69) (1.97)
- ----------------------------------------------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $68.84 $71.39 $65.83 $61.65 $50.56
- ----------------------------------------------- ------- ------- ------- ------- -------
TOTAL RETURN* (.30%) 11.31% 11.38% 27.42% (4.43%)
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 1.15% 1.15% 1.11% 1.12% 1.07%
- -----------------------------------------------
Net investment income 1.63% 1.59% 2.13% 1.97% 2.76%
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $81,377 $88,949 $91,551 $90,503 $79,114
- -----------------------------------------------
Portfolio turnover rate 23% 26% 47% 54% 61%
- -----------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Exchange Fund, Ltd. (the "Fund") is a limited partnership formed under
The Uniform Limited Partnership Act of California and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. Pursuant to the Fund's Partnership Agreement, all
partnership interests, whether of a limited partner or a general partner, are
represented by shares of the same class.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT COSTS--The Fund's initial portfolio was acquired on January 1, 1977, in an
exchange of Fund shares of partnership interest for securities deposited by investors.
The federal income tax cost of the securities is based on the individual investor's tax
cost basis immediately prior to the exchange, or if acquired subsequently the Fund's
purchase cost.
B. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price
reported on national securities exchanges. Unlisted securities and short-term securities
are generally valued at the prices provided by an independent pricing service.
Short-term securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
C. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to
take possession, to have legally segregated in the Federal Reserve Book Entry System, or
to have segregated within the custodian bank's vault, all securities held as collateral
in support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's underlying collateral to ensure that the value of collateral at
least equals the principal amount of the repurchase agreement, including accrued
interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser
to be creditworthy pursuant to guidelines established by the Managing General Partners.
Risks may arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the repurchase price
on the sale of collateral securities.
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. INVESTMENT INCOME AND EXPENSES--Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income and expenses are accrued daily. Bond
premium and discount, if applicable, are amortized as required by the Internal Revenue
Code, as amended (the "Code").
E. INCOME TAXES AND DISTRIBUTIONS TO PARTNERS--No provision is made by the Fund for federal
or state taxes on the taxable income of the partnership because each partner is
individually responsible for the payment of any taxes on his share of such taxable
income. The Managing General Partners may distribute net investment income, exclusive of
capital gains, to the holders of shares annually or at more frequent intervals. The
Managing General Partners will determine annually what portion, if any, of the Fund's
net realized capital gains will be distributed.
</TABLE>
(3) SHARES OF PARTNERSHIP INTEREST
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1993
------- --------
<S> <C> <C>
- ------------------------------------------------------------------------
Shares of partnership interest redeemed (74,930) (153,755)
- ------------------------------------------------------------------------
Shares issued or issuable to partners electing to receive payment of
distributions in shares 11,082 9,050
- ------------------------------------------------------------------------ ------- --------
Net change resulting from partnership transactions (63,848) (144,705)
- ------------------------------------------------------------------------ ------- --------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee. Such
fee is paid daily based on annual rates of: (a) 0.55% of the average daily net
assets of the Fund, and (b) 4.5% of the gross income of the Fund, excluding
capital gains or losses. The Adviser may voluntarily choose to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
for the period. This fee is to obtain certain personal services for shareholders
and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions by
shareholders.
Certain of the Managing General Partners of the Fund are Officers and Directors
or Trustees of the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $18,937,688
- ----------------------------------------------------------------- -----------
SALES $25,552,948
- ----------------------------------------------------------------- -----------
</TABLE>
In addition, investments having an aggregate market value of $4,875,875 at dates
of distribution were distributed in payment for shares of partnership interest
redeemed.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Partners of
FEDERATED EXCHANGE FUND, LTD.
(a Limited Partnership):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Exchange Fund, Ltd. as of December
31, 1994, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1994 and
1993, and the financial highlights for each of the years in the five-year period
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1994 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Exchange
Fund, Ltd. as of December 31, 1994, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Boston, Massachusetts
February 10, 1995
<TABLE>
<S> <C>
MANAGING OFFICERS
GENERAL PARTNERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley President
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland Vice President
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
NON-MANAGING GENERAL PARTNER Robert C. Rosselot
Exchange Fund Research Corp. Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
APPENDIX A
The graphic presentation here displayed consists of a line graph
titled "Growth of $10,000 Invested in Federated Exchange Fund, Ltd."
The corresponding components of the line graph are listed underneath.
The Federated Exchange Fund, Ltd (the "Fund") is represented by a solid
line. The Standard & Poor's 500 Index ("S&P 500") is represented by a
dotted line. The Lipper Growth and Income Funds Average ("LGIFA") is
represented by a broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 investment
in the Fund and the ML1-3TR. The "x" axis reflects computation periods
from December 31, 1984 through December 31, 1994. The "y" axis reflects
the cost of the investment, ranging from $10,000 to $40,000. The right
margin reflects the ending value of the hypothetical investment in the
Fund as compared to the S&P 500 and the LGIFA; the ending values are
$32,313, $38,156 and $32,258, respectively.
- --------------------------------------------------------------------------------
FEDERATED
- --------------------------------------------------------------------------------
EXCHANGE
- --------------------------------------------------------------------------------
FUND, LTD.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
June 30, 1995
ESTABLISHED 1977
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 314175100
8080107 (8/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
Exchange Fund, Ltd. for the six-month period ended June 30, 1995. The Report
begins with an investment review by the fund's manager, followed by a complete
listing of the fund's portfolio and the financial statements.
The fund's portfolio consists of common stocks across the entire industrial
spectrum. Many of these stocks are well-known, industrial giants, and on the
last day of the reporting period included Eastman Kodak, Ford, GM, Mattel,
Philip Morris, Reebok, Sears, Texaco, Bristol-Myers Squibb, Caterpillar, General
Electric, DuPont, IBM, and AT&T.
I am very pleased to report that your fund recorded extremely strong performance
during the period. Dividends paid to shareholders totaled $0.62 per share. In
addition, the fund's net asset value increased substantially--from $68.84 on the
first day of the period to $80.77 on the last day of the period. As a result,
the fund's total return for the period was 18.28%.*
Thank you for your confidence in Federated Exchange Fund, Ltd. We will continue
to keep you informed about your investment. As always, we welcome your
questions, comments, or suggestions. Simply call Federated Investors Services
Department at 1-800-245-2423 and ask to speak with one of the fund's
representatives.
Sincerely,
John F. Donahue
President
August 15, 1995
* Past performance does not guarantee future results. Investment return and
principal value will fluctuate, therefore, investor's shares, when redeemed,
may be worth more or less than the original cost.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
FEDERATED EXCHANGE FUND, LTD.
JUNE 1995
An Interview with Peter Anderson and Tim Keefe, Co-Portfolio Managers
Q
Will you describe recent economic and market conditions that have
influenced your management of Federated Exchange Fund?
A
PETER: The economy is slowing, as predicted by most economists and
strategists. The first quarter real Gross Domestic Product ("GDP") growth
was about 2.7% (annual rate). That's down substantially from the last two
quarters of 1994, when GDP grew at a rate of over 4%--which was just too fast.
The question now is: Will growth slow further and will earnings be impacted? The
market has been concerned about this, and over the past few months less cyclical
companies have been doing somewhat better than cyclicals. We still see good
value in selected cyclicals because we don't think the economy shows any signs
of going into a recession in the near future. Aggregate corporate profits were
strong in the first quarter, and we expect that to continue, although some
cyclical areas will be affected by a sluggish economy.
Q
What impact have interest rates had on the stock market in recent months?
A
PETER: The long bond is now trading under 7.00%. It was as high as 8.15% in
late 1994. Certainly this decline in long term interest rates has been an
important factor in the strength of the stock market over the past six
months, along with strong earnings growth. The debate among economists currently
is whether the Federal Reserve Board will ease or maintain short rates at
current levels over the next several months, but this will depend on how much
the economy slows.
Q
What effect has the weak U.S. dollar had upon your portfolio decisions?
A
TIM: Many U.S. companies have benefited from the weak dollar, those which
are large exporters or have substantial international operations. This has
been a factor in our fundamental analysis of companies over the past year
or so. We have several holdings in companies which have substantial
international revenues. For example, Hewlett-Packard Co. is very big overseas,
with nearly $10 billion in sales in Europe alone last year. IBM is still getting
more than half their income from outside the U.S., and General Electric Co. is
also a very big player internationally. These companies can actually benefit
from the weakness of the dollar.
- --------------------------------------------------------------------------------
Q
How has Federated Exchange Fund been performing?
A
PETER: From December 31, 1994 through June 30, 1995, Federated Exchange
Fund had a total return of 18.28%. For the twelve months ended June 30,
1995, Federated Exchange Fund's total return was 19.58%.
Q
What are the current investment themes in the portfolio?
A
PETER: The largest sector in the fund is finance. We're overweight in this
area relative to the Standard & Poor's ("S&P") 500 Index. About 12.5% of
the portfolio consisted of finance stocks at the end of June, 1995. The S&P
500 Index has a weighting of about 11% in finance.
TIM: We own several bank stocks such as Citicorp and Bank of Boston Corp. We
also own Dean Witter, Discover & Co., which has a strong position in the credit
card business. Travelers Group, Inc., a financial services conglomerate, which
we have held for over three years, continues to do well. The financial sector
has been doing well recently since these stocks are somewhat interest rate
sensitive.
Q
What technology stocks are in the portfolio?
A
PETER: Hewlett Packard Co. is still our biggest holding in this sector. The
stock has performed well recently, after the company reported excellent
first quarter earnings. We also have positions in some well-managed
"defense conglomerates" such as Raytheon Co. and Rockwell International Corp.
Both have substantial non-defense businesses, which are doing very well.
TIM: One turnaround situation we have in information technology is IBM. The
stock declined substantially from 1990-1993, but, about a year ago, actions
taken by new management began to pay off. For the last four quarters, IBM's
earnings have exceeded expectations.
Q
What are your holdings in the industrial/manufacturing sector?
A
PETER: We're overweighted in this area. We own Caterpillar, Inc. and Deere
& Co., both of which experienced a good first quarter. Textron, Inc. a
conglomerate that's restructuring to enhance shareholder value, is our
largest holding in this sector.
- --------------------------------------------------------------------------------
Q
What other new names are in the Fund?
A
TIM: One area that looks attractive is natural gas, and the recent purchase
of Columbia Gas Systems, Inc. in the Fund is a natural gas play. Natural
gas prices have been under pressure, but, on an asset value basis, the
stock is very cheap. Enron Corp., another holding, is also a play in natural
gas.
Q
What about other recent additions to the Fund?
A
TIM: In the consumer services sector, we purchased Gannett, which owns USA
TODAY, a daily publication that has finally turned profitable. USA TODAY is
leveraging their consumer franchise, entering the international arena and
adding services. The company features substantial leverage with continued
growth, good cash flow and an excellent newspaper operation that's national in
scope.
Eastman Chemical Co. is another recent purchase. A specialty chemical company,
it is the world's leading manufacturer of PET [polyethylene terephthalate], a
plastic used to make soda bottles and other packaging. It's
capacity-constrained, and there is limited capacity coming on line. So, we don't
think that the earnings have peaked on a cyclical or secular basis.
Q
How do you view the outlook for various market sectors over the next 6
months?
A
PETER: Consumer-related stocks continue to be a difficult place to find
attractive values. Manufacturing, technology, and finance stocks will
probably be more rewarding, assuming a slowing economy doesn't eventually
turn into a recession. We're still looking for companies that are well-run and
shareholder-oriented, with a strategy for enhancing shareholder value. We want
to buy these stocks when our quantitative disciplines indicate that they are
attractively priced, I.E., undervalued.
Q
That's a lot of good detail about the Fund. Is there anything else about
your work that's new and interesting?
A
PETER: One of the things that we're doing that I think is significant is
the fact that we're now able to do more fundamental research and company
contact. We have added a number of analysts to our equity research group
over the past year. Since fundamental analysis is an important part of our
process, we can look at more companies in greater detail than ever before.
FEDERATED EXCHANGE FUND, LTD.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
VALUE
- ---------- --------------------------------------------------------------
- ----- -----------
<C> <C> <S>
<C>
COMMON STOCKS--97.3%
- --------------------------------------------------------------------------------
- -----
BASIC INDUSTRY--7.3%
--------------------------------------------------------------
- -----
19,700 Eastman Chemical Co.
$ 1,172,150
--------------------------------------------------------------
- -----
29,800 FMC Corp.
2,004,050
--------------------------------------------------------------
- -----
29,000 Phelps Dodge Corp.
1,711,000
--------------------------------------------------------------
- -----
73,700 Praxair, Inc.
1,842,500
--------------------------------------------------------------
- ----- -----------
Total
6,729,700
--------------------------------------------------------------
- ----- -----------
CONSUMER--DURABLES--9.4%
--------------------------------------------------------------
- -----
35,500 Eastman Kodak Co.
2,152,188
--------------------------------------------------------------
- -----
52,500 Ford Motor Co.
1,561,875
--------------------------------------------------------------
- -----
59,300 General Motors Corp.
2,579,550
--------------------------------------------------------------
- -----
64,400 Mattel, Inc.
1,674,400
--------------------------------------------------------------
- -----
23,600 RJR Nabisco Holdings Corp.
657,850
--------------------------------------------------------------
- ----- -----------
Total
8,625,863
--------------------------------------------------------------
- ----- -----------
CONSUMER NON-DURABLES--9.1%
--------------------------------------------------------------
- -----
29,900 Avon Products, Inc.
2,003,300
--------------------------------------------------------------
- -----
36,000 IBP, Inc.
1,566,000
--------------------------------------------------------------
- -----
37,600 Philip Morris Cos., Inc.
2,796,500
--------------------------------------------------------------
- -----
8,000 PMI Group, Inc.
347,000
--------------------------------------------------------------
- -----
48,000 Reebok International, Ltd.
1,632,000
--------------------------------------------------------------
- ----- -----------
Total
8,344,800
--------------------------------------------------------------
- ----- -----------
CONSUMER SERVICES--6.0%
--------------------------------------------------------------
- -----
60,250 American Stores Co.
1,694,531
--------------------------------------------------------------
- -----
16,000 Gannett Co., Inc.
868,000
--------------------------------------------------------------
- -----
49,100 Sears Roebuck and Co.
2,939,863
--------------------------------------------------------------
- ----- -----------
Total
5,502,394
--------------------------------------------------------------
- ----- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
VALUE
- ---------- --------------------------------------------------------------
- ----- -----------
<C> <C> <S>
<C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------
- -----
ELECTRONIC TECHNOLOGY--4.8%
--------------------------------------------------------------
- -----
26,000 Intel Corp.
$ 1,646,125
--------------------------------------------------------------
- -----
43,900 Lockheed Martin Corp.
2,771,187
--------------------------------------------------------------
- ----- -----------
Total
4,417,312
--------------------------------------------------------------
- ----- -----------
ENERGY--9.4%
--------------------------------------------------------------
- -----
47,000 Chevron Corp.
2,191,375
--------------------------------------------------------------
- -----
27,300 Mapco, Inc.
1,583,400
--------------------------------------------------------------
- -----
31,100 Texaco Inc.
2,040,937
--------------------------------------------------------------
- -----
100,000 USX-Marathon Group
1,975,000
--------------------------------------------------------------
- -----
20,061 Western Atlas, Inc.
890,207
--------------------------------------------------------------
- ----- -----------
Total
8,680,919
--------------------------------------------------------------
- ----- -----------
ENERGY MINERALS--0.9%
--------------------------------------------------------------
- -----
23,000 Burlington Resources, Inc.
848,125
--------------------------------------------------------------
- ----- -----------
FINANCE--12.4%
--------------------------------------------------------------
- -----
25,000 American Express Co.
878,125
--------------------------------------------------------------
- -----
40,500 Bank of Boston Corp.
1,518,750
--------------------------------------------------------------
- -----
31,097 Citicorp
1,799,739
--------------------------------------------------------------
- -----
23,145 Dean Witter, Discover & Co.
1,087,815
--------------------------------------------------------------
- -----
13,400 First Interstate Bancorp
1,075,350
--------------------------------------------------------------
- -----
33,000 Mellon Bank Corp.
1,373,625
--------------------------------------------------------------
- -----
19,200 Nationsbank Corp.
1,029,600
--------------------------------------------------------------
- -----
29,500 Providian Corp.
1,069,375
--------------------------------------------------------------
- -----
36,266 Travelers Group, Inc.
1,586,637
--------------------------------------------------------------
- ----- -----------
Total
11,419,016
--------------------------------------------------------------
- ----- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
VALUE
- ---------- --------------------------------------------------------------
- ----- -----------
<C> <C> <S>
<C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------
- -----
HEALTH CARE--7.4%
--------------------------------------------------------------
- -----
29,500 American Home Products Corp.
$ 2,282,563
--------------------------------------------------------------
- -----
37,000 Becton, Dickinson & Co.
2,155,250
--------------------------------------------------------------
- -----
34,400 Bristol-Myers Squibb Co.
2,343,500
--------------------------------------------------------------
- ----- -----------
Total
6,781,313
--------------------------------------------------------------
- ----- -----------
INDUSTRIAL/MANUFACTURING--10.0%
--------------------------------------------------------------
- -----
18,500 Caterpillar, Inc.
1,188,625
--------------------------------------------------------------
- -----
11,700 Deere & Co.
1,001,813
--------------------------------------------------------------
- -----
26,100 General Electric Co.
1,471,388
--------------------------------------------------------------
- -----
22,061 Litton Industries, Inc.
813,499
--------------------------------------------------------------
- -----
19,300 Loews Corp.
2,335,300
--------------------------------------------------------------
- -----
41,700 Textron, Inc.
2,423,812
--------------------------------------------------------------
- ----- -----------
Total
9,234,437
--------------------------------------------------------------
- ----- -----------
PROCESS INDUSTRIES--2.2%
--------------------------------------------------------------
- -----
29,800 Du Point (E.I.) de Nemours & Co.
2,048,750
--------------------------------------------------------------
- ----- -----------
PRODUCER MANUFACTURING--1.5%
--------------------------------------------------------------
- -----
12,000 ITT Corp.
1,410,000
--------------------------------------------------------------
- ----- -----------
TECHNOLOGY--9.3%
--------------------------------------------------------------
- -----
37,400 Hewlett Packard Co.
2,786,300
--------------------------------------------------------------
- -----
14,000 International Business Machines
1,344,000
--------------------------------------------------------------
- -----
28,700 Raytheon Co.
2,227,838
--------------------------------------------------------------
- -----
47,700 Rockwell International Corp.
2,182,275
--------------------------------------------------------------
- ----- -----------
Total
8,540,413
--------------------------------------------------------------
- ----- -----------
UTILITIES--7.6%
--------------------------------------------------------------
- -----
40,000 AT & T Corp.
2,125,000
--------------------------------------------------------------
- -----
75,000 Columbia Gas Systems, Inc.
2,381,250
--------------------------------------------------------------
- -----
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT
VALUE
- ---------- --------------------------------------------------------------
- ----- -----------
<C> <C> <S>
<C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------
- -----
UTILITIES--CONTINUED
--------------------------------------------------------------
- -----
33,600 Enron Corp.
$ 1,180,200
--------------------------------------------------------------
- -----
60,800 MCI Communications Corp.
1,337,600
--------------------------------------------------------------
- ----- -----------
Total
7,024,050
--------------------------------------------------------------
- ----- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $64,472,195)
89,607,092
--------------------------------------------------------------
- ----- -----------
CONVERTIBLE SECURITIES--1.8%
- --------------------------------------------------------------------------------
- -----
CONSUMER NON-DURABLES--1.1%
--------------------------------------------------------------
- -----
165,000 RJR Nabisco Holdings, Conv. Pfd., Series C
1,010,625
--------------------------------------------------------------
- ----- -----------
FINANCE--0.7%
--------------------------------------------------------------
- -----
31,709 Citicorp, Conv. Pfd., Series P, 8.25%
642,107
--------------------------------------------------------------
- ----- -----------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST, $1,540,208)
1,652,732
--------------------------------------------------------------
- ----- -----------
*REPURCHASE AGREEMENT--0.2%
- --------------------------------------------------------------------------------
- -----
$ 145,000 J.P. Morgan Securities, Inc., 6.125%, dated 6/30/95, due
7/3/95
(AT AMORTIZED COST)
145,000
--------------------------------------------------------------
- ----- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $66,157,403) (A)
$91,404,824
--------------------------------------------------------------
- ----- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(a) The cost for federal tax purposes amounts to $66,157,403. The net unrealized
appreciation of investments on a federal tax basis amounts to $25,247,421,
which is comprised of $25,635,266 appreciation and $387,845 depreciation at
June 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($92,114,542) at June 30, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
<C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $66,157,403)
$91,404,824
- --------------------------------------------------------------------------------
Cash
3,506
- --------------------------------------------------------------------------------
Receivable for investments sold
1,603,476
- --------------------------------------------------------------------------------
Income receivable
191,190
- --------------------------------------------------------------------------------
- -----------
Total assets
93,202,996
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $797,750
- ---------------------------------------------------------------------
Distribution payable July 7, 1995, on shares requesting payment in
cash--
- ---------------------------------------------------------------------
From net investment income ($0.27 per share) 238,271
- ---------------------------------------------------------------------
Payable for shares of partnership interest redeemed 18,796
- ---------------------------------------------------------------------
Accrued expenses 33,637
- --------------------------------------------------------------------- --------
Total liabilities
1,088,454
- --------------------------------------------------------------------------------
- -----------
NET ASSETS for 1,140,441 shares of partnership interest
$92,114,542
- --------------------------------------------------------------------------------
- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments, less the excess of
cost of partnership interest redeemed over proceeds from sales of partnership
interest (including shares issued to partners electing to receive payment of
distributions in shares)
$66,831,133
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
25,247,421
- --------------------------------------------------------------------------------
Undistributed net investment income
35,988
- --------------------------------------------------------------------------------
- -----------
Total Net Assets
$92,114,542
- --------------------------------------------------------------------------------
- -----------
NET ASSETS applicable to shares of partnership interest owned by:
- --------------------------------------------------------------------------------
Limited partners (1,128,526 shares)
$91,152,156
- --------------------------------------------------------------------------------
Managing General partners--
- --------------------------------------------------------------------------------
Managing partners (22 shares) 1,777
- ---------------------------------------------------------------------
Non-managing general partner (11,893 shares) 960,609
962,386
- --------------------------------------------------------------------- --------
- -----------
Net Assets (1,140,441 shares)
$92,114,542
- --------------------------------------------------------------------------------
- -----------
NET ASSET VALUE and redemption price per share of partnership interest
$80.77
- --------------------------------------------------------------------------------
- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Dividends
$ 1,111,116
- --------------------------------------------------------------------------------
Interest
65,180
- --------------------------------------------------------------------------------
- -----------
Total investment income
1,176,296
- --------------------------------------------------------------------------------
- -----------
EXPENSES--
- --------------------------------------------------------------------------------
Investment advisory fee $291,041
- ---------------------------------------------------------------------
Fees of managing general partners not affiliated with the investment
adviser 21,061
- ---------------------------------------------------------------------
Administrative personnel and services fee 61,987
- ---------------------------------------------------------------------
Custodian and portfolio accounting fees 27,511
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,011
- ---------------------------------------------------------------------
Auditing fees 8,981
- ---------------------------------------------------------------------
Legal fees 5,330
- ---------------------------------------------------------------------
Printing and postage 3,441
- ---------------------------------------------------------------------
Local taxes 8,446
- ---------------------------------------------------------------------
Insurance premiums 2,534
- ---------------------------------------------------------------------
Share registration costs 120
- ---------------------------------------------------------------------
Shareholder services fee 42,803
- ---------------------------------------------------------------------
Miscellaneous 545
- --------------------------------------------------------------------- --------
Total expenses
480,811
- --------------------------------------------------------------------------------
- -----------
Net investment income
695,485
- --------------------------------------------------------------------------------
- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments
3,335,554
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments
10,461,685
- --------------------------------------------------------------------------------
- -----------
Net realized and unrealized gain (loss) on investments
13,797,239
- --------------------------------------------------------------------------------
- -----------
Change in net assets resulting from operations
$14,492,724
- --------------------------------------------------------------------------------
- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED
30, 1995
DECEMBER 30,
(UNAUDITED)
1994
----------- -
- ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 695,485
$ 1,414,866
- ------------------------------------------------------------
Net realized gain (loss) on investment transactions
($3,335,554 net gain and $3,740,852 net gain,
respectively, as computed for federal income tax purposes) 3,335,554
5,307,218
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments 10,461,685
(6,996,355)
- ------------------------------------------------------------ ---------- -
- ------------
Change in net assets resulting from operations 14,492,724
(274,271)
- ------------------------------------------------------------ ---------- -
- ------------
DISTRIBUTIONS TO PARTNERS--
- ------------------------------------------------------------
Distributions to partners from net investment income (712,852 )
(1,361,721)
- ------------------------------------------------------------
Distributions to partners from net realized gains on
investment transactions --
(1,407,972)
- ------------------------------------------------------------ ---------- -
- ------------
Change in net assets from distributions to partners (712,852 )
(2,769,693)
- ------------------------------------------------------------ ---------- -
- ------------
TRANSACTIONS IN SHARES OF PARTNERSHIP INTEREST--
- ------------------------------------------------------------
Cost of shares of partnership interest redeemed (3,200,179 )
(5,296,494)
- ------------------------------------------------------------
Net asset value of shares issued or issuable to partners
electing to receive payment of distributions in shares 157,832
768,903
- ------------------------------------------------------------ ---------- -
- ------------
Change in net assets from transactions in shares of
partnership interest (3,042,347 )
(4,527,591)
- ------------------------------------------------------------ ---------- -
- ------------
Change in net assets 10,737,525
(7,571,555)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 81,377,017
88,948,572
- ------------------------------------------------------------ ---------- -
- ------------
End of period (including undistributed net investment income
of $35,988 and $53,355, respectively) $92,114,542
$81,377,017
- ------------------------------------------------------------ ---------- -
- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED
DECEMBER 31,
30, 1995 -------------------------
- -----------------------------
(UNAUDITED) 1994 1993
1992 1991 1990
----------- ------ ------ -
- ----- ------ ------
<S> <C> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 68.84 $71.39 $65.83
$61.65 $50.56 $54.93
- -----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------
Net investment income 0.61 1.18 1.13
1.36 1.16 1.46
- -----------------------------------
Net realized and unrealized gain
(loss) on investments 11.94 (1.39) 6.30
5.57 12.62 (3.86)
- ----------------------------------- -------- ------ ------ -
- ----- ------ ------
Total from investment operations 12.55 (0.21) 7.43
6.93 13.78 (2.40)
- ----------------------------------- -------- ------ ------ -
- ----- ------ ------
LESS DISTRIBUTIONS
- -----------------------------------
Dividends to partners from net
investment income (0.62) (1.14) (1.16)
(1.38) (1.15) (1.51)
- -----------------------------------
Distributions to partners from
net realized gains on investment
transactions -- (1.20) (0.71)
(1.37) (1.54) (0.46)
- ----------------------------------- -------- ------ ------ -
- ----- ------ ------
Total distributions (0.62) (2.34) (1.87)
(2.75) (2.69) (1.97)
- ----------------------------------- -------- ------ ------ -
- ----- ------ ------
NET ASSET VALUE, END OF PERIOD $ 80.77 $68.84 $71.39
$65.83 $61.65 $50.56
- ----------------------------------- -------- ------ ------ -
- ----- ------ ------
TOTAL RETURN(A) 18.28% (.30%) 11.31%
11.38% 27.42% (4.43%)
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 1.12%(b) 1.15% 1.15%
1.11% 1.12% 1.07%
- -----------------------------------
Net investment income 1.62%(b) 1.63% 1.59%
2.13% 1.97% 2.76%
- -----------------------------------
SUPPLEMENTAL DATA
- -----------------------------------
Net assets, end of period (000
omitted) $92,115 $81,377 $88,949
$91,551 $90,503 $79,114
- -----------------------------------
Portfolio turnover 15% 23% 26%
47% 54% 61%
- -----------------------------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Exchange Fund, Ltd. (the "Fund") is a limited partnership formed under
The Uniform Limited Partnership Act of California and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. Pursuant to the Fund's Partnership Agreement, all
partnership interests, whether of a limited partner or a general partner, are
represented by shares of the same class.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT COSTS--The Fund's initial portfolio was acquired on January 1,
1977, in an exchange of Fund shares of partnership interest for securities
deposited by investors. The federal income tax cost of the securities is
based on the individual investor's tax cost basis immediately prior to the
exchange, or, if acquired subsequently, the Fund's purchase cost.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines and/or
standards reviewed or established by the Managing General Partners. Risks
may arise from the potential inability of counterparties to honor the terms
of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
INVESTMENT INCOME AND EXPENSES--Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code").
INCOME TAXES AND DISTRIBUTIONS TO PARTNERS--No provision is made by the
Fund for federal or state taxes on the taxable income of the partnership
because each partner is individually responsible for the payment of any
taxes on his share of such taxable income. The Managing General Partners
may distribute net investment income, exclusive of capital gains, to the
holders of shares annually or at more frequent intervals. The Managing
General Partners will determine annually what portion, if any, of the
partnership's net realized capital gains will be distributed.
(3) SHARES OF PARTNERSHIP INTEREST
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED
JUNE 30, 1995
DECEMBER 31, 1994
-------------- ----
- --------------
<S> <C> <C>
- -------------------------------------------------------
Shares of partnership interest redeemed (43,664)
(74,930)
- -------------------------------------------------------
Shares issued or issuable to partners electing to
receive payment of distributions in shares 2,045
11,082
- ------------------------------------------------------- ----------- ----
- ---------
Net change resulting from partnership transactions (41,619)
(63,848)
- ------------------------------------------------------- ----------- ----
- ---------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee. Such
fee is paid daily based on annual rates of: (a) 0.55% of the average daily net
assets of the Fund, and (b) 4.5% of the gross income of the Fund, excluding
capital gains or losses. The Adviser may voluntarily choose to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund administrative personnel
and services. The FAS fee is based on the level of average aggregate daily net
assets of all funds advised by subsidiaries of Federated Investors for the
period. The administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts.
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company serves as transfer and dividend disbursing agent for the Fund.
The fee is based on the size, type, and number of accounts and transactions by
shareholders.
Certain of the Managing General Partners of the Fund are Officers and Directors
or Trustees of the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1995:
<TABLE>
<S>
<C>
- -------------------------------------------------------------------------------
PURCHASES
$12,305,734
- -------------------------------------------------------------------------------
- -----------
SALES
$13,060,951
- -------------------------------------------------------------------------------
- -----------
</TABLE>
In addition, investments having an aggregate market value of $2,689,469 at dates
of redemption were distributed in payment for shares of partnership interest
redeemed.
<TABLE>
<S> <C>
MANAGING
GENERAL PARTNERS OFFICERS
- --------------------------------------------------------------------------------
- -------------
John F. Donahue John F. Donahue
Thomas G. Bigley President
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland Executive Vice President
James E. Dowd Edward C. Gonzales
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. John W. McGonigle
Peter E. Madden Executive Vice President and
Secretary
Gregor F. Meyer Richard B. Fisher
John E. Murray, Jr. Vice President
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Treasurer
Robert C. Rosselot
NON-MANAGING GENERAL PARTNER Assistant Secretary
Exchange Fund Research Corp.
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
Exhibit 11.1
FEDERATED CAPITAL APPRECIATION FUND
a portfolio of Federated Equity Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Phone: 412-288-1900
October 18, 1995
The Trustees of
Federated Equity Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Federated Capital Appreciation Fund (the "Fund"), a portfolio of
Federated Equity Funds (the "Trust"), proposes to issue shares of beneficial
interest (such shares of beneficial interest being herein referred to as the
"Shares") in connection with the acquisition of the assets of Federated Exchange
Fund, Ltd., pursuant to the Agreement and Plan of Exchange dated October 10,
1995 (the "Agreement"), filed as an exhibit to the registration statement of the
Trust filed on Form N-14 (Securities Act of 1933 No. to be assigned) under the
Securities Act of 1933 as amended (the "N-14 Registration").
As counsel, I have participated in the organization of the Trust, its
registration under the Investment Company Act of 1940, as amended, the
registration of its securities on Form N-1A under the Securities Act of 1933,
and its N-14 Registration. I have examined and am familiar with the written
Declaration of Trust dated April 17, 1984 (the "Declaration of Trust"), the
The Trustees of
Federated Equity Fund
October 18, 1995
Page 2
Bylaws of the Trust, the Agreement and such other documents and records deemed
relevant. I have also reviewed questions of law and consulted with counsel
thereon as deemed necessary or appropriate by me for the purposes of this
opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the provisions
of the Agreement and the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III, Section 3, of the
Declaration of Trust and subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration statement
filed under the securities laws of any of the states of the United States.
Very truly yours,
By:/s/Robert C. Rosselot
Robert C. Rosselot
The Trustees of
Federated Equity Fund
October 18, 1995
Page 3
Exhibit 12.1
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
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
Federated Exchange Fund, Ltd.
October 18, 1995
Page 2
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.
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.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 3
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.
8. The Partnership will not retain any rights in the Assets
transferred to the Fund.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 4
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.
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.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 5
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").
21. The Fund will remain in existence and will retain and use the
Assets transferred to it for investment purposes.
Federated Exchange Fund, Ltd.
October 18, 1995
Page 6
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
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
Federated Exchange Fund, Ltd.
October 18, 1995
Page 7
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,
Exhibit 14.1
Independent Accountants 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
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
Exhibit 16.1 under Form N-14
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED EQUITY FUNDS and the
Assistant General Counsel of Federated Investors, and each of them, their true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee June 30, 1995
John F. Donahue (Chief Executive Officer)
/s/Glen R. Johnson President June 30, 1995
Glen R. Johnson
/s/Edward C. Gonzales Executive Vice PresidentJune 30, 1995
Glen R. Johnson
/s/John T. Conroy, Jr. Trustee June 30, 1995
John T. Conroy, Jr.
/s/William J. Copeland Trustee June 30, 1995
William J. Copeland
SIGNATURES TITLE DATE
/s/David M. Taylor Treasurer June 30, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/James E. Dowd Trustee June 30, 1995
James E. Dowd
/s/Lawrence D. Ellis, M.D. Trustee June 30, 1995
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee June 30, 1995
Edward L. Flaherty, Jr.
/s/Peter E. Madden Trustee June 30, 1995
Peter E. Madden
/s/Gregor F. Meyer Trustee June 30, 1995
Gregor F. Meyer
/s/John E. Murray, Jr. Trustee June 30, 1995
John E. Murray, Jr.
/s/Wesley W. Posvar Trustee June 30, 1995
Wesley W. Posvar
/s/Marjorie P. Smuts Trustee June 30, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 30th day of June, 1995.
Exhibit 17.1
Rule 24f-2 Notice
FEDERATED GROWTH TRUST
(Fund Name)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1933 Act No. 2-91090
(i) fiscal period for which notice is filed October 31, 1994
(ii) The number or amount of securities of the
same class or series, if any, which had
been registered under the Securities Act
of 1933, other than pursuant to Rule 24f-2
but which remained unsold at November 1, 1993,
the beginning of the Registrant's fiscal
period -0-
(iii) The number or amount of securities, if
any, registered during the fiscal period
of this notice other than pursuant to
Rule 24f-2 -0- -0-
(iv) The number or amount of securities
sold during the fiscal period of this
notice 7,063,731
(v) The number or amount of securities sold
during the fiscal period of this notice
in reliance upon registration pursuant
to Rule 24f-2 (see attached Computation
of Fee) 7,063,731
WITNESS the due execution hereof this 15th day of December, 1994.
By: /s/ Robert C. Rosselot
Robert C. Rosselot
Assistant Secretary
COMPUTATION OF FEE
1. Actual aggregate sale price of Registrant's
securities sold pursuant to Rule 24f-2 during
the fiscal period for which the 24f-2 notice
is filed (see Section v)................................... $161,557,597
2. Reduced by the difference between:
(a) actual aggregate redemption price
of such securities redeemed by the
issuer during the fiscal period for
which the 24f-2 notice is filed........ $256,459,141
(b) actual aggregate redemption price
of such redeemed securities
previously applied by the issuer
pursuant to Section 24e(2)(a) for
the fiscal period for which the
24f-2 notice is filed.................. -0- 256,459,141
Total amount upon which the fee calculation specified
in Section 6(b) of the Securities Act of 1933 is
based......................................................... $(94,901,544)
FEE SUBMITTED (1/29 of 1% of Total amount)............... $ -0-
CONVERSION OF NET REDEMPTIONS ON
RULE 24f-2 NOTICE TO FILING
UNDER RULE 24e-2
When a negative amount appears on the line captioned "Total amount upon which
the fee calculated specified in Section 6(b) of the Securities Act of 1933 is
based", the following calculation should be made to determine the share
information needed to file under Rule 24e-2:
Total redemptions (per annual report) 11,526,631
Less: Line (v) - Rule 24f-2 Notice 7,063,731
Shares available to register under
Rule 24e-2 4,462,900 (a)
Fund's Current Net Asset Value $ 20.27 (b)
Multiply: Shares available to register
under Rule 24e-2 by the fund's current
net asset value (a x b) to obtain Proposed
Maximum Aggregate Offering Price $90,462,983
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.
----------
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
December 15, 1994
Federated Growth Trust
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
You have requested our opinion in connection with the registration by
Federated Growth Trust ("Trust") of an additional 4,462,900 Shares of
Beneficial Interest ("Shares") pursuant to Post-effective Amendment No. 19 to
the Trust's registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 (File No. 2-91090). The subject
Post-effective Amendment will be filed pursuant to Paragraph (b) of Rule 485
and become effective pursuant to said Rule immediately upon filing.
As counsel we have participated in the organization of the Trust and its
registration under the Investment Company Act. We have also participated in
the preparation and filing of the Trust's amended registration statement under
the Securities Act of 1933 referred to above. We have examined and are
familiar with the provisions of the written Declaration of Trust dated April
17, 1984, ("Declaration of Trust"), the Bylaws of the Trust and such other
documents and records deemed relevant. We have also reviewed questions of law
and consulted with counsel thereon as deemed necessary or appropriate by us
for the purposes of this opinion.
On the basis of the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the Registration
Statement referred to above may be legally and validly issued from time to
time in accordance with the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III, Section 3, of the
Declaration of Trust and subject to compliance with the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and
applicable state laws regulating the sale of securities. Such Shares, when so
issued, will be fully paid and non-assessable.
3. Post-effective Amendment No. 19 does not contain disclosures which
would render it ineligible to become effective pursuant to Paragraph (b) of
Rule 485.
We hereby consent to the filing of this opinion as a part of the Trust's
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and as a part of any application or registration
statement filed under the securities laws of the States of the United States.
We further consent to the reference to this opinion and the reference to us as
counsel to the Trust in the prospectus, registration statements and
applications.
Very truly yours,
Houston, Houston & Donnelly
By: /s/ Thomas J. Donnelly
