SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
FEDERATED ARMS FUND
(Name of Registrant as Specified In Its Charter)
FEDERATED INVESTORS
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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FEDERATED ARMS FUND
PROXY STATEMENT - PLEASE VOTE!
TIME IS OF THE ESSENCE...VOTING ONLY TAKES A FEW MINUTES AND YOUR
PARTICIPATION IS IMPORTANT! ACT NOW TO HELP THE TRUST AVOID ADDITIONAL EXPENSE.
Federated ARMS Fund will hold a special meeting of shareholders on June 21,
1999. It is important for you to vote on the issues described in this Proxy
Statement. We recommend that you read the Proxy Statement in its entirety; the
explanations will help you to decide on the issues.
Following is an introduction to the proposals and the process.
WHY AM I BEING ASKED TO VOTE?
Mutual funds are required to obtain shareholders' votes for certain types
of changes, like those included in this Proxy Statement. You have a right to
vote on these changes.
WHAT ISSUES AM I BEING ASKED TO VOTE ON?
The proposals include:
o the election of Trustees;
o ratification of independent auditors;
o changes to the Trust's fundamental investment policies; and
O an amendment to the Declaration of Trust.
WHY ARE INDIVIDUALS RECOMMENDED FOR ELECTION TO THE BOARD OF TRUSTEES?
The fund is devoted to serving the needs of its shareholders, and the Board is
responsible for managing the fund's business affairs to meet those needs. The
Board represents the shareholders and can exercise all of the fund's powers,
except those reserved only for shareholders.
Trustees are selected on the basis of their education and professional
experience. Candidates are chosen based on their distinct interest in, and
capacity for understanding the complexities of, the operation of a mutual fund.
These individuals bring considerable experience to the impartial oversight of a
fund's operation.
The Proxy Statement includes a brief description of each nominee's history and
current position with the fund, if applicable.
WHY AM I BEING ASKED TO VOTE ON THE RATIFICATION OF INDEPENDENT AUDITORS?
The independent auditors conduct a professional examination of accounting
documents and supporting data to render an opinion on the material fairness of
the information. Because financial reporting involves discretionary decision
making, the auditors' opinion is an important assurance to both the fund and its
investors. The Board of Trustees approved the selection of Ernst & Young LLP,
long-time auditors of the fund, for the current fiscal year.
WHY ARE THE FUND'S "FUNDAMENTAL POLICIES" BEING CHANGED?
Every mutual fund has certain investment policies that can be changed only with
the approval of its shareholders. These are referred to as "fundamental"
investment policies.
In some cases, these policies were adopted to reflect regulatory, business, or
industry conditions that no longer exist or no longer are necessary. In other
cases, advances in the securities markets and the economy have created different
procedures and techniques that affect the fund's operations.
By reducing the number of "fundamental policies," the fund may be able to
minimize the costs and delays associated with frequent shareholder meetings.
Also, the investment adviser's ability to manage the fund's assets may be
enhanced and investment opportunities increased.
The proposed amendments will:
o reclassify as operating policies those fundamental policies that are
not required to be fundamental by the Investment Company Act of 1940,
as amended ("1940 Act");
o simplify and modernize the policies that are required to be
"fundamental" by the 1940 Act; and
o remove fundamental policies that are no longer required by the
securities laws of individual states.
Federated Investment Management Company, the fund's adviser, is a conservative
money manager. Its highly trained professionals are dedicated to making
investment decisions in the best interest of the fund and its shareholders. The
Board believes that the proposed changes will be applied responsibly by the
adviser.
WHY ARE SOME "FUNDAMENTAL POLICIES" BEING RECLASSIFIED AS "OPERATING POLICIES?"
As noted above, some "fundamental policies" have been redefined as "operating
policies." Operating policies do not require shareholder approval to be changed.
This gives the fund's Board additional flexibility to determine whether to
participate in new investment opportunities and to meet industry changes
promptly.
WHY ARE THE TRUSTEES RECOMMENDING AN AMENDMENT TO THE DECLARATION OF TRUST?
The Declaration organizing the fund was prepared many years ago. Since then,
developments in the investment company industry and changes in the law resulted
in many improvements. The Board is recommending a change to the Declaration of
Trust that permits the fund to benefit from these developments.
HOW DO I VOTE MY SHARES?
You may vote in person at the special meeting of shareholders or complete and
return the enclosed Proxy Card. IF YOU SIGN AND RETURN THE PROXY CARD WITHOUT
INDICATING A PREFERENCE, YOUR VOTE WILL BE CAST "FOR" ALL THE PROPOSALS.
WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE PROXY STATEMENT?
Call your Investment Professional or a Federated Client Service
Representative. Federated's toll-free number is 1-800-341-7400. After careful
consideration, the Board of Trustees has unanimously approved these proposals.
The Board recommends that you read the enclosed materials carefully and vote FOR
all proposals.
DEFINITIVE
FEDERATED ARMS FUND
NOTICE OF SPECIAL MEETING
IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 21, 1999
A Special Meeting in lieu of Annual Meeting of the shareholders
of Federated ARMS Fund (the "Trust") will be held at 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (Eastern time), on June 21,
1999 to consider proposals:
(1) To elect seven Trustees.
(2) To ratify the selection of the Trust's independent auditors.
(3) To make changes to the Trust's fundamental investment policies:
(a) To amend the Trust's fundamental investment policy regarding
diversification;
(b) To amend the Trust's fundamental investment policy regarding
borrowing money and issuing senior securities;
(c) To amend the Trust's fundamental investment policy regarding
investments in real estate;
(d) To amend the Trust's fundamental investment policy regarding
investing in commodities;
(e) To amend the Trust's fundamental investment policy regarding
underwriting securities;
(f) To amend the Trust's fundamental investment policy regarding
lending by the Trust;
(g) To amend, and to make non-fundamental, the Trust's fundamental
investment policy regarding buying securities on margin;
(h) To amend, and to make non-fundamental, the Trust's fundamental
investment policy regarding pledging assets;
(i) To amend, and to make non-fundamental, the Trust's fundamental
investment policy regarding investing in illiquid securities;
(j) To amend, and to make non-fundamental, the Trust's fundamental
investment policy regarding investing in other investment
companies;
(k) To make non-fundamental the Trust's fundamental investment policy
regarding investing in adjustable and floating rate mortgage
securities;
(l) To make non-fundamental the Trust's fundamental investment policy
regarding investing in U.S. government securities;
(m) To make non-fundamental the Trust's fundamental investment policy
regarding investing in mortgage related securities;
(n) To make non-fundamental the Trust's fundamental investment policy
regarding purchasing collateralized mortgage obligations;
(o) To make non-fundamental the Trust's fundamental investment policy
regarding engaging in dollar roll transactions;
(p) To make non-fundamental the Trust's fundamental investment policy
regarding engaging in repurchase agreements;
(q) To make non-fundamental the Trust's fundamental investment policy
regarding engaging in reverse repurchase agreements;
(r) To make non-fundamental the Trust's fundamental investment policy
regarding engaging in securities lending transactions;
(s) To make non-fundamental the Trust's fundamental investment policy
regarding engaging in when-issued and delayed delivery
transactions; and
(t) To make non-fundamental the Trust's fundamental investment policy
regarding investing in stripped mortgage securities.
(4) To eliminate certain of the Trust's fundamental investment policies:
(a) To remove the Trust's fundamental investment policy on investing
in securities of new issuers;
(b) To remove the Trust's fundamental investment policy on selling
securities short;
(c) To remove the Trust's fundamental investment policy regarding
portfolio trading; and
(d) To remove the Trust's fundamental investment policy regarding
temporary investments.
(5) To approve an amendment and restatement to the Trust's Declaration of
Trust to permit the Board of Trustees to liquidate assets of the Trust
without seeking shareholder approval.
To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Trustees has fixed April 23, 1999 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
May 7, 1999
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING IN LIEU OF ANNUAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
TABLE OF CONTENTS
ABOUT THE PROXY SOLICITATION AND THE MEETING...................................5
ELECTION OF SEVEN TRUSTEES.....................................................5
ABOUT THE ELECTION OF TRUSTEES.................................................6
TRUSTEES STANDING FOR ELECTION.................................................6
NOMINEES NOT PRESENTLY SERVING AS TRUSTEES.....................................7
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS..........................8
APPROVAL OF CHANGES TO THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES.............8
APPROVAL OF THE ELIMINATION OF CERTAIN FUNDAMENTAL INVESTMENT POLICIES OF
THE TRUST 20
APPROVAL OF AN AMENDMENT AND RESTATEMENT TO THE TRUST'S DECLARATION OF TRUST..21
INFORMATION ABOUT THE TRUST...................................................22
PROXIES, QUORUM AND VOTING AT THE MEETING.....................................22
SHARE OWNERSHIP OF THE TRUSTEES...............................................23
TRUSTEE COMPENSATION..........................................................23
OFFICERS OF THE TRUST.........................................................25
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY..................27
DEFINITIVE
PROXY STATEMENT
FEDERATED ARMS FUND
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
ABOUT THE PROXY SOLICITATION AND THE MEETING
The enclosed proxy is solicited on behalf of the Board of Trustees of
the Trust (the "Board" or "Trustees"). The proxies will be voted at the special
meeting in lieu of annual meeting of shareholders of the Trust to be held on
June 21, 1999, at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at
2:00 p.m. (such special meeting in lieu of annual meeting and any adjournment or
postponement thereof are referred to as the "Meeting").
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Trust. In addition to solicitations
through the mails, proxies may be solicited by officers, employees, and agents
of the Trust or, if necessary, a communications firm retained for this purpose.
Such solicitations may be by telephone, telegraph, or otherwise. Any telephonic
solicitations will follow procedures designed to ensure accuracy and prevent
fraud, including requiring identifying shareholder information, recording the
shareholder's instructions, and confirming to the shareholder after the fact.
Shareholders who communicate proxies by telephone or by other electronic means
have the same power and authority to issue, revoke, or otherwise change their
voting instruction as shareholders submitting proxies in written form. The Trust
may reimburse custodians, nominees, and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to the
beneficial owners of shares held of record by such persons.
The Board has reviewed the changes recommended in both the investment
policies of the Trust and the proposed Amended and Restated Declaration of
Trust, and approved them, subject to shareholder approval. The purposes of the
Meeting are set forth in the accompanying Notice. The Trustees know of no
business other than that mentioned in the Notice that will be presented for
consideration at the Meeting. Should other business properly be brought before
the Meeting, proxies will be voted in accordance with the best judgment of the
persons named as proxies. This proxy statement and the enclosed proxy card are
expected to be mailed on or about May 7, 1999, to shareholders of record at the
close of business on April 23, 1999 (the "Record Date"). On the Record Date, the
Trust had outstanding 46,352,327.233 shares of beneficial interest.
The Trust's annual prospectus, which includes audited financial
statements for the fiscal year ended October 31, 1998, was previously mailed to
shareholders. The Trust's principal executive offices are located at Federated
Investors Funds, 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000. The
Trust's toll-free telephone number is 1-800-341-7400.
PROPOSAL #1: ELECTION OF SEVEN TRUSTEES
The persons named as proxies intend to vote in favor of the election of
Thomas G. Bigley, Nicholas P. Constantakis, John F. Cunningham, J. Christopher
Donahue, Charles F. Mansfield, Jr., John E. Murray, Jr. and John S. Walsh
(collectively, the "Nominees") as Trustees of the Trust. Messrs. Bigley,
Constantakis, Cunningham, and Murray are presently serving as Trustees. If
elected by shareholders, Messrs. Donahue, Mansfield and Walsh are expected to
assume their responsibilities as Trustees effective July 1, 1999. Please see
"ABOUT THE ELECTION OF TRUSTEES" below for current information about the
Nominees.
Messrs. Murray and Bigley were appointed Trustees on February 14, 1995
and October 1, 1995, respectively, to fill vacancies created by the decision to
expand the size of the Board. Messrs. Constantakis and Cunningham were appointed
Trustees on February 23, 1998 and January 1, 1999, respectively, also to fill
vacancies resulting from the decision to expand the size of the Board. Messrs.
Donahue, Mansfield and Walsh are being proposed for election as Trustees to fill
vacancies anticipated to result from the resignations of three current Trustees.
The anticipated resignations will not occur if Messrs. Donahue, Mansfield and
Walsh are not elected as Trustees.
All Nominees have consented to serve if elected. If elected, the
Trustees will hold office without limit in time until death, resignation,
retirement, or removal or until the next meeting of shareholders to elect
Trustees and the election and qualification of their successors. Election of a
Trustee is by a plurality vote, which means that the seven individuals receiving
the greatest number of votes at the Meeting will be deemed to be elected.
If any Nominee for election as a Trustee named above shall by reason of
death or for any other reason become unavailable as a candidate at the Meeting,
votes pursuant to the enclosed proxy will be cast for a substitute candidate by
the proxies named on the proxy card, or their substitutes, present and acting at
the Meeting. Any such substitute candidate for election as a Trustee who is an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Trust shall be nominated by the Executive
Committee. The selection of any substitute candidate for election as a Trustee
who is not an "interested person" shall be made by a majority of the Trustees
who are not "interested persons" of the Trust. The Board has no reason to
believe that any Nominee will become unavailable for election as a Trustee.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO ELECT AS TRUSTEES THE NOMINEES FOR
ELECTION TO THE BOARD OF TRUSTEES OF THE TRUST
ABOUT THE ELECTION OF TRUSTEES
When elected, the Trustees will hold office during the lifetime of the
Trust except that: (a) any Trustee may resign; (b) any Trustee may be removed by
written instrument signed by at least two-thirds of the number of Trustees prior
to such removal; (c) any Trustee who requests to be retired or who has become
mentally or physically incapacitated may be retired by written instrument signed
by a majority of the other Trustees; and (d) a Trustee may be removed at any
special meeting of the shareholders by a vote of two-thirds of the outstanding
shares of the Trust. In case a vacancy shall exist for any reason, the remaining
Trustees will fill such vacancy by appointment of another Trustee. The Trustees
will not fill any vacancy by appointment if, immediately after filling such
vacancy, less than two-thirds of the Trustees then holding office would have
been elected by the shareholders. If, at any time, less than a majority of the
Trustees holding office have been elected by the shareholders, the Trustees then
in office will call a shareholders' meeting for the purpose of electing Trustees
to fill vacancies. Otherwise, there will normally be no meeting of shareholders
called for the purpose of electing Trustees.
Set forth below is a listing of: (i) Trustees standing for election, and
(ii) Nominees standing for election who are not presently serving as Trustees,
along with their addresses, birthdates, present positions with the Trust, if
applicable, and principal occupations during the past five years:
TRUSTEES STANDING FOR ELECTION
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of
Executive Committee, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director and Member
of Executive Committee, University of Pittsburgh.
NICHOLAS P. CONSTANTAKIS
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC.
JOHN F. CUNNINGHAM
353 El Brillo Way
Palm Beach, FL
Birthdate: March 5, 1943
Trustee
Director or Trustee of some of the Funds in the Federated Fund Complex;
Chairman, President and Chief Executive Officer, Cunningham & Co., Inc.
(specialized financial consulting organization); Trustee Associate, Boston
College; Director, EMC Corporation; formerly, Director, Redgate Communications.
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray.
NOMINEES NOT PRESENTLY SERVING AS TRUSTEES
J. CHRISTOPHER DONAHUE
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company. Mr. Donahue is the son of John F. Donahue, Chairman
and Trustee of the Trust.
CHARLES F. MANSFIELD, JR.
80 South Road
Westhampton, NY
Birthdate: April 10, 1945
Director or Trustee of some of the Funds in the Federated Fund Complex;
management consultant.
JOHN S. WALSH
2007 Sherwood Drive
Valparaiso, IN
Birthdate: November 28, 1957
Director or Trustee of some of the Funds in the Federated Fund Complex;
President and Director, Heat Wagon, Inc.; President and Director, Manufacturers
Products, Inc.; President, Portable Heater Parts, a division of Manufacturers
Products, Inc.; Director, Walsh & Kelly, Inc.; formerly, Vice President, Walsh &
Kelly, Inc.
PROPOSAL #2: RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The 1940 Act requires that the Trust's independent auditors be selected
by the Board, including a majority of those Board members who are not
"interested persons" (as defined in the 1940 Act) of the Trust, and submitted
for ratification or rejection at the next succeeding meeting of shareholders.
The Board of the Trust, including a majority of its members who are not
"interested persons" of the Trust, approved the selection of Ernst & Young LLP
(the "Auditors") for the current fiscal year at a Board meeting held on November
17, 1998.
The selection by the Board of the Auditors as independent auditors for
the current fiscal year is submitted to the shareholders for ratification. Apart
from their fees as independent auditors and certain consulting fees, neither the
Auditors nor any of their partners have a direct, or material indirect,
financial interest in the Trust or its investment adviser. The Auditors are a
major international independent accounting firm. The Board believes that the
continued employment of the services of the Auditors for the current fiscal year
would be in the Trust's best interests.
Representatives of the Auditors are not expected to be present at the
Meeting. If a representative is present, he or she will have the opportunity to
make a statement and would be available to respond to appropriate questions. The
ratification of the selection of the Auditors will require the affirmative vote
of a majority of the shares present and voting on the proposal at the Meeting.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE TO RATIFY THE SELECTION OF INDEPENDENT AUDITORS
APPROVAL OF CHANGES TO THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
INTRODUCTION TO PROPOSALS #3(A) TO #3(T) AND #4(A) TO #4(D).
The 1940 Act (which was adopted to protect mutual fund shareholders)
requires investment companies such as the Trust to adopt certain specific
investment policies or restrictions that can be changed only by shareholder
vote. An investment company may also elect to designate other policies or
restrictions that may be changed only by shareholder vote. Both types of
policies and restrictions are often referred to as "fundamental policies." These
policies and restrictions limit the investment activities of the Trust's
investment adviser.
After the Trust was formed in 1985, legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions imposed by
state laws and regulations were preempted by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, the Trust is
subject to fundamental policies that are no longer required to be fundamental,
and to other policies that are no longer required at all. Accordingly, the
Trustees have authorized the submission to the Trust's shareholders for their
approval, and recommend that shareholders approve, the amendment,
reclassification and/or elimination of certain of the Trust's fundamental
policies.
The proposed amendments would:
(i) simplify, modernize and standardize the fundamental policies that are
required to be stated under the 1940 Act;
(ii) reclassify as operating policies those fundamental policies that are
not required to be fundamental under the 1940 Act; and
(iii) eliminate those fundamental policies that are no longer required by
the securities laws of the various states.
By reducing the number of policies that can be changed only by
shareholder vote, the Trustees believe that the Trust would be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The Trustees
also believe that the investment adviser's ability to manage the Trust's assets
in a changing investment environment will be enhanced and that investment
management opportunities will be increased by these changes. The chart that
follows briefly describes the differences between fundamental policies and
non-fundamental policies.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICIES NON-FUNDAMENTAL POLICIES
<S> <C> <C>
Who must approve changes in Board of Trustees and Board of Trustees
the policies? shareholders
How quickly can a change in Fairly slowly, since a vote Fairly quickly, because the
the policies be made? of shareholders is required change can be accomplished by
action of the Board of Trustees
What is the relative cost Costly to change because a Less costly to change because
to change a policy? shareholder vote requires a change can be accomplished
holding a meeting of by action of the Board of
shareholders Trustees
</TABLE>
The recommended changes are specified below. Each Proposal will be voted
on separately, and the approval of each Proposal will require the approval of a
majority of the outstanding voting shares of the Trust as defined in the 1940
Act. (See "PROXIES, QUORUM AND VOTING AT THE MEETING" below.)
DESCRIPTION OF PROPOSED CHANGES
The proposed standardized fundamental investment policies cover those
areas for which the 1940 Act requires the Trust to have a fundamental
restriction. They satisfy current regulatory requirements and are written to
provide flexibility to respond to future legal, regulatory, market or technical
changes. THE PROPOSED STANDARDIZED CHANGES WILL NOT AFFECT THE TRUST'S
INVESTMENT OBJECTIVE. ALTHOUGH THE PROPOSED CHANGES IN FUNDAMENTAL POLICIES WILL
ALLOW THE TRUST GREATER FLEXIBILITY TO RESPOND TO FUTURE INVESTMENT
OPPORTUNITIES, THE BOARD OF TRUSTEES OF THE TRUST DOES NOT ANTICIPATE THAT THE
CHANGES, INDIVIDUALLY OR IN THE AGGREGATE, WILL RESULT AT THIS TIME IN A
MATERIAL CHANGE IN THE LEVEL OF INVESTMENT RISK ASSOCIATED WITH INVESTMENT IN
THE TRUST. NOR DOES THE BOARD OF TRUSTEES ANTICIPATE THAT THE PROPOSED CHANGES
IN FUNDAMENTAL INVESTMENT POLICIES WILL, INDIVIDUALLY OR IN THE AGGREGATE,
CHANGE MATERIALLY THE MANNER IN WHICH THE TRUST IS MANAGED.
The following is the text and a summary description of the proposed
changes to the Trust's fundamental policies and restrictions. Any
non-fundamental policy may be modified or eliminated by the Trustees at any
future date without any further approval of shareholders. Shareholders should
note that certain of the fundamental policies that are treated separately below
currently are combined within a single existing fundamental policy.
Presently, if the Trust adheres to a fundamental or non-fundamental
percentage restriction at the time of an investment or transaction, a later
increase or decrease in the percentage resulting from a change in the value of
the Trust's portfolio securities or the amount of its total assets does not
create a violation of the policy.
This policy will continue to apply for any of the proposed changes that are
approved.
PROPOSAL #3: APPROVAL OF AMENDMENTS TO THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
PROPOSAL #3(A): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING DIVERSIFICATION
Under the 1940 Act, the Trust's policy relating to the diversification
of its investments must be fundamental. The 1940 Act prohibits a "diversified"
mutual fund from purchasing securities of any one issuer if, at the time of
purchase, more than 5% of the fund's total assets would be invested in
securities of that issuer or the fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
fund's total assets may be invested without regard to this limitation. The 5%
limitation does not apply to securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities or to securities issued by other
open-end investment companies.
The Trust's present policy regarding diversification states:
"With respect to securities comprising 75% of the value of its total
assets, the Trust will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. government securities) if
as a result more than 5% of the value of its total assets would be
invested in the securities of that issuer."
In order to afford the Trust's investment adviser maximum flexibility in
managing the Trust's assets, the Trustees propose to amend the Trust's
diversification policy to be consistent with the definition of a diversified
investment company under the 1940 Act. The amended policy complies with the U.S.
Securities and Exchange Commission's (the "SEC" or "Commission") general
definition of diversification. The new policy would specifically add securities
of other investment companies to the list of issuers which are excluded from the
5% limitation.
Upon approval of the Trust's shareholders, the fundamental investment
policy governing diversification will be amended as follows:
"With respect to securities comprising 75% of the value of its total
assets, the Trust will not purchase securities of any one issuer (other
than cash; cash items; securities issued or guaranteed by the government
of the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such U.S. government securities; and
securities of other investment companies) if, as a result, more than 5%
of the value of its total assets would be invested in securities of that
issuer, or the Trust would own more than 10% of the outstanding voting
securities of that issuer."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(B): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR SECURITIES
The 1940 Act requires the Trust to have a fundamental investment policy
defining its ability to borrow money or issue senior securities. In general,
limitations on borrowing are designed to protect shareholders and their
investments by restricting the Trust's ability to subject its assets to any
claims of creditors or senior security holders who would be entitled to
dividends or rights on liquidation of the Trust prior to the rights of
shareholders.
Shareholders of the Trust are being asked to approve a new standardized
fundamental policy for borrowing and the issuance of senior securities designed
to reflect all current regulatory requirements. The Trust's current policy
states:
"The Trust will not issue senior securities except that the Trust may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed. The Trust 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 Trust to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Trust will not purchase any
securities while any such borrowings are outstanding. During the period
that any reverse repurchase agreements are outstanding, but only to the
extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements."
SENIOR SECURITIES-GENERALLY. A "senior security" is an obligation of an
investment company with respect to its earnings or assets that takes precedence
over the claims of the fund's shareholders with respect to the same earnings or
assets. The 1940 Act generally prohibits a fund from issuing senior securities,
in order to limit the use of leverage. In general, an investment company uses
leverage when it borrows money to enter into securities transactions, or
acquires an asset without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types of
transactions which might otherwise be considered to create "senior securities"
or "leverage," so long as the fund meets certain collateral requirements
designed to protect shareholders. For example, some transactions that may create
senior security concerns include short sales, certain options and futures
transactions, reverse repurchase agreements and securities transactions that
obligate the fund to pay money at a future date (such as when-issued, forward
commitment or delayed delivery transactions). When engaging in such
transactions, a fund must set aside money or securities to meet the SEC staff's
collateralization requirements. This procedure effectively eliminates a fund's
ability to engage in leverage for these types of transactions.
BORROWING-GENERALLY. Under the 1940 Act, an investment company is permitted to
borrow up to 5% of its total assets for temporary purposes. A fund may borrow
only from banks. If borrowings exceed 5%, the fund must have assets totaling at
least 300% of the borrowing when the amount of the borrowing is added to the
fund's other assets. The effect of this provision is to allow the fund to borrow
from banks in amounts up to one-third (33 1/3%) of its total assets (including
the amount borrowed). Investment companies typically borrow money to meet
redemptions in order to avoid a forced, unplanned sale of portfolio securities.
This technique allows the fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations. The costs of borrowing, however, can also reduce the fund's
total return.
The borrowing restriction of the Trust prohibits the purchase of any
portfolio securities while borrowings are outstanding. The proposed investment
policy would provide greater flexibility to the Trust, and would permit the
Trust to borrow money, directly or indirectly (such as through reverse
repurchase agreements), and issue senior securities within the limits
established under the 1940 Act or under any rule or regulation of the
Commission, or any SEC staff interpretation thereof. As a matter of operating
policy, the Trust does not intend to engage in leveraging. Upon shareholder
approval, the fundamental investment policy governing borrowing money and
issuing senior securities will state:
"The Trust may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(C): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN REAL ESTATE
Under the 1940 Act, the Trust's policy concerning investments in real
estate must be fundamental. The Trust currently has a fundamental investment
policy prohibiting the purchase or sale of real estate. The current policy,
however, allows the Trust to invest in companies that deal in real estate, or to
invest in securities that are secured by real estate, and states:
"The Trust will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or
interests in real estate."
The proposed fundamental investment policy will not permit the Trust to
purchase real estate directly, but will permit the purchase of securities whose
payments of interest or principal are secured by mortgages or other rights to
real estate in the event of default. The investment policy will also enable the
Trust to invest in companies within the real estate industry, provided such
investments are consistent with the Trust's investment objective and policies.
Upon shareholder approval, the fundamental investment policy governing
investments in real estate will state:
"The Trust may not purchase or sell real estate, provided that this
restriction does not prevent the Trust from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Trust may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(D): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTING IN COMMODITIES
Under the 1940 Act, the Trust's policy concerning investments in
commodities must be fundamental. The Trust is currently subject to a fundamental
restriction prohibiting the purchase or sale of commodities. Historically, the
most common types of commodities have been physical commodities such as wheat,
cotton, rice and corn. However, under federal law, futures contracts are
considered to be commodities and, therefore, financial futures contracts, such
as futures contracts related to currencies, stock indices or interest rates are
considered to be commodities. The Trust does not consider financial future
contracts to be commodities for purposes of the policy set forth below. Upon
shareholder approval, the fundamental investment policy governing investments in
commodities will state:
"The Trust may not purchase or sell physical commodities, provided that
the Trust may purchase securities of companies that deal in commodities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(E): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING UNDERWRITING SECURITIES
Under the 1940 Act, the Trust's policy relating to underwriting is
required to be fundamental. The Trust currently is subject to a fundamental
investment policy prohibiting it from acting as an underwriter of the securities
of other issuers, and states:
"The Trust will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations."
A person or company generally is considered an underwriter under the
federal securities laws if it participates in the public distribution of
securities of OTHER ISSUERS, usually by purchasing the securities from the
issuer and re-selling the securities to the public. From time to time, a mutual
fund may purchase a security for investment purposes which it later sells or
redistributes to institutional investors or others under circumstances where the
Trust could possibly be considered to be an underwriter under the technical
definition of underwriter contained in the securities laws.
Upon shareholder approval, the fundamental investment policy concerning
underwriting will state:
"The Trust may not underwrite the securities of other issuers, except
that the Trust may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities Act
of 1933."
This does not constitute a substantive change in the Trust's policy.
Rather, it reflects a restatement to standardized language now to be used by the
Federated Funds, and is submitted to shareholders to comply with the 1940 Act's
requirements.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(F): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING LENDING BY THE TRUST
Under the 1940 Act, the Trust's policy concerning lending must be
fundamental. The Trust currently is subject to a fundamental investment
restriction limiting its ability to make loans, which states:
"The Trust will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets."
The Trust's fundamental policy explicitly permits the Trust to lend its
portfolio securities. Securities lending is a practice that has become common in
the mutual fund industry and involves the temporary loan of portfolio securities
to parties who use the securities for the settlement of securities transactions.
The collateral delivered to the Trust in connection with such a transaction is
then invested to provide the Trust with additional income it might not otherwise
have.
Securities lending involves certain risks if the borrower fails to
return the securities. However, management believes that with appropriate
controls, such as 100% or greater collateralization of the loan and regular
monitoring of the creditworthiness of the counterparty, the ability to engage in
securities lending does not materially increase the risks to which the Trust
currently is subject. In addition, securities on loan cannot generally be sold
until the term of the loan is over. Upon approval of the Trust's shareholders,
the fundamental investment policy governing lending assets will state:
"The Trust may not make loans, provided that this restriction does not
prevent the Trust from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(G): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING SECURITIES ON MARGIN
The Trust is not required to have a fundamental restriction on margin
transactions. Accordingly, it is proposed that the Trust's existing fundamental
policy be replaced with a non-fundamental restriction. The Trust's current
policy provides:
"The Trust will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions."
The proposed non-fundamental policy makes minor changes in wording from
the existing fundamental restriction. Upon the approval of the elimination of
the existing fundamental policy on engaging in margin transactions, the Trust
would become subject to the following non-fundamental policy:
"The Trust will not purchase securities on margin, provided that the
Trust may obtain short-term credits necessary for the clearance of
purchases and sales of securities."
This does not constitute a substantive change in the Trust's policy.
Rather, it reflects a restatement to standardized language now to be used by the
Federated Funds, and is submitted to shareholders to comply with the 1940 Act's
requirements.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(H): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING PLEDGING ASSETS
The Trust is not required to have a fundamental investment restriction
with respect to the pledging of assets. To maximize the Trust's flexibility in
this area, the Board of the Trust believes the policy on pledging assets should
be made non-fundamental. The non-fundamental policy would be similar to the
fundamental policy proposed to be eliminated, which states:
"The Trust will not 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 borrowing."
The Board does not expect this change to have a material impact on the
Trust's operations. Establishing the policy as non-fundamental, however, would
enable the Board to change this policy in the future without shareholder
approval. While the Trust is proposing to eliminate the 10% limitation on the
amount of Trust assets that can be pledged, the Trust does not presently intend
to exceed this limitation in the future.
Upon the approval of the elimination of the existing fundamental policy
on pledging assets, the Trust would become subject to the following
non-fundamental policy:
"The Trust will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(I): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTING IN ILLIQUID SECURITIES
The Trust is currently subject to a fundamental investment policy
regarding investing in illiquid securities that states:
"The Trust will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for settlement in
more than seven days."
There is no legal requirement that the Trust have a fundamental policy
on this subject. Accordingly, the Board believes that it should be made
non-fundamental for the Trust, and amended to render it consistent with the
standardized disclosure utilized by the Federated Funds. The amendment and
restatement of the policy will not substantively change the policy.
The SEC takes the position that an investment company, other than a
money market fund, should not invest more than 15% of its net assets in illiquid
securities. The proposed non-fundamental restriction would comply with the SEC's
guidelines. Establishing the policy as non-fundamental would enable the Trust to
change this restriction in the future without shareholder approval. However, the
Trust has no present intention to materially modify the policy.
Upon the approval of the elimination of the existing fundamental policy
on investing in illiquid securities, the Trust would become subject to the
following non-fundamental restriction:
"The Trust will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15%
of the Trust's net assets."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(J): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTING IN
OTHER INVESTMENT COMPANIES
The Trust currently has a fundamental investment policy prohibiting
investment in the securities issued by any other investment company, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 5% of its total assets would be invested in
such securities, or except as part of a merger, consolidation or other
acquisition. The Trust's investment adviser believes, and the Board has
concluded, that this prohibition unnecessarily limits the Trust's investments.
Amending this policy would expand the investment opportunities available to the
Trust by allowing the Trust greater flexibility to invest in other investment
companies. Investments in other investment companies are limited under the 1940
Act and, in the case of the Trust, by an exemptive order issued by the
Commission (the "Order"). The 1940 Act and the Order limit both the portion of
the Trust's assets which may be so invested in a particular fund, and the
percentage of such a fund which may be owned by the Trust. Normally, each
investment company in which the Trust invests will have its own operating
expenses, including advisory fees; however, the Trust's investment adviser will
waive the portion of its advisory fee attributable to assets invested in other
investment companies. It is expected that the other duplicative expenses are
justified by the benefit of having access to the markets in which such a fund
invests, or in the investment techniques or advisers of such funds.
If shareholders approve this item, the new operating policy will read as
follows:
"The Trust may invest its assets in securities of other investment
companies, including securities of affiliated investment companies, as
an efficient means of carrying out its investment policies and managing
its uninvested cash."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(K): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING INVESTING IN ADJUSTABLE AND FLOATING RATE
MORTGAGE SECURITIES
The Trust currently has a fundamental investment policy pertaining to
investing in adjustable and floating rate mortgage securities. The policy states
that:
"The Trust will limit its investments in U.S. government securities,
including adjustable and floating rate mortgage securities which are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, to those that are permitted for purchase by federally
chartered savings and loan associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision and
by federal credit unions under the Federal Credit Union Act and the
rules, regulations, and interpretations of the National Credit Union
Administration."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with a non-fundamental investment policy that is substantially
similar to the current policy. Establishing this policy as a non-fundamental
policy will allow the Trust to change the policy without shareholder approval.
However, the Trust has no present intention to materially modify the policy, and
the Trust's management believes that the revised policy will not change
materially the manner in which the Trust is managed.
If approved by shareholders, the modified, non-fundamental investment
policy will state:
"The Trust will invest primarily in U.S. government securities,
including adjustable and floating rate mortgage securities which are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, to those that are permitted for purchase by federally
chartered savings and loan associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision and
by federal credit unions under the Federal Credit Union Act and the
rules, regulations, and interpretations of the National Credit Union
Administration."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(L): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING INVESTING IN U.S. GOVERNMENT SECURITIES
The Trust currently has a fundamental investment policy pertaining to its
investing in U.S. government securities. The policy states that:
"The Trust may invest in direct obligations of the U.S. Treasury, such as
U.S. Treasury bills, notes, and bonds, as well as obligations of U.S. government
agencies or instrumentalities which are not collateralized by or do not
represent interests in real estate mortgages."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(M): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING INVESTING IN MORTGAGE RELATED SECURITIES
The Trust currently has a fundamental investment policy pertaining to
investing in mortgage related securities. The policy states that:
"The Trust may invest in mortgage related securities which are issued by
private entities such as investment banking firms and companies related
to the construction industry."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(N): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING PURCHASING COLLATERALIZED MORTGAGE OBLIGATIONS
The Trust currently has a fundamental investment policy pertaining to
purchasing collateralized mortgage obligations that are investment grade. The
policy states that:
"The Trust will only purchase Collateralized Mortgage Obligations
("CMOs") which are investment grade, as rated by a nationally recognized
statistical rating organization."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(O): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING ENGAGING IN DOLLAR ROLL TRANSACTIONS
The Trust currently has a fundamental investment policy pertaining to
engaging in dollar roll transactions with respect to mortgage securities. The
policy states that:
"The Trust may engage in dollar roll transactions with respect to
mortgage securities issued by Government National Mortgage Association,
Federal National Mortgage Association, and Federal Home Loan Mortgage
Corporation. When the Trust enters into a dollar roll transaction,
liquid assets of the Trust, in a dollar amount sufficient to make
payment for the obligations to be repurchased, are segregated at the
trade date. These securities are marked to market daily and are
maintained until the transaction is settled."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(P): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING ENGAGING IN REPURCHASE AGREEMENTS
The Trust currently has a fundamental investment policy pertaining to
engaging in repurchase agreements. The policy states that:
"The Trust requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to
market daily. The Trust will only enter into repurchase agreements with
banks and other recognized financial institutions such as broker/dealers
which are deemed by the Trust's adviser to be creditworthy pursuant to
guidelines established by the Trust's Board of Trustees."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(Q): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING ENGAGING IN REVERSE REPURCHASE AGREEMENTS
The Trust currently has a fundamental investment policy pertaining to
engaging in reverse repurchase agreements. The policy states that:
"The Trust may enter into reverse repurchase agreements. When effecting
reverse repurchase agreements, liquid assets of the Trust, in a dollar
amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market
daily and are maintained until the transaction is settled. During the
period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(R): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING ENGAGING IN SECURITIES LENDING TRANSACTIONS
The Trust currently has a fundamental investment policy pertaining to
engaging in securities lending transactions. The policy states that:
"The Trust may lend portfolio securities up to one-third of the value of
its total assets to broker/dealers, banks, or other institutional
borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines
established by the Trust's Board of Trustees. The Trust 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."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(S): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING ENGAGING IN WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS
The Trust currently has a fundamental investment policy pertaining to
engaging in when-issued and delayed delivery transactions. The policy states
that:
"The Trust may engage in when-issued and delayed delivery transactions
but only for the purpose of acquiring portfolio securities consistent
with the Trust's investment objective and policies, and not for
investment leverage."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(T): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING INVESTING IN STRIPPED MORTGAGE SECURITIES
The Trust currently has a fundamental investment policy pertaining to
investing in stripped mortgage securities. The policy states that:
"The Trust will not invest in stripped mortgage securities, including
securities which represent a share of only the interest payments or only
the principal payments from underlying mortgage related securities."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to materially
modify the policy.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4: ELIMINATION OF CERTAIN OF THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
The Trust's management has recommended that four of the Trust's current
fundamental investment policies be removed. Two of the policies proposed to be
removed relating to investing in the securities of new issuers and making short
sales - result from state legal requirements that have been eliminated. The
latter two policies regarding the Trust's portfolio trading activity and
temporary investments - were initially adopted as fundamental investment
policies, and are not required under applicable law. The elimination of the four
policies is being presented to shareholders for approval to comply with the 1940
Act's requirements. The Trust's adviser believes that the removal of these
policies would provide greater flexibility in the management of the Trust by
permitting the Trust to purchase a broader range of securities that are
permitted investments and that are consistent with the Trust's investment
objective and policies.
The policies being removed are listed below. Each Proposal will be voted
on separately, and the approval of each change will require the affirmative vote
of a majority of the outstanding voting shares of the Trust as defined in the
1940 Act. (See "PROXIES, QUORUM AND VOTING AT THE MEETING" below.)
PROPOSAL #4(A): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN SECURITIES OF NEW ISSUERS
The Trust is not required to have a fundamental restriction with respect
to investing in securities of companies that have been in operation for less
than three years. Until NSMIA was adopted in 1996, the securities laws of
several states required every investment company which intended to sell its
shares in those states to adopt policies governing a variety of operational
issues, including investment in securities of new issuers and selling securities
short (discussed in Proposal #4(b)). As a consequence of those restrictions, the
Trust adopted the investment policy relating to investment in new issuers and
agreed that it would be changed only upon the approval of shareholders. Since
the prohibition pertaining to investing in the securities of new issuers is no
longer required under current law, the management of the Trust has recommended,
and the Board has determined, that this policy should be removed. To maximize
the Trust's investment flexibility, the Board believes that the Trust's
restriction on investments in such companies should be eliminated. While the
Trust may invest in new issuers, the Trust's management believes that the
removal of the fundamental investment policy will not materially change the
manner in which the Trust is managed.
Upon the approval of Proposal #4(a), the existing fundamental
restriction on investing in securities of companies that have been in operation
for less than three years for the Trust will be eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(B): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY ON SELLING SECURITIES SHORT
The Trust is not required to have a fundamental restriction with respect
to short sales of securities. To maximize the Trust's flexibility in this area,
the Board believes that the Trust's restriction on short sales of securities
should be eliminated. Similar to the restriction in Proposal #4(a), this
restriction was imposed by state laws and NSMIA preempts the legal requirement.
Notwithstanding the elimination of this fundamental restriction, the Trust
expects to continue not to engage in short sales of securities, except to the
extent that the Trust contemporaneously owns or has the right to acquire at no
additional cost securities identical to, or convertible into or exchangeable
for, those sold short.
Upon the approval of Proposal #4(b), the existing fundamental
restriction on selling securities short for the Trust will be eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(C): TO REMOVE THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING PORTFOLIO TRADING
The Trust currently has a fundamental investment policy pertaining to
portfolio trading and investing for short-term profits. The policy states that:
"The Trust does not intend to invest for the purpose of seeking
short-term profits; however, securities in which its portfolio may be
sold whenever the Trust's investment adviser believes it is appropriate
to do so in light of the Trust's investment objective, without regard to
the length of time a particular security may have been held. It is not
anticipated that the portfolio trading engaged in by the Trust will
result in its annual rate of portfolio turnover exceeding 100%."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the existing fundamental policy be
eliminated. The Trust's investment adviser intends to manage the Trust in the
same manner as presently, and will only engage in securities transactions in
order to attempt to achieve the Trust's investment objective. The Trust's
management does not believe that the elimination of the fundamental policy will
have a material impact on the Trust's operations.
Upon the approval of Proposal #4(c), the existing fundamental investment
policy on portfolio trading for the Trust will be eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(D): TO REMOVE THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING TEMPORARY INVESTMENTS
The Trust currently has a fundamental investment policy pertaining to
temporary investments. The policy states that:
"The Trust may invest temporarily in cash and money market instruments
during times of unusual market conditions for defensive purposes and to maintain
liquidity."
This investment policy was initially adopted as a fundamental policy. However,
the Trust is not required under the 1940 Act to have such a fundamental policy.
Accordingly, it is proposed that the Trust's existing fundamental policy be
eliminated. The Trust's management does not believe that the elimination of the
fundamental policy will have a material impact on the Trust's operations.
Upon the approval of Proposal #4(d), the existing fundamental investment
policy on temporary investments for the Trust will be eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #5: TO AMEND AND RESTATE THE TRUST'S DECLARATION OF TRUST TO
PERMIT THE BOARD OF TRUSTEES TO LIQUIDATE ASSETS OF THE TRUST WITHOUT SEEKING
SHAREHOLDER APPROVAL
Mutual funds, such as the Trust, are required to organize under the laws
of a state and to create and be bound by organizational documents outlining how
they will operate. In the case of the Trust, these organizational documents are
the Declaration of Trust and the By-Laws. Since the adoption of the Trust's
current Declaration of Trust, the market for mutual funds has evolved, requiring
mutual funds to be more flexible in their operation to respond quickly to
changes in the market. One item in the current Declaration of Trust, described
below, prohibits the Trust from responding quickly and favorably to changing
markets without going to the expense and delay of holding a shareholder meeting.
Shareholders are being asked to approve an amendment to the Trust's
Declaration of Trust to permit the Trustees to sell and convert into money
(i.e., liquidate) all the assets of the Trust, or any series or class of the
Trust, and then redeem all outstanding shares of any series or class of the
Trust. Currently, a majority vote of shareholders is required to liquidate the
Trust, or an affected series or class of which shares are outstanding. The
Trustees have determined that the current restriction presents a cumbersome
structure under which the best interest of all of the Trust's shareholders may
not be served. By requiring the Trustees to solicit a shareholder vote, by
means of a proxy solicitation and special meeting of shareholders, the
Declaration of Trust greatly hinders the Trustees' ability to effectively act
on decisions about the continued viability of the Trust. If it is determined
that it is no longer advisable to continue the Trust, or a series or class of
the Trust, it may not be in the best interest of shareholders to incur the
substantial additional expense of a shareholder meeting when it is more
important to preserve those assets that remain. Depending on the terms of
Massachusetts trust law, which may change from time to time, if this proposal
is approved by shareholders, the Trustees may be authorized to liquidate a
series or class of the Trust by Board action without a further shareholder
vote. The Trustees have no present intention of liquidating the Trust.
If approved by shareholders, Article XII, Section 4(c) of the
Declaration of Trust will be amended to read as follows:
"The Trustees may at any time sell and convert into money all the assets
of the Trust or any Series or Class without shareholder approval, unless
otherwise required by applicable law. Upon making provision for the
payment of all outstanding obligations, taxes and other liabilities,
accrued or contingent, belonging to each Series or Class, the Trustees
shall distribute the remaining assets belonging to each Series or Class
ratably among the holders of the outstanding Shares of that Series or
Class."
The Trustees believe that the interest of the shareholders is adequately
protected by this provision, as the liquidation would require the conversion of
the assets of the Trust to cash, which will thereafter be distributed to
shareholders pro rata. It is believed that this will result in the return to
shareholders of substantially the same value as would be provided to the
shareholders by a redemption resulting in the payment to the shareholders of the
then current net asset value of the shares owned by the shareholders.
Accordingly, the Trustees have approved, and have authorized the submission to
the Trust's shareholders for their approval, an amendment to the Trust's
Declaration of Trust. The approval of the amendment will require the affirmative
vote of a majority of the outstanding voting shares of the Trust entitled to
vote as described in the Declaration of Trust. (See "PROXIES, QUORUM AND VOTING
AT THE MEETING" below.)
In the event that the amendment to the Declaration of Trust to allow
the Trustees to liquidate assets is not approved by the shareholders, the
Declaration of Trust will remain as it currently exists and the Trustees will
consider what action, if any, should be taken.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
INFORMATION ABOUT THE TRUST
PROXIES, QUORUM AND VOTING AT THE MEETING
Only shareholders of record on the Record Date will be entitled to vote
at the Meeting. Each share of the Trust is entitled to one vote. Fractional
shares are entitled to proportionate shares of one vote. Under both the
Investment Company Act of 1940 and the Declaration of Trust, the favorable vote
of a "majority of the outstanding voting shares" of the Trust means: (a) the
holders of 67% or more of the outstanding voting securities present at the
Meeting, if the holders of 50% or more of the outstanding voting securities of
the Trust are present or represented by proxy; or (b) the vote of the holders of
more than 50% of the outstanding voting securities, whichever is less. The
favorable vote of a majority of the outstanding voting shares of the Trust is
required to approve each of the Proposals, except the election of Trustees and
the ratification of the selection of the Auditors.
Any person giving a proxy has the power to revoke it any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of the Trust. In addition, although mere
attendance at the Meeting will not revoke a proxy, a shareholder present at the
Meeting may withdraw his or her proxy and vote in person. All properly executed
and unrevoked proxies received in time for the Meeting will be voted in
accordance with the instructions contained in the proxies. IF NO INSTRUCTION IS
GIVEN ON THE PROXY, THE PERSONS NAMED AS PROXIES WILL VOTE THE SHARES
REPRESENTED THEREBY IN FAVOR OF THE MATTERS SET FORTH IN THE ATTACHED NOTICE.
In order to hold the Meeting, a "quorum" of shareholders must be
present. Holders of more than fifty percent of the total number of outstanding
shares of each class of the Trust entitled to vote, present in person or by
proxy, shall be required to constitute a quorum for the purpose of voting on the
proposals made.
For purposes of determining a quorum for transacting business at the
Meeting, abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
with respect to which the brokers or nominees do not have discretionary power)
will be treated as shares that are PRESENT but which have not been VOTED. For
this reason, abstentions and broker non-votes will have the effect of a "no"
vote for purposes of obtaining the requisite approval of some of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies which have been received to adjourn the Meeting to a later date. In the
event that a quorum is present but sufficient votes in favor of one or more of
the proposals have not been received, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies with respect to such proposal(s). All such adjournments will require the
affirmative vote of a plurality of the shares present in person or by proxy at
the session of the Meeting to be adjourned. The persons named as proxies will
vote AGAINST any such adjournment those proxies which they are required to vote
against the proposal and will vote in FAVOR of the adjournment other proxies
which they are authorized to vote. A shareholder vote may be taken on other
proposals in this Proxy Statement prior to any such adjournment if sufficient
votes have been received for approval.
As referred to in this Proxy Statement, the "Federated Fund Complex,"
"The Funds" or "Funds" include the following investment companies: Automated
Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.; CCB
Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds;
Tax-Free Instruments Trust; The Planters Funds; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; World Investment Series, Inc.;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; High Yield Cash Trust;
Investment Series Trust; Targeted Duration Trust; The Virtus Funds; and Trust
for Financial Institutions.
SHARE OWNERSHIP OF THE TRUSTEES
Officers and Trustees of the Trust own less than 1% of the Trust's outstanding
shares.
At the close of business on the Record Date, the following person owned, to the
knowledge of management, more than 5% of the outstanding shares of the
Institutional Shares class of the Trust: APCO Employees Credit Union,
Birmingham, AL, owned approximately 6,008,537.6650 shares (14.09%). To the
knowledge of management, at the close of business on the Record Date, the
following persons owned more than 5% of the outstanding shares of the
Institutional Service Shares class of the Trust: Hawaii Federal & State Employee
Federal Credit Union, Hilo, HI, owned approximately 962,094.9840 shares
(25.86%); and Brelco, Salina, KS, owned approximately 213,707.2590 shares
(5.74%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST1# FROM FUND COMPLEX+
<S> <C> <C>
- --------------------------- -------------------- ------------------------------------------------
John F. Donahue*@ $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $1,559.99 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Nicholas P. Constantakis++ $1,056.13 $0 for the Trust and
Trustee 36 other investment companies in the Fund Complex
William J. Copeland $1,559.99 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John F. Cunningham** $0 $0 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd $1,559.99 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D.* $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr.@ $1,559.99 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,417.96 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
1 Information is furnished for the fiscal year ended August 31, 1998.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
++ Mr. Constantakis became a member of the Board of Trustees on
February 23, 1998.
* The Trustee is deemed to be an "interested person" as defined in the 1940
Act.
** Mr. Cunningham became a member of the Board of Trustees on
January 1, 1999. He did not receive any fees from the Fund Complex as of the
last calendar year.
@ Member of the Executive Committee.
During the fiscal year ended August 31, 1998, there were four meetings
of the Board of Trustees. The interested Trustees, other than Dr. Ellis, do not
receive fees from the Trust. Dr. Ellis is an interested person by reason of the
employment of his son-in-law by Federated Securities Corp. All Trustees were
reimbursed for expenses for attendance at Board of Trustees meetings.
The Executive Committee of the Board of Trustees handles the
responsibilities of the Board between meetings of the Board. Other than its
Executive Committee, the Trust has one Board committee, the Audit Committee.
Generally, the function of the Audit Committee is to assist the Board of
Trustees in fulfilling its duties relating to the Trust's accounting and
financial reporting practices and to serve as a direct line of communication
between the Board of Trustees and the independent auditors. The specific
functions of the Audit Committee include recommending the engagement or
retention of the independent auditors, reviewing with the independent auditors
the plan and the results of the auditing engagement, approving professional
services provided by the independent auditors prior to the performance of such
services, considering the range of audit and non-audit fees, reviewing the
independence of the independent auditors, reviewing the scope and results of the
Trust's procedures for internal auditing, and reviewing the Trust's system of
internal accounting controls.
For the most recently completed fiscal year, Messrs. Flaherty, Conroy,
Copeland and Dowd served on the Audit Committee. These Trustees are not
interested Trustees of the Trust. During the fiscal year ended August 31, 1998,
there were four meetings of the Audit Committee. All of the members of the Audit
Committee were present for each meeting. Each member of the Audit Committee
receives an annual fee of $100 plus $25 for attendance at each meeting and is
reimbursed for expenses of attendance.
OFFICERS OF THE TRUST
The executive officers of the Trust are elected annually by the Board of
Trustees. Each officer holds the office until qualification of his successor.
The names and birthdates of the executive officers of the Trust and their
principal occupations during the last five years are as follows:
John F. Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher
Donahue, Executive Vice President of the Trust and Nominee for Trustee.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company. Mr. Donahue is the son of John F. Donahue, Chairman
and Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President and Secretary of the Federated Fund Complex; Executive
Vice President, Secretary, and Director, Federated Investors, Inc.; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Director,
Federated Services Company; Director, Federated Securities Corp.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Richard J. Thomas
Federated Investors Tower
Pittsburgh, PA
Birthdate: June 17, 1954
Treasurer
Treasurer of the Federated Fund Complex; Vice President - Funds Financial
Services Division, Federated Investors, Inc.
William D. Dawson, III
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 3, 1949
Chief Investment Officer
Chief Investment Officer of the Trust and various other Funds in the Federated
Fund Complex; Executive Vice President, Federated Investment Counseling,
Federated Global Research Corp., Federated Advisers, Federated Management,
Federated Research, and Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Portfolio Manager, Federated Administrative
Services; Vice President, Federated Investors, Inc.
Susan M. Nason
Federated Investors Tower
Pittsburgh, PA
Birthdate: August 29, 1961
Vice President
Senior Vice President, Federated Investment Management Company.
None of the Officers of the Trust received salaries from the Trust
during the fiscal year ended August 31, 1998.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Trust is not required, and does not intend, to hold regular annual
meetings of shareholders. Shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for the next meeting of
shareholders should send their written proposals to Federated ARMS Fund,
Federated Investors Funds, 5800 Corporate Drive, Pittsburgh, Pennsylvania
15237-7000, so that they are received within a reasonable time before any such
meeting.
No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy card will vote on such matters
according to their best judgment in the interests of the Trust.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
May 7, 1999
<PAGE>
FEDERATED ARMS FUND
INVESTMENT ADVISER
FEDERATED INVESTMENT MANAGEMENT COMPANY
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
ADMINISTRATOR
FEDERATED SERVICES COMPANY
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Cusip
(_____/99)
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
Federated ARMS Fund (the "Trust"), hereby appoint Patricia F. Conner, Gail
Cagney, William Haas, Susan M. Jones and Ann M. Scanlon, or any one of them,
true and lawful attorneys, with the power of substitution of each, to vote all
shares of the Trust which the undersigned is entitled to vote at the Special
Meeting in lieu of Annual Meeting of Shareholders (the "Meeting") to be held on
June 21, 1999, at 5800 Corporate Drive, Pittsburgh, Pennsylvania, at 2:00 p.m.
and at any adjournment thereof.
The attorneys named will vote the shares represented by this proxy in accordance
with the choices made on this ballot. If no choice is indicated as to the item,
this proxy will be voted affirmatively on the matters. Discretionary authority
is hereby conferred as to all other matters as may properly come before the
Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FEDERATED ARMS
FUND. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSALS.
BY CHECKING THE BOX "FOR" BELOW, YOU WILL VOTE TO APPROVE EACH OF THE PROPOSED
ITEMS IN THIS PROXY, AND TO ELECT EACH OF THE NOMINEES AS TRUSTEES OF THE TRUST
FOR [ ]
PROPOSAL 1 TO ELECT THOMAS G. BIGLEY, NICHOLAS P. CONSTANTAKIS,
JOHN F. CUNNINGHAM, J. CHRISTOPHER DONAHUE,
CHARLES F. MANSFIELD, JR., JOHN E. MURRAY, JR. AND JOHN S. WALSH
AS TRUSTEES OF THE TRUST
FOR [ ]
WITHHOLD AUTHORITY
TO VOTE [ ]
VOTE FOR ALL
EXCEPT [ ]
If you do not wish your shares to be voted "FOR" a
particular nominee, mark the "VOTE FOR ALL EXCEPT" box
and strike a line through the name of each nominee for
whom you are NOT voting. Your shares will be voted for
the remaining nominees.
PROPOSAL 2 TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE TRUST'S
INDEPENDENT AUDITORS
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
PROPOSAL 3 TO APPROVE CHANGES TO THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES:
APPROVAL OF ALL PROPOSED CHANGES TO THE TRUST'S FUNDAMENTAL
INVESTMENT POLICIES
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
To vote against the proposed changes to one or more of the
specific fundamental investment policies, but to approve all
others, indicate the number(s) (as set forth in the Proxy
Statement) of the investment policy(ies) you do not want to
change on the line below. Please see the Notice of the Proxy
Statement for the Proposal topics.
PROPOSAL 4 TO ELIMINATE CERTAIN OF THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES:
APPROVAL OF THE FOUR PROPOSED ELIMINATIONS OF THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
To vote against the proposed elimination of one or more of the
specific fundamental investment policies, but to approve the
elimination of the others, indicate the number(s) (as set forth
in the Proxy Statement) of the investment policy(ies) you do not
want to eliminate on the line below. Please see the Notice of the
Proxy Statement for the Proposal topics.
PROPOSAL 5 TO APPROVE AN AMENDMENT AND RESTATEMENT TO THE TRUST'S
DECLARATION OF TRUST TO PERMIT THE BOARD OF TRUSTEES TO
LIQUIDATE ASSETS OF THE TRUST WITHOUT SEEKING
SHAREHOLDER APPROVAL
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
YOUR VOTE IS IMPORTANT Please
complete, sign and return
this card as soon as
possible.
Dated
Signature
Signature (Joint Owners)
Please sign this proxy exactly as your name appears on the books of the Trust.
Joint owners should each sign personally. Directors and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
