SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.______)
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 Equity Income Fund, Inc.
(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 SECURITIES CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
FEDERATED EQUITY INCOME FUND, INC. SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 14, 1997
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
FEDERATED EQUITY INCOME FUND, INC. hereby appoint S. Elliott Cohan, Carol B.
Kayworth, Ann Scanlon, Patricia F. Conner, Catherine C. Ryan and Matthew S.
Hardin, or any one of them, true and lawful attorneys, with the power of
substitution of each, to vote all Shares of FEDERATED EQUITY INCOME FUND, INC.
which the undersigned is entitled to vote at the Special Meeting of Shareholders
to be held on November 14, 1997, at Federated Investors Tower, Pittsburgh,
Pennsylvania, at 2:00 p.m., (Eastern time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. 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 ANY ITEM, THIS PROXY WILL
BE VOTED AFFIRMATIVELY ON THAT MATTER. The approval of each proposal is not
contingent on the approval of any other matter.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN
THE TOP PORTION.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS KEEP THIS PORTION FOR YOUR RECORDS
FEDERATED EQUITY INCOME FUND, INC. DETACH AND RETURN THIS PORTION ONLY
<S> <C> <C> <C>
VOTE ON PROPOSAL
(1) To elect two Directors: FOR ALL WITHHOLD FOR ALL
01) T.G. Bigley and ALL EXCEPT
02) J.E. Murray, Jr. ___ ___ ___
To withhold authority to vote, mark "For All Except" and write the nominee's name on the line below. __________
(2) To approve or disapprove the removal FOR AGAINST ABSTAIN
of the Fund's fundamental investment ____ ___ ___
limitation restricting the Fund's
investment in restricted securities
to 10% of its total assets.
(3) To approve or disapprove the FOR AGAINST ABSTAIN
removal of the Fund's fundamental ___ ___ ___
investment limitation regarding,
investing in oil gas or other mineral
exploration or development programs.
(4) To approve or disapprove an FOR AGAINST ABSTAIN
amendment to the Fund's fundamental ___ ___ ___
investment limitation concerning
diversification.
</TABLE>
Please sign EXACTLY as your name(s) appear(s) above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give your
full title as such. If a corporation or partnership, please sign the full name
by an authorized officer or partner. If stock is owned jointly, all parties
should sign.
__________ ________________ _______________________________
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Signature (Please sign within box) Signature (Joint Owners) Date
FEDERATED EQUITY INCOME FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 14, 1997
A Special Meeting of the shareholders of Federated Equity Income Fund, Inc.
(the "Fund") will be held at the Fund's principal offices on the 19th Floor of
the Federated Investors Tower, Grant Street and Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779, at 2:00 p.m. November 14, 1997, for the following
purposes:
(1) To elect two (2) Directors, each to hold office until their successors
have been elected and qualified;
(2) To approve or disapprove the removal of the Fund's fundamental investment
limitation restricting the Fund's investment in restricted securities to
10% of its total assets;
(3) To approve or disapprove the removal of the Fund's fundamental investment
limitation regarding investing in oil, gas or other mineral exploration or
development programs;
(4) To approve or disapprove an amendment to the Fund's fundamental
limitation concerning diversification; and
(5) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed September 10, 1997, as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Directors
John W. McGonigle
Secretary
September 10, 1997
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY TO AVOID ADDITIONAL
EXPENSE
YOU CAN HELP THE FUND AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE
UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL MEETING.
THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
FEDERATED EQUITY INCOME FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of the
Fund ("Directors"). The proxy is revocable at any time before it is voted by
sending written notice of the revocation to the Fund or by appearing personally
on November 14, 1997, at the Special Meeting of Shareholders ("Special
Meeting"). The cost of preparing and mailing the notice of meeting, this proxy
statement, proxy card and any additional proxy material has been or is to be
borne by the Fund. Proxy solicitations will be made primarily by mail, but may
also be made by telephone, telegraph, or personal interview conducted by certain
officers, employees or agents of the Fund or of Federated Shareholder Services
Company (the Fund's transfer agent) or Federated Services Company (the Fund's
administrator). In the event that a shareholder does not indicate a choice as to
any of the items on the proxy ballot, the Fund will vote those shares in favor
of such proposal(s).
On September 10, 1997, the Fund had outstanding 34,353,406 Class A Shares,
37,915,585 Class B Shares, 7,328,674 Class C Shares and 6,100,542 Class F Shares
of beneficial interest, each whole share being entitled to one vote and
fractional shares being entitled to fractional votes. Only shareholders of
record at the close of business on that date will be entitled to notice of and
vote at the Special Meeting. Holders of one-third of the shares of stock of each
class, represented in person or by proxy, shall be required to constitute a
quorum at the Special Meeting for the purpose of transacting any business. For
purposes of determining the presence of a quorum and counting votes on the
matters presented, shares represented by abstentions and "broker non-votes" will
be counted as present, but not as votes cast, at the Special Meeting. This would
have the effect of treating abstentions and non-votes as if they were votes
against the proposal.
The Fund will furnish, without charge, a copy of the annual report and most
recent semi-annual report succeeding the annual report, if any, to any
shareholder of record of the Fund upon request. To request an annual and/or
semi-annual report, call 1-800-341-7400, or send a written request to Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779.
Federated Advisers, the Fund's adviser, is a Delaware Business Trust organized
on April 11, 1989, and is a registered investment adviser under the Investment
Advisers Act of 1940. Federated Securities Corp., the Fund's distributor, is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Services Company is
a Pennsylvania corporation organized on May 10, 1991, and provides the Fund's
administrative personnel and services (including certain legal and financial
reporting services). Federated Advisers, Federated Securities Corp., and
Federated Services Company are all wholly-owned subsidiaries of Federated
Investors, and they are all located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779.
ELECTION OF DIRECTORS
The persons named as proxies intend to vote in favor of the election of
Thomas G. Bigley and John E. Murray, Jr. as Directors of the Fund. Both of the
nominees are presently serving as Directors.
Messrs. Murray and Bigley were elected by the Directors on February 14, 1995
and October 1, 1995, respectively, to fill vacancies resulting from the decision
to expand the size of the Board.
Both nominees have consented to serve if elected. In accordance with recent
changes in Maryland law permitting Maryland corporations to refrain from holding
annual shareholder meetings except to consider certain specified actions, there
will normally be no annual meetings of shareholders for the purpose of electing
Directors. If elected, the Directors will hold office without limit in time
until death, resignation, retirement, or removal or until the next meeting of
shareholders to elect Directors and the election and qualification of their
successors. Election of a Director requires the affirmative vote of a majority
of the votes cast by shareholders of the Fund at the Special Meeting.
DIRECTORS STANDING FOR ELECTION:
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member
of Executive Committee, University of Pittsburgh; Director or Trustee of the
Funds.
- -------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
- -------------------------------------------------------------------------------
PREVIOUSLY ELECTED DIRECTORS:
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive Vice President of the Company.
- -------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
- -------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
- -------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director, University
of Pittsburgh Medical Center--Downtown; Member, Board of Directors, University
of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and
Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the
Funds.
- -------------------------------------------------------------------------------
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
- -------------------------------------------------------------------------------
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
- -------------------------------------------------------------------------------
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired
from the law firm of Miller, Ament, Henny & Kochuba; Director or Trustee of
the Funds.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory
Council for Environmental Policy and Technology, Federal Emergency Management
Advisory Board and Czech Management Center, Prague; Director or Trustee of the
Funds.
- -------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
- --------
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund,
Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated
Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund,
Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust; Federated
Insurance Series; Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government
Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority
Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust,
Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Obligations Trust II; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Wesmark Funds; and
World Investment Series, Inc.
DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION PAID
NAME, POSITION WITH FUND FROM FUND*# FROM FUND COMPLEX+
------------------------ ------------ ---------------------------------------------
<S> <C> <C>
John F. Donahue, $ 0 $0 for the Fund and 56 other investment
Chairman and Director companies in the Fund Complex
J. Christopher Donahue, $ 0 $0 for the Fund and 18 other investment
Executive Vice President companies in the Fund Complex
and Director
Thomas G. Bigley, $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
John T. Conroy, Jr., $1,569.91 $119,615 for the Fund and 56 other investment
Director companies in the Fund Complex
William J. Copeland, $1,569.91 $119,615 for the Fund and 56 other investment
Director companies in the Fund Complex
James E. Dowd, $1,569.91 $119,615 for the Fund and 56 other investment
Director companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
Edward L. Flaherty, Jr., $1,569.91 $119,615 for the Fund and 56 other investment
Director companies in the Fund Complex
Peter E. Madden, $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
Gregor F. Meyer, $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
John E. Murray, Jr., $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
Wesley W. Posvar, $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION PAID
NAME, POSITION WITH FUND FROM FUND*# FROM FUND COMPLEX+
------------------------ ------------ ---------------------------------------------
<S> <C> <C>
Marjorie P. Smuts, $1,426.98 $108,725 for the Fund and 56 other investment
Director companies in the Fund Complex
</TABLE>
- --------
* Information is furnished for the fiscal year ended March 31, 1997.
# The aggregate compensation is provided for the Corporation which was
comprised of one portfolio, as of March 31, 1997.
+ The information is provided for the last calendar year.
If any nominee for election as a Director named above shall by reason of death
or for any other reason become unavailable as a candidate at the Annual Meeting,
votes pursuant to the enclosed proxy will be cast for a substitute candidate by
the attorneys named therein, or their substitutes, present and acting at the
Annual Meeting. Any such substitute candidate for election as an interested
Director shall be nominated by the Executive Committee. The selection of any
substitute candidate for election as a Director who is not an interested person
shall be made by a majority of the Directors who are not interested persons of
the Fund. The Board of Directors has no reason to believe that any nominee will
become unavailable for election as a Director.
During the fiscal year ended March 31, 1997, there were four meetings of the
Board of Directors. The Directors who are not interested Directors of the Fund
as a group received fees totaling $16,269. The interested Directors, other than
Dr. Ellis, do not receive fees from the Fund. All Directors were reimbursed for
expenses for attendance at Board of Directors meetings.
The Fund has an Executive Committee which consists of John F. Donahue** and
Edward L. Flaherty, Jr. The function of the Executive Committee is to handle the
duties of the Board of Directors between meetings of the Board. The Executive
Committee did not meet during the fiscal year ended March 31, 1997.
The Fund also has an Audit Committee which consists of Messrs. Conroy,
Copeland, Dowd and Flaherty. The function of the Audit Committee is to assist
the Board of Directors in fulfilling its duties relating to the Fund's
accounting and financial reporting practices and to serve as a direct line of
communication between the Board of Directors 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
Fund's procedures for internal auditing, and reviewing the Fund's system of
internal accounting controls. The Audit Committee met four times during the
fiscal year ended March 31, 1997.
The executive officers of the Fund are elected annually by the Board of
Directors. Each officer holds the office until qualification of his successor.
The names and birthdates of the executive officers
- --------
** This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
of the Fund who are not listed above under "Election of Director" and their
principal occupations during the last five years are as follows:
- -------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
- -------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.
- -------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Federated Services Company is the Fund's administrator. For the fiscal year
ended March 31, 1997, the Fund's administrative fees were $516,371, none of
which was waived.
------------
FEDERATED INVESTORS
The following officers and Trustees of Federated Investors are also officers
of the Fund. All of the Class A Shares (Voting) of Federated Investors are
owned by a trust, the trustees of which are: John F. Donahue, Chairman, Chief
Executive Officer and Trustee of Federated Investors, Rhodora J. Donahue, wife
of John F. Donahue, and J. Christopher Donahue, son of John F. Donahue and
President, Chief Operating Officer and Trustee of Federated Investors.
Officers and Directors of the Fund who own Class B Shares (Non-Voting), their
positions with Federated Investors, and the number of Class B Shares
beneficially owned by such persons (in parentheses) are: John F. Donahue*,
Trustee, Chairman and Chief Executive Officer (3,515,178); J. Christopher
Donahue*, Trustee, President and Chief Operating Officer (2,007,966); John W.
McGonigle*, Trustee, Executive Vice President, General Counsel, and Secretary
(1,820,000) Richard B. Fisher*, Trustee, Executive Vice President and
Assistant Secretary (1,600,000).**
------------
APPROVAL OR DISAPPROVAL OF THE REMOVAL OF THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATION RESTRICTING THE FUND'S INVESTMENT IN RESTRICTED SECURITIES TO 10%
OF ITS TOTAL ASSETS.
- --------
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
** The number of shares indicated may include shares held jointly with spouses
or other family members, shares held by family-owned partnerships or other
business organizations, shares held by spouses and other family members
and/or shares held in trust for one or more family members. The listed
individuals disclaim beneficial ownership of shares held by spouses, other
family members and trusts, and by family-owned partnerships or other business
organizations to the extent not owned by them.
One of the Fund's fundamental investment limitations currently provides that
the Fund will not "invest more than 10% of its net assets in securities subject
to restrictions on resale under the federal securities law." This limitation
impedes the Fund's ability to participate in new offerings of convertible
securities. In recent years, more of these offerings have been made without
initial registration under the Securities Act of 1933 (the "Securities Act").
Most of these securities are exchanged at a later date for securities that have
been registered under the Securities Act. However, until the exchange, these
securities are subject to restrictions on resale and are therefore subject to
the fundamental limitation on restricted securities. This has prevented the Fund
from participating in some offerings during periods when the volume of new
offerings is high. The Directors believe that the Fund's participation in these
offerings would have been advantageous to its performance.
The Fund adopted this fundamental policy to reflect the Securities and
Exchange Commission (the "Commission") interpretive position that, in order to
maintain sufficient liquidity to meet shareholder redemptions, mutual funds such
as the Fund should limit their investments in illiquid securities and that
restricted securities are generally illiquid. When the Fund adopted this
limitation, the Commission required mutual funds to limit illiquid securities to
not more than 10% of net assets. The Securities Act did not provide an exemption
for secondary trading in restricted securities, which impeded the development of
a liquid secondary market.
The market for restricted securities has changed markedly since the adoption
of the Fund's limitation. On April 23, 1990, the Commission promulgated Rule
144A under the Securities Act. Rule 144A provides a safe harbor for the resale
of certain restricted securities to "qualified institutional buyers" without
compliance with the registration requirements of the Securities Act of 1933. A
"qualified institutional buyer" is generally defined as a broker/dealer which
owns and manages $10 million or more of securities and any other entity that
owns and manages $100 million or more of securities.
In its release adopting Rule 144A, the Commission noted that it was modifying
its position as to mutual funds with respect to securities eligible for resale
under Rule 144A ("Rule 144A Securities"). The Commission stated that "[t]he
determination of the liquidity of Rule 144A Securities in the portfolio of [a
mutual fund] is a question of fact for the directors to determine, based upon
the trading markets for the specific security." Under the Commission's modified
position, the investment adviser may determine, in accordance with guidelines
established and monitored by the Directors of the Fund, that a Rule 144A
security is liquid, and will not count toward the Fund's limitation on illiquid
securities.
In accordance with the Commission's modified position, the Directors have
adopted the guidelines under which the investment adviser may determine the
liquidity of Rule 144A Securities. The guidelines require the investment adviser
to consider the following factors in making this determination:
1. The frequency of trades and quotes for the security;
2. The volatility of quotations and trade prices for the security;
3. The number of dealers willing to purchase or sell the security and the
number of potential purchasers;
4. Dealer undertakings to make a market in the security;
5. The nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer);
6. The rating of the security and the financial condition and prospects of
the issuer of the security; and
7. Such other factors as may be relevant to the Fund's ability to dispose
of the security.
The Fund currently relies on Rule 144A to trade unregistered securities and,
in accordance with the Director's guidelines, has determined that some of these
securities are liquid. This includes many securities acquired in unregistered
offerings that have not yet been exchanged for securities registered under the
Securities Act. However, the Fund's current investment limitation restricts the
acquisition of any restricted security, regardless of its eligibility for resale
under Rule 144A or its liquidity. Consequently, the limitation may prevent the
Fund from acquiring an otherwise liquid security, simply because it has not yet
been registered under the Securities Act.
The Commission has also modified its position regarding the amount that a
mutual fund may invest in illiquid securities, increasing the amount from 10% to
15% of net assets. In addition, state securities regulators, which previously
imposed policies on mutual funds investing in restricted securities, no longer
have such jurisdiction since the enactment of the National Securities Markets
Improvement Act of 1996. In order to comply with the Commission's current
position, the Directors have adopted a policy limiting the Fund to investing not
more than 15% of its net assets in illiquid securities. Restricted securities
are subject to this limitation unless they have been determined to be liquid in
accordance with the Director's guidelines. The Directors may change this policy
on illiquid securities, or the guidelines and factors for determining the
liquidity of restricted securities without the approval of, or any notice to,
the Fund's shareholders. This will allow the Fund the flexibility to respond
quickly to developments in the market and regulations.
Therefore, if the proposal is approved, the Fund will remain subject to a
limitation on investments in unregistered securities that do not meet the
Directors' guidelines for liquidity.
The Directors have unanimously approved at a meeting of the Directors on
August 21, 1997, subject to shareholder approval, "the removal of the Fund's
fundamental investment limitation restricting the Fund's investment in
restricted securities to 10% of is total assets." Approval of this change in the
Fund's investment limitation requires the affirmative vote of: (a) 67% or more
of the shares of the Fund present at the Special Meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy; or (b)
more than 50% of the outstanding shares of the Fund, whichever is less. If the
shareholders fail to approve the change in this limitation, the Fund will
continue to invest no more than 10% of the value of its total assets in
restricted securities of any kind.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE REMOVAL OF THE FUND'S
FUNDAMENTAL INVESTMENT LIMITATION RESTRICTING THE FUND'S INVESTMENT IN
RESTRICTED SECURITIES TO 10% OF ITS TOTAL ASSETS.
------------
APPROVAL OR DISAPPROVAL OF THE REMOVAL OF THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATION REGARDING INVESTING IN OIL, GAS OR OTHER MINERAL EXPLORATION OR
DEVELOPMENT PROGRAMS.
Currently the Fund maintains a fundamental investment limitation specifying
that the Fund may not "invest in oil, gas, or other mineral exploration or
development programs." Investment in oil, gas, or other mineral exploration
programs is not prohibited under federal standards for mutual funds, but was
prohibited by some state regulations. Because the state law restrictions are no
longer applicable, the Directors recommend that shareholders of the Fund vote to
eliminate the above fundamental investment limitation.
Investments in companies involved in oil, gas and other mineral exploration
programs may be more volatile than investment in other securities, because they
are subject to risks occasioned by changes in the price, demand for and supply
of fuels and minerals. Demand and supplies may fluctuate significantly over
short periods of time due to a variety of factors, such as domestic and foreign
political and regulatory developments, exploration and production spending,
energy conservation efforts and the development and implementation of new forms
or sources of such commodities. Elimination of the fundamental limitation will
not change the Fund's fundamental investment objective, but would give the Fund
investment flexibility to choose such investments, to the extent consistent with
its investment objective and other investment policies without seeking
additional shareholder approval. It is not currently expected, however, that
elimination of the fundamental restriction will have a material impact on the
Fund's investment practices.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE REMOVAL OF THE FUND'S
FUNDAMENTAL INVESTMENT LIMITATION REGARDING INVESTING IN OIL, GAS OR OTHER
MINERAL EXPLORATION OR DEVELOPMENT PROGRAMS.
------------
APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE FUND'S FUNDAMENTAL
INVESTMENT LIMITATION CONCERNING DIVERSIFICATION.
The Fund's current fundamental investment limitation concerning
diversification as it reads in (a) the Prospectus and (b) the Statement of
Additional Information, respectively, is as follows:
(a) "The Fund will not: invest more than 5% of the value of its total assets
in securities of one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or acquire more than 10% of any
class of voting securities of any issuer."
(b) "The Fund will not invest more than 5% of the value of its total assets in
securities of one issuer (except cash and cash items, repurchase agreements, and
U.S. government obligations) or acquire more than 10% of any class of voting
securities of any issuer. For these purposes, the Fund takes all common stock
and all preferred stock of an issuer each as a single class, regardless of
priorities, series, designations, or other differences."
The current limitation permits the Fund to invest no more than 5% of its total
assets in the securities of one issuer, including the securities of other
investment companies. In order to afford the Fund's investment adviser maximum
flexibility in managing the Fund's assets to benefit the Fund, the Fund proposes
to amend its diversification policy to be consistent with the definition of a
diversified investment company under Section 5(b)(1) of the Investment Company
Act of 1940. Such amendment would permit the Fund to invest, with respect to 75%
of its total assets, no more than 5% of the value of those assets in the
securities of one issuer. The Fund's remaining assets would then be permitted to
be invested as the investment adviser deemed appropriate to benefit the Fund.
Further, the amendment to the Fund's diversification policy would also
specifically add securities of other investment companies to the list of issuers
in which the Fund may, with respect to 75% of its total assets, invest more than
5% of its assets.
Upon approval of shareholders of the Fund, the fundamental investment
limitation governing diversification as it appears in (a) the Prospectus and (b)
the Statement of Additional Information, respectively, will be amended to read
as follows:
(a) "The Fund will not: with respect to securities comprising 75% of the value
of its total assets, invest more than 5% of the value of its total assets in
securities of one issuer (except cash and cash items, repurchase agreements,
U.S. government obligations, and securities of other investment companies) or
acquire more than 10% of any class of voting securities of any issuer."
(b) "With respect to securities comprising 75% of the value of its total
assets, the Fund 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 the securities of that issuer, or it would own more
than 10% of the outstanding voting securities of that issuer."
Further, upon approval of shareholders of the Fund, the Fund's existing non-
fundamental investment limitation on "Investing in Securities of Other
Investment Companies" will be deleted in the Statement of Additional Information
and the following paragraph will be added to the prospectus:
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as
an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE AMENDMENT TO THE FUND'S
FUNDAMENTAL INVESTMENT LIMITATION CONCERNING DIVERSIFICATION.
------------
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
While the Special Meeting is called to act upon any other business that may
properly come before it, at the date of this proxy statement the only business
which the Board of Directors intends to present or knows that others will
present is the business mentioned in the notice of meeting. If any other matters
lawfully come before the Special Meeting, and as to all procedural matters at
the meeting, it is the intention that the enclosed proxy shall be voted in
accordance with the best judgment of the attorneys named therein, or their
substitutes, present and acting at the Special Meeting.
If at the time any session of the Special Meeting is called to order a quorum
is not present in person or by proxy, the persons named as proxies may vote
those proxies which have been received to adjourn the Special Meeting to a later
date. In the event that a quorum is present but sufficient votes in favor of one
or more of the proposals have not been received, the persons named as proxies
may propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies with respect to any such proposal. All such adjournments
will require the affirmative vote of a majority of the shares present in person
or by proxy at the session of the Special Meeting to be adjourned. The persons
named as proxies will vote those proxies which they are entitled to vote in
favor of the proposal, in favor of such an adjournment and will vote those
proxies required to be voted against the proposal, against any such adjournment.
A vote may be taken on one or more of the proposals in this proxy statement
prior to any such adjournment if sufficient votes for its approval have been
received and it is otherwise appropriate.
Officers and Directors of the Fund own less than 1% of the Fund's outstanding
shares.
The following list indicates the beneficial ownership of shareholders who, to
the best knowledge of the Fund, are the record/beneficial owners of more than 5%
of the outstanding shares of the Fund as of September 10, 1997: Sheldon & Co.,
Cleveland, OH, is the beneficial owner of approximately 2,455,288 (7.15%) of the
Fund's Class A Shares; Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL,
held of record approximately 1,935,418 (5.63%) of the Fund's Class A Shares;
Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL, held of record
approximately 3,055,594 (8.06%) of the Fund's Class B Shares; Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL, held of record approximately 3, 125,029
(42.64%) of the Fund's Class C Shares; and Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL, held of record approximately 1,384,824 (22.70%) of the Fund's
Class F Shares.
If you do not expect to attend the Special Meeting, please sign your proxy and
return it in the enclosed envelope to avoid necessary expense and delay.
No postage is necessary.
By Order of the Directors
John W. McGonigle
Secretary
September 12, 1997
Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
G02176-01 (9/97)
