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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or
Sec. 240.14a-12
Federated 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:
---------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------
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.
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
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.
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.
__________ _______ ____________________ _____________________
-------- -----
Signature Signature(s) of Shareholders(s) Date
P R E L I M I N I N A R Y C O P Y
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.
<PAGE>
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 _________
Class A Shares, ________Class B Shares, ________ Class C Shares and
________ 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
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX
<S> <C> <C>
John F. Donahue, $0 $0 for the Fund and
Chairman and Director 56 other investment companies in
the Fund Complex
J. Christopher Donahue, $0 $0 for the Fund and
Executive Vice President 18 other investment companies in and Director
the Fund Complex
Thomas G. Bigley, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr., $1,569.91 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
William J. Copeland, $1,569.91 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
James E. Dowd, $1,569.91 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D., $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr., $1,569.91 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Gregor F. Meyer, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr., $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended March 31,
1997.
** This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940. # 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 of the Fund who are not listed above under
"Election of Director" and their principal occupations dring 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).
* 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.
--------------------------------------------------
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.
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.
* This Director is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
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.
------------------------
<PAGE>
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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 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: 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:
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 ____, 1997
Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
G02176-01 (9/97)
