1933 Act File No. 33-6901
1940 Act File No. 811-4743
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 25 ............. X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 22 .......................... X
FEDERATED EQUITY INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) ____ on _______________
pursuant to paragraph (b) ____ 60 days after filing pursuant to paragraph (a)
(i) _x__ on May 29, 1998, pursuant to paragraph (a)(i) ____ 75 days after filing
pursuant to paragraph (a) (ii) ____ on _______________ pursuant to paragraph (a)
(ii) of Rule 485.
If appropriate, check the following box:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin and Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Federated Equity Income Fund,
Inc., which is comprised of four classes of shares, (a) Class A Shares, (b)
Class B Shares, (c) Class C Shares and (d) Class F Shares, is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page................(a-d) Cover Page.
Item 2. Synopsis..................Not applicable.
Item 3. Condensed Financial
Information...............(a-d) Summary of Fund Expenses (a-d)
Financial Highlights; (a-d)
Performance Information.
Item 4. General Description of
Registrant ...............(a-d) General Information; (a-d)
Investment Information; (a-d)
Investment Objective; (a-d) Investment Policies;
(a-d) Portfolio
Turnover; (a-d) Investment Limitations; (a-d) Other Classes of
Shares;
(a-d) Appendix.
Item 5. Management of the Fund....(a-d) Fund Information; (a-d) Management
of the Fund; (a-c) Distribution of
Shares; (d) Distribution of Class F
Shares; (a-d) Administration of the
Fund; (a-d) Brokerage Transactions.
Item 6. Capital Stock and Other
Securities................(a-d) Dividends and Distributions; (a-d)
Shareholder Information; (a-d) Tax
Information; (a-d) Federal Income Tax; (a-d) State and Local Taxes.
Item 7. Purchase of Securities Being
Offered...................(a-d) Net Asset Value; (a-d) Investing in
the Fund; (a-d) Purchasing Shares;
(a-d) Purchasing Shares; (a-d) Purchasing
Shares Through a Financial
Intermediary; (a-d) Purchasing Shares
by Wire; (a-d) Purchasing Shares by
Check; (a-d) Systematic Investment
Program; (a-d) Retirement Plans; (a)
Class A Shares; (b) Class B Shares;
(c) Class C Shares; (a-d)
Confirmations and Account Statements;
Eliminating the Contingent Deferred
Sales Charge.
Item 8. Redemption or Repurchase..(a-d) Redeeming and Exchanging Shares;
(a-d) Redeeming or Exchanging Shares
Through a Financial Intermediary;
(a-d) Redeeming or Exchanging Shares
by Telephone; (a-d) Redeeming or
Exchanging Shares by Mail; (a-d)
Requirements for Redemption; (a-d)
Requirements for Exchange; (a-d)
Systematic Withdrawal Program; (b)
Systematic Withdrawal Program ("SWP")
on Class B Shares; (a-d) Contingent
Deferred Sales Charge; (a-d) Accounts
with Low Balances.
Item 9. Pending Legal Proceedings None
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page................Cover Page (a-d).
Item 11. Table of Contents.........Table of Contents (a-d).
Item 12. General Information and
History...................General Information About the Fund
(a-d); About Federated Investors (a-d).
Item 13. Investment Objectives and
Policies..................Investment Objectives and Policies (a-d).
Item 14. Management of the Fund....Federated Equity Income Fund, Inc.,
Management (a-d).
Item 15. Control Persons and Principal
Holders of Securities.....Fund Ownership (a-d); Directors
Compensation (a-d).
Item 16. Investment Advisory and Other
Services..................Investment Advisory Services (a-d);
Other Services (a-d).
Item 17. Brokerage Allocation......Brokerage Transactions (a-d).
Item 18. Capital Stock and Other
Securities................Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered...................Purchasing Shares (a-d); Determining
Net Asset Value (a-d); Determining
Market Value of Securities (a-d);
Redeeming Shares (a-d).
Item 20. Tax Status................Tax Status (a-d).
Item 21. Underwriters..............See Part A - Distribution of Shares
(a-d).
Item 22. Calculation of Performance
Data......................Total Return (a-d); Yield (a-d);
Current Distributions (a-d);
Performance Comparisons (a-d);
Item 23. Financial Statements......(a-d)The Financial Statements for the
fiscal year ended March 31, 1998, are
incorporated herein by reference to
the Fund's Annual Report dated
March 31, 1998. (File Nos. 2-74191 and
811-3266)
Federated Equity Income Fund, Inc.
Class A Shares, Class B Shares, Class C Shares
PROSPECTUS
The shares of Federated Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund.
Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares dated May 29, 1998,
with the Securities and Exchange Commission ("SEC"). The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-341-7400. To obtain
other information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated May 31, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights (Class A Shares) 2 Financial
Highlights (Class B Shares) 3 Financial Highlights (Class C Shares) 4 General
Information 5 Calling the Fund 5 Year 2000 Statement 5 Investment Information 5
Investment Objective 5 Investment Policies 5 Portfolio Turnover 9 Investment
Limitations 9 Net Asset Value 10 Investing in the Fund 10 Purchasing Shares 10
Purchasing Shares Through a Financial Intermediary 10 Purchasing Shares by Wire
11 Purchasing Shares by Check 11 Systematic Investment Program 11 Retirement
Plans 11 Class A Shares 11 Class B Shares 12 Class C Shares 12 Redeeming and
Exchanging Shares 12 Redeeming or Exchanging Shares Through a Financial
Intermediary 12 Redeeming or Exchanging Shares by Telephone 12 Redeeming or
Exchanging Shares by Mail 13 Requirements for Redemption 13 Requirements for
Exchange 13 Systematic Withdrawal Program 13 Systematic Withdrawal Program
("SWP") on Class BShares 13 Contingent Deferred Sales Charge 13 Account and
Share Information 14 Confirmations and Account Statements 14 Dividends and
Distributions 14 Accounts with Low Balances 14 Fund Information 14 Management
of the Fund 14 Distribution of Shares 15 Administration of the Fund 16
Brokerage Transactions 17 Shareholder Information 17 Tax Information 17 Federal
Income Tax 17 State and Local Taxes 17 Performance Information 17 Other Classes
of Shares 18 Appendix 18
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) 5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1) None 5.50% 1.00%
Redemption Fee (as a percentage of amount redeemed, if
applicable) None None None
Exchange Fee None None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.60% 0.60% 0.60%
12b-1 Fee 0.00%(2) 0.75% 0.75%
Total Other Expenses 0.49% 0.49% 0.49%
Shareholder Services Fee 0.25% 0.25% 0.25%
Total Operating Expenses 1.09% 1.84%(3) 1.84%
</TABLE>
(1) For shareholders of Class B, the contingent deferred sales charge is 5.50%
in the first year declining to 1.00% in the sixth year and 0.00% thereafter. For
shareholders of Class C, the contingent deferred sales charge assessed is 1.00%
of the lesser of the original purchase price or the net asset value of Shares
redeemed within one year of their purchase date. For a more complete
description, see "Contingent Deferred Sales Charge."
(2) Class A Shares has no present intention of paying or accruing the 12b-1 fee
during the fiscal year ending March 31, 1999. If Class A Shares were paying or
accruing the 12b-1 fee, Class A Shares would be able to pay up to 0.50% of its
average daily net assets for the 12b-1 fee. See "Fund Information."
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Investing in the Fund" and "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge.
<TABLE>
<CAPTION>
EXAMPLE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1 Year $ 66 $ 75 $ 29
3 Years $ 88 $102 $ 58
5 Years $112 $123 $100
10 Years $181 $198 $216
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C> <C> <C>
1 Year $ 66 $ 19 $ 19
3 Years $ 88 $ 58 $ 58
5 Years $112 $100 $100
10 Years $181 $198 $216
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 15, 1998, on the Fund's financial
statements for the year ended March 31, 1998, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $15.59 $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.41 0.42 0.46 0.49 0.43 0.55 0.69 0.84 0.91 0.89
Net realized and
unrealized gain (loss)
on investments 4.41 2.16 2.96 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59
Total from investment
operations 4.82 2.58 3.42 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48
LESS DISTRIBUTIONS
Distributions from net
investment income (0.40) (0.41) (0.41) (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86)
Distributions in
excess of net investment
income(a) -- -- -- -- -- -- -- -- (0.41) --
Distributions from net
realized gain on
investments (0.87) (0.84) (0.25) -- -- -- -- -- (0.52) --
Total distributions (1.27) (1.25) (0.66) (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86)
NET ASSET VALUE, END OF
PERIOD $19.14 $15.59 $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84
TOTAL RETURN(B) 31.80% 18.82% 30.37% 8.31% 5.29% 18.98% 21.19% 8.95% (3.19)% 28.25%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.09% 1.08% 1.03% 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77%
Net investment income 2.25% 2.68% 3.19% 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02%
Expense waiver/
reimbursement(c) -- 0.04% 0.20% 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25%
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $809,103 $431,281 $220,268 $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306
Average commission
rate paid(d) $0.0521 $0.0530 -- -- -- -- -- -- -- --
Portfolio turnover 69% 75% 96% 91% 43% 79% 115% 31% 54% 49%
</TABLE>
(a) Distributions in excess of net investment income were a result of certain
book and tax differences. These distributions did not represent a return of
capital for federal income tax purposes.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 15, 1998, on the Fund's financial
statements for the year ended March 31, 1998, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.59 $14.26 $11.50 $11.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.34 0.32(d) 0.19
Net realized and unrealized gain (loss) on investments 4.42 2.13 3.01 0.26
Total from investment operations 4.69 2.47 3.33 0.45
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.30) (0.32) (0.19)
Distributions from net realized gain on investments (0.87) (0.84) (0.25) --
Total distributions (1.13) (1.14) (0.57) (0.19)
NET ASSET VALUE, END OF PERIOD $19.15 $15.59 $14.26 $11.50
TOTAL RETURN(B) 30.90% 17.92% 29.40% 4.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.84% 1.87% 1.83% 1.80%*
Net investment income 1.50% 1.85% 2.31% 3.42%*
Expense waiver/reimbursement (c) -- -- 0.16% 0.47%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,015,339 $418,675 $71,019 $6,072
Average commission rate paid(e) $0.0521 $0.0530 -- --
Portfolio turnover 69% 75% 96% 91%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 27, 1994 (date of initial
public offering) to March 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Calculated using average outstanding shares.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 15, 1998, on the Fund's financial
statements for the year ended March 31, 1998, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.59 $14.26 $11.50 $11.06 $10.76
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.30 0.32 0.37 0.34
Net realized and unrealized gain (loss) on investments 4.42 2.16 3.00 0.44 0.28
Total from investment operations 4.69 2.46 3.32 0.81 0.62
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.29) (0.31) (0.37) (0.32)
Distributions from net realized gain on investments (0.87) (0.84) (0.25) -- --
Total distributions (1.13) (1.13) (0.56) (0.37) (0.32)
NET ASSET VALUE, END OF PERIOD $19.15 $15.59 $14.26 $11.50 $11.06
TOTAL RETURN(B) 30.90% 17.90% 29.39% 7.52% 5.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.84% 1.87% 1.80% 1.76% 1.79%*
Net investment income 1.50% 1.89% 2.43% 3.25% 2.99%*
Expense waiver/reimbursement(c) -- -- 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $173,900 $101,588 $48,161 $30,189 $24,632
Average commission rate paid(d) $0.0521 $0.0530 -- -- --
Portfolio turnover 69% 75% 96% 91% 43%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1993 (date of initial public
offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. Shares of the Fund are offered in four classes of shares known as Class
AShares, Class BShares, Class CShares, and Class FShares, which represent
interests in a single portfolio of securities. The Fund is designed primarily
for individuals and institutions seeking high current income and capital
appreciation through a professionally managed, diversified portfolio of
income-producing equity securities. This prospectus relates to Class A Shares,
Class BShares, and Class CShares ("Shares") of the Fund. The Fund's current
net asset value and offering price may be found in the mutual funds section of
local newspapers under "Federated" and the appropriate class designation
listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator, and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, computer hardware in use today cannot
distinguish the year 2000 from the year 1900. This design flaw may have a
negative impact in the handling of securities trades, pricing, and accounting
services. The Fund and its service providers are actively working on necessary
changes to computer systems to deal with the year 2000 and reasonably believe
that systems will be year 2000 compliant when required. The Fund is continuing
to analyze the financial impact of instituting a year 2000 compliant program on
its operations.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to pursue above- average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus. INVESTMENT POLICIES The
investment policies described below may be changed by the Board of Directors
(the "Directors") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective. ACCEPTABLE
INVESTMENTS
The Fund attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks, and securities (including debt securities) that are
convertible into common stocks. The portion of the Fund's total assets invested
in common stocks, preferred stocks, and convertible securities will vary
according to the Fund's assessment of market and economic conditions and
outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES
Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as
DECS(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock
when issued as a debt security), LYONS(Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS(Preferred Equity Redemption Cumulative Stock, an
equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES(Preferred Redeemable
Increased Dividend Securities, which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. (See "High-Yield Corporate Debt Obligations.") The Fund does not
limit convertible securities by rating, and there is no minimal acceptance
rating for a convertible security to be purchased or held in the Fund.
Therefore, the Fund invests in convertible securities irrespective of their
ratings. This could result in the Fund purchasing and holding, without limit,
convertible securities rated below investment grade by a nationally recognized
statistical rating organization or in the Fund holding such securities where
they have acquired a rating below investment grade after the Fund has purchased
it.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS
The Fund may also invest temporarily, in amounts of 35% or less of the Fund's
assets, in cash and cash items during times of unusual market conditions to
maintain liquidity. Cash items may include the following short-term obligations:
* commercial paper and Europaper (dollar denominated commercial paper
issued outside the United States);
* instruments of domestic and foreign banks and savings associations (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances); or
* obligations of the U.S. government or its agencies or
instrumentalities; repurchase agreements; and other short-term
instruments.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government or other securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser ("Adviser") deems it appropriate to do so. In addition, the
Fund may enter in transactions to sell its purchase commitments to third parties
at current market values and simultaneously acquire other commitments to
purchase similar securities at later dates. The Fund may realize short-term
profits or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. The Fund will write
call options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of readily marketable securities equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the portfolio manager to predict market
conditions based upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
manager could be incorrect in its expectations about the direction or extent of
market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its investment
objectives and policies but which are subject to restriction on resale under
federal securities law. The Fund will limit investments in illiquid securities,
including certain restricted securities determined by the Directors not to be
liquid, non-negotiable time deposits, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
AMERICAN DEPOSITARY RECEIPTS The Fund may purchase American Depositary
Receipts ("ADRs") issued by U.S. banks as a substitute for direct ownership of
securities of foreign companies. ADRs are traded in the United States on stock
exchanges and in the over-the-counter markets like stocks of domestic companies.
SECURITIES OF FOREIGN ISSUERS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. The Fund will take advantage
of the unusual opportunities for higher returns available from investing in
developing countries and may invest in the securities of such countries. These
investments carry considerably more volatility and risk because they are
associated with less mature economies and less stable political systems. Foreign
securities are denominated in foreign currencies. Therefore, the value in U.S.
dollars of the Fund's assets and income may be affected by changes in exchange
rates and regulations. Although the Fund values its assets daily in U.S.
dollars, it will not convert its holding of foreign currencies to U.S. dollars
daily. When the Fund converts its holdings to another currency, it may incur
conversion costs. Foreign exchange dealers realize a profit on the difference
between the prices at which they buy and sell securities. Other differences
between investing in foreign and U.S. companies include: less publicly available
information about foreign companies; the lack of uniform financial accounting
standards applicable to foreign companies; less readily available market
quotations on foreign companies; differences in government regulation and
supervision of foreign stock exchanges, brokers, listed companies, and banks;
generally lower foreign stock market value; the likelihood that foreign
securities may be less liquid or more volatile; foreign brokerage commissions
may be higher; unreliable mail service between countries; and political or
financial changes which adversely affect investments in some countries.
Securities prices in developing countries can be significantly more volatile
than in developed countries, reflecting the greater uncertainties of investing
in lesser developed markets and economies. In particular, developing countries
may have relatively unstable governments, and may present the risk of
nationalization of businesses, expropriation, confiscatory taxation or, in
certain instances, reversion to closed market, centrally planned economies. Such
countries may also have restrictions on foreign ownership or prohibitions on the
repatriation of assets, and may have less protection of property rights than
developed countries. The economies of developing countries may be predominantly
based on only a few industries or dependent on revenues from particular
commodities or on international aid or development assistance, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. In addition, securities
markets in developing countries may trade a small number of securities and may
be unable to respond effectively to increased trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in developing countries
typically offer less regulatory protection for investors. In the past, U.S.
government policies have discouraged or restricted certain investments abroad by
investors such as the Fund. Although the Fund is unaware of any current
restrictions, investors are advised that these policies could be reinstituted.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS
The Fund may invest up to 35% of the value of its total assets in corporate debt
obligations that are not investment grade securities or are not rated but are
determined by the Adviser to be of comparable quality and may include bonds in
default. Securities which are rated BBB or lower by Standard & Poor's or Baa or
lower by Moody's Investors Service, Inc. either have speculative characteristics
or are speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligations. A description of the rating
categories is contained in the Appendix to this Prospectus. There is no lower
limit with respect to rating categories for securities in which the Fund may
invest.
Corporate debt obligations that are not determined to be investment-grade are
high-yield, high-risk securities (i.e., "junk bonds"), typically subject to
greater market fluctuations and greater risk of loss of income and principal due
to an issuer's default. To a greater extent than investment-grade securities,
lower rated securities tend to reflect short-term corporate, economic, and
market developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower rated securities may be more difficult to dispose of
or to value than high-rated, lower-yielding securities. The Fund does not intend
to invest more than 5% of its assets in corporate debt obligations that are not
investment-grade securities (excluding securities convertible into equity
securities) during the current fiscal year.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments with respect to these securities than for higher rated
securities. The Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments. REAL ESTATE INVESTMENT TRUSTS
The Fund may purchase interests in equity, mortgage, and hybrid real estate
investment trusts. Hybrid real estate investment trusts have characteristics of
and may have risks associated with both equity and mortgage real estate
investment trusts. Equity and mortgage real estate investment trusts are
dependent upon management skill and are not diversified. Therefore, they are
subject to the risk of financing single projects. Real estate investment trusts
are also subject to heavy cash flow dependency, defaults by borrowers, and
self-liquidation. Additionally, equity real estate investment trusts may be
affected by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by the
quality of any credit extended. The investment adviser seeks to mitigate these
risks by selecting real estate investment trusts diversified by sector (shopping
malls, apartment building complexes, and health care facilities) and geographic
location.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock. PORTFOLIO
TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that under certain circumstances the Fund
may borrow up to one-third of the value of its total assets and pledge
assets to secure such borrowings;
* sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions; or
* 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.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not commit more than 5% of the value of its total assets to
premiums on open put option positions.
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers three classes of Shares each with the characteristics
described below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Minimum and
Subsequent Invest-
ment Amounts $1500/$100 $1500/$100 $1500/$100
Minimum and
Subsequent Invest-
ment Amount
for Retirement Plans $250/$100 $250/$100 $250/$100
Maximum Sales Charge 5.50%* None None
Maximum Contin-
gent Deferred Sales
Charge** None 5.50%+ 1.00%#
Conversion Feature No Yes++ No
</TABLE>
* Class A Shares are sold at NAV, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER
AS A PERCENTAGE OF CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
+ The following contingent deferred sales charge schedule applies to Class B
Shares:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
++ Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase. See "Conversion of Class
B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.
The financial intermediary which maintains investor accounts in Class B Shares
or Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds, in a minimum amount of $50, may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or
individual retirement accounts ("IRAs"). For further details, contact the
Fund and consult a tax adviser.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
* through financial intermediaries that do not receive sales charge
dealer concessions;
* by Federated Life Members; or
* through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity;
* combining concurrent purchases of:
* Shares by you, your spouse, and your children under age 21, or * Shares of
the same class of two or more Federated Funds (other than money
market funds);
* accumulating purchases. In calculating the sales charge on an
additional purchase, you may count the current value of previous Share
purchases still invested in the Fund;
* signing a letter of intent to purchase a specific dollar amount of
Shares within 13 months; or
* using the reinvestment privilege within 120 days of redeeming Shares of an
equal or lesser amount.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
establishment of customer accounts and purchases of Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. Class B Shares
acquired by exchange from Class B Shares of another Federated Fund will convert
into Class A Shares based on the time of the initial purchase.
CLASS C SHARES
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming or Exchanging Shares by Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the day that
a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and Class
C Shares. SYSTEMATIC WITHDRAWAL PROGRAM ("SWP") ON CLASS BSHARES
A contingent deferred sales charge will not be charged on SWP redemptions of
Class B Shares if:
* shares redeemed are 12% or less of the account value in a single year; *
the account is at least one year old; * all dividends and capital gains
distributions are reinvested; and * the account has at least a $10,000
balance when the SWP is established;
(multiple Class BShares accounts cannot be aggregated to meet this minimum
balance).
A contingent deferred sales charge will be charged on redemption amounts that
exceed the 12% annual limit. In measuring the redemption percentage, the account
is valued when the SWP is established and then annually at calendar year-end.
Redemptions can be made only at a rate of 1% monthly, 3% quarterly, or 6%
semi-annually. CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
* representing minimum required distributions from an IRA or other
retirement plan to a shareholder who has attained the age of 701U2;
* which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;
* which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of all transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Net long-term capital gains realized by the Fund, if any,
will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date NAV without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent. ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through approximately 4,000 financial institutions
nationwide.
Linda A. Duessel has been a portfolio manager of the Fund since February
1997. Ms. Duessel joined Federated Investors in 1991 and has been a Vice
President of the Fund's Adviser since 1995. Ms. Duessel was an Assistant
Vice President of the Fund's Adviser from 1991 until 1995. Ms. Duessel is a
Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.
Steven J. Lehman has been a portfolio manager of the Fund since September 1997.
Mr. Lehman joined the Fund's Adviser in May 1997 as a Vice President. From 1986
to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Chicago. Both the Fund and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. Class A Shares may pay to the distributor an amount, computed
at an annual rate of 0.50% of the average daily net asset value of Class A
Shares to finance any activity which is principally intended to result in the
sale of shares subject to the Distribution Plan. For Class A and Class C Shares,
the distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers. With respect to Class B Shares, because distribution fees
to be paid by the Fund to the distributor may not exceed an annual rate of 0.75%
of each class of Shares' average daily net assets, it will take the distributor
a number of years to recoup the expenses it has incurred for its sales services,
distribution and distribution-related support services pursuant to the
Distribution Plan. Class A Shares are not currently making payments under the
Distribution Plan, nor does it anticipate doing so in the immediate future.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts
("shareholder services"). Under the Shareholder Services Agreement, Federated
Shareholder Services, will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the net asset value of
Class A Shares purchased by their clients or by certain qualified plans as
approved by Federated Securities Corp. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program within 12
months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the Adviser will generally utilize those who
are recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
Directors may be removed by the Directors or shareholders at a special meeting.
A special meeting of shareholders shall be called by the Directors upon the
written request of shareholders owning at least 10% of the Fund's outstanding
Shares of all series entitled to vote. As of May 5, 1998, the following
shareholder of record owned 25% or more of the outstanding Class C Shares of the
Fund: Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C
Shares for its clients), Jacksonville, Florida, owned approximately 3,281,724
Class C Shares (35.32%) and, therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares including Class F Shares described under "Other Classes of Shares."
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per Share (as defined by the SEC) earned by each class of Shares over a
thirty-day period by the maximum offering price per Share of each class on the
last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
each class of Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non- recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. Expense differences between Class A
Shares, Class B Shares, and Class C Shares may affect the performance of each
class.
From time to time, advertisements for Class A Shares, Class B Shares, Class C
Shares, and Class F Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the performance of
Class A Shares, Class B Shares, Class C Shares, and Class F Shares to certain
indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions. Class F Shares
are subject to a front-end sales charge, a 12b-1 Plan, a contingent deferred
sales charge and a Shareholder Service Agreement. Class F Shares have a minimum
initial investment of $1,500, unless the investment is in a retirement account
in which the minimum investment is $250.
Class A Shares, Class B Shares, Class C Shares, and Class F Shares are subject
to certain of the same expenses, however, the front-end sales charge for Class F
Shares is 1.00%, which is lower than that for Class A Shares. Expense
differences, however, between Class A Shares, Class B Shares, Class C Shares,
and Class F Shares may affect the performance of each class.
To obtain more information and a prospectus for Class F Shares, investors may
call 1-800-341-7400 or contact their financial institution.
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC--Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C--The rating "C" typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is being
paid.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing. FITCH IBCA, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment or interest or principal.
DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
[Graphic]
Federated Equity
Income Fund, Inc.
Class A Shares, Class B Shares,
Class C Shares
PROSPECTUS
MAY 31, 1998
An Open-End, Diversified Management Investment Company
FEDERATED EQUITY INCOME FUND, INC.
CLASS A SHARES,
CLASS B SHARES, AND
CLASS C SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219
Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Cusip 313915100
Cusip 313915209
Cusip 313915308
G00492-01 (5/98)
[Graphic]
Federated Equity Income Fund, Inc.
Class F Shares
PROSPECTUS
The Class F Shares of Federated Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class F Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares, and Class F Shares dated May 29, 1998,
with the Securities and Exchange Commission ("SEC"). The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-341-7400. To obtain
other information or make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated May 31, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Class F Shares 2 General
Information 3 Calling the Fund 3 Year 2000 Statement 3 Investment Information 3
Investment Objective 3 Investment Policies 3 Portfolio Turnover 7 Investment
Limitations 7 Net Asset Value 8 Investing in the Fund 8 Purchasing Shares 8
Purchasing Shares Through a Financial Intermediary 8 Purchasing Shares by Wire
9 Purchasing Shares by Check 9 Systematic Investment Program 9 Retirement Plans
9 Eliminating the Sales Charge 9 Redeeming and Exchanging Shares 10 Redeeming
or Exchanging Shares Through a Financial Intermediary 10 Redeeming or
Exchanging Shares by Telephone 10 Redeeming or Exchanging Shares by Mail 10
Requirements for Redemption 10 Requirements for Exchange 10 Systematic
Withdrawal Program 11 Contingent Deferred Sales Charge 11 Account and Share
Information 12 Confirmations and Account Statements 12 Dividends and
Distributions 12 Accounts with Low Balances 12 Fund Information 12 Management
of the Fund 12 Distribution of Class F Shares 13 Administration of the Fund 14
Brokerage Transactions 14 Shareholder Information 14 Tax Information 14 Federal
Income Tax 14 State and Local Taxes 14 Performance Information 14 Other Classes
of Shares 15 Appendix 15
SUMMARY OF FUND EXPENSES
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) 1.00% Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price of
redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee 0.60%
12b-1 Fee 0.25%
Total Other Expenses 0.49%
Shareholder Services Fee 0.25%
Total Operating Expenses 1.34%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within four
years of their purchase date. For a more complete description, see "Contingent
Deferred Sales Charge."
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Class F Shares of the Fund will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in the Fund" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge.
<TABLE>
<S> <C>
1 Year $ 34
3 Years $ 63
5 Years $ 83
10 Years $170
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C>
1 Year $ 24
3 Years $ 52
5 Years $ 83
10 Years $170
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 15, 1998, on the Fund's financial
statements for the year ended March 31, 1998, and on the following table for the
periods presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.59 $14.26 $11.51 $11.06 $11.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.36 0.38 0.39 0.42 0.17
Net realized and unrealized gain (loss) on investments 4.42 2.16 2.99 0.46 (0.68)
Total from investment operations 4.78 2.54 3.38 0.88 (0.51)
LESS DISTRIBUTIONS
Distributions from net investment income (0.35) (0.37) (0.38) (0.43) (0.17)
Distributions from net realized gain on investments (0.87) (0.84) (0.25) -- --
Total distributions (1.22) (1.21) (0.63) (0.43) (0.17)
NET ASSET VALUE, END OF PERIOD $19.15 $15.59 $14.26 $11.51 $11.06
TOTAL RETURN(B) 31.54% 18.50% 30.06% 8.05% (4.43%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.34% 1.36% 1.30% 1.24% 1.29%*
Net investment income 2.00% 2.41% 2.95% 3.79% 3.71%*
Expense waiver/reimbursement(c) -- 0.01% 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $125,588 $88,454 $51,707 $34,886$21,010
Average commission rate paid(d) $0.0521 $0.0530 -- -- --
Portfolio turnover 69% 75% 96% 91% 43%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 12, 1993 (date of initial
public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. Shares of the Fund are offered in four classes of shares known as Class
AShares, Class BShares, Class CShares, and Class FShares which represent
interests in a single portfolio of securities. The Fund is primarily designed
for individuals and institutions seeking high current income and capital
appreciation through a professionally managed, diversified portfolio of
income-producing equity securities. This prospectus relates only to Class
FShares ("Shares") of the Fund.
The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator, and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, computer hardware in use today cannot
distinguish the year 2000 from the year 1900. This design flaw may have a
negative impact in the handling of securities trades, pricing, and accounting
services. The Fund and its service providers are actively working on necessary
changes to computer systems to deal with the year 2000 and reasonably believe
that systems will be year 2000 compliant when required. The Fund is continuing
to analyze the financial impact of instituting a year 2000 compliant program on
its operations.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to pursue above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus. INVESTMENT POLICIES The
investment policies described below may be changed by the Board of Directors
(the "Directors") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective. ACCEPTABLE
INVESTMENTS
The Fund attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks, and securities (including debt securities) that are
convertible into common stocks. The portion of the Fund's total assets invested
in common stocks, preferred stocks, and convertible securities will vary
according to the Fund's assessment of market and economic conditions and
outlook. The Fund's stock selection emphasizes those common stocks in each
sector that have good value, attractive yield, and dividend growth potential.
The Fund will utilize convertible securities because such securities typically
offer high yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES
Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as DECS
(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock when
issued as a debt security), LYONS (Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS (Preferred Equity Redemption Cumulative Stock, an
equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES (Preferred Redeemable
Increased Dividend Securities, which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. (See "High-Yield Corporate Debt Obligations.") The Fund does not
limit convertible securities by rating, and there is no minimal acceptance
rating for a convertible security to be purchased or held in the Fund.
Therefore, the Fund invests in convertible securities irrespective of their
ratings. This could result in the Fund purchasing and holding, without limit,
convertible securities rated below investment grade by a nationally recognized
statistical rating organization or in the Fund holding such securities where
they have acquired a rating below investment grade after the Fund has purchased
it.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS
The Fund may also invest temporarily, in amounts of 35% or less of the Fund's
assets, in cash and cash items during times of unusual market conditions to
maintain liquidity. Cash items may include the following short-term obligations:
* commercial paper and Europaper (dollar denominated commercial paper
issued outside the United States);
* instruments of domestic and foreign banks and savings associations (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances); or
* obligations of the U.S. government or its agencies or
instrumentalities; repurchase agreements; and other short-term
instruments.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government or other securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser ("Adviser") deems it appropriate to do so. In addition, the
Fund may enter into transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other commitments to
purchase similar securities at later dates. The Fund may realize short-term
profits or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. The Fund will write
call options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of readily marketable securities equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position.
RISKS
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the Adviser to predict market conditions
based upon certain economic analysis and factors. There is a risk that the
prices of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its investment
objectives and policies but which are subject to restriction on resale under
federal securities law. The Fund will limit investments in illiquid securities,
including certain restricted securities determined by the Directors not to be
liquid, non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
AMERICAN DEPOSITARY RECEIPTS The Fund may purchase American Depositary
Receipts ("ADRs") issued by U.S. banks as a substitute for direct ownership of
securities of foreign companies. ADRs are traded in the United States on stock
exchanges and in the over-the-counter markets like stocks of domestic companies.
SECURITIES OF FOREIGN ISSUERS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. The Fund will take advantage
of the unusual opportunities for higher returns available from investing in
developing countries and may invest in the securities of such countries. These
investments carry considerably more volatility and risk because they are
associated with less mature economies and less stable political systems. Foreign
securities are denominated in foreign currencies. Therefore, the value in U.S.
dollars of the Fund's assets and income may be affected by changes in exchange
rates and regulations. Although the Fund values its assets daily in U.S.
dollars, it will not convert its holding of foreign currencies to U.S. dollars
daily. When the Fund converts its holdings to another currency, it may incur
conversion costs. Foreign exchange dealers realize a profit on the difference
between the prices at which they buy and sell securities. Other differences
between investing in foreign and U.S. companies include: less publicly available
information about foreign companies; the lack of uniform financial accounting
standards applicable to foreign companies; less readily available market
quotations on foreign companies; differences in government regulation and
supervision of foreign stock exchanges, brokers, listed companies, and banks;
generally lower foreign stock market value; the likelihood that foreign
securities may be less liquid or more volatile; foreign brokerage commissions
may be higher; unreliable mail service between countries; and political or
financial changes which adversely affect investments in some countries.
Securities prices in developing countries can be significantly more volatile
than in developed countries, reflecting the greater uncertainties of investing
in lesser developed markets and economies. In particular, developing countries
may have relatively unstable governments, and may present the risk of
nationalization of businesses, expropriation, confiscatory taxation or, in
certain instances, reversion to closed market, centrally planned economies. Such
countries may also have restrictions on foreign ownership or prohibitions on the
repatriation of assets, and may have less protection of property rights than
developed countries. The economies of developing countries may be predominantly
based on only a few industries or dependent on revenues from particular
commodities or on international aid or development assistance, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. In addition, securities
markets in developing countries may trade a small number of securities and may
be unable to respond effectively to increased trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in developing countries
typically offer less regulatory protection for investors. In the past, U.S.
government policies have discouraged or restricted certain investments abroad by
investors such as the Fund. Although the Fund is unaware of any current
restrictions, investors are advised that these policies could be reinstituted.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS
The Fund may invest up to 35% of the value of its total assets in corporate debt
obligations that are not investment grade securities or are not rated but are
determined by the Adviser to be of comparable quality and may include bonds in
default. Securities which are rated BBB or lower by Standard & Poor's or Baa or
lower by Moody's Investors Service, Inc. either have speculative characteristics
or are speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligations. A description of the rating
categories is contained in the Appendix to this Prospectus. There is no lower
limit with respect to rating categories for securities in which the Fund may
invest.
Corporate debt obligations that are not determined to be investment-grade are
high-yield, high-risk securities (i.e., "junk bonds"), typically subject to
greater market fluctuations and greater risk of loss of income and principal due
to an issuer's default. To a greater extent than investment-grade securities,
lower rated securities tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated securities may be more difficult to dispose of or to value
than high-rated, lower-yielding securities. The Fund does not intend to invest
more than 5% of its assets in corporate debt obligations that are not
investment-grade securities (excluding securities convertible into equity
securities) during the current fiscal year.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments with respect to these securities than for higher rated
securities. The Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments. REAL ESTATE INVESTMENT TRUSTS
The Fund may purchase interests in equity, mortgage, and hybrid real estate
investment trusts. Hybrid real estate investment trusts have characteristics of
and may have risks associated with both equity and mortgage real estate
investment trusts. Equity and mortgage real estate investment trusts are
dependent upon management skill and are not diversified. Therefore, they are
subject to the risk of financing single projects. Real estate investment trusts
are also subject to heavy cash flow dependency, defaults by borrowers, and self-
liquidation. Additionally, equity real estate investment trusts may be affected
by any changes in the value of the underlying property owned by the trusts, and
mortgage real estate investment trusts may be affected by the quality of any
credit extended. The investment adviser seeks to mitigate these risks by
selecting real estate investment trusts diversified by sector (shopping malls,
apartment building complexes, and health care facilities) and geographic
location.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock. PORTFOLIO
TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and pledge
assets to secure such borrowings;
* sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions; or
* 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.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Fund will not commit more than 5% of the value of its total assets to
premiums on open put option positions.
NET ASSET VALUE
The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for Shares
may differ from that of the Fund's other classes of shares due to the variance
in daily net income realized by each class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are entitled.
All purchases, redemptions, and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
INVESTING IN THE FUND
This prospectus offers Class F Shares with the characteristics described below.
<TABLE>
<CAPTION>
CLASS F
<S> <C>
Minimum and Subsequent Investment Amount $1500/$100
Minimum and Subsequent Investment Amount for Retirement Plans $250/$100
Maximum Sales Charge 1.00%*
Maximum Sales Charge as a Percentage of the Net Amount Invested 1.01%
Maximum Contingent Deferred Sales Charge** 1.00%**
</TABLE>
* There is no sales charge for purchases of $1 million or more. In addition, no
sales charge is imposed for Shares purchased through certain entities or
programs. Please see the section entitled "Eliminating the Sales Charge."
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
The following contingent deferred sales charge schedule applies to Class F
Shares:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
Up to $1,999,999 Four Years or less 1.00%
$2,000,000 to $4,999,999 Two Years or less 0.50%
$5,000,000 or more One Year or less 0.25%
</TABLE>
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in Class F Shares of certain other funds advised and
distributed by affiliates of Federated Investors ("Federated Funds") may
exchange their Shares for Class F Shares of the Fund. The Fund reserves the
right to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.
The financial intermediary which maintains investor accounts in Class F Shares
with the Fund must do so on a fully disclosed basis unless it accounts for share
ownership periods used in calculating the contingent deferred sales charge (see
"Contingent Deferred Sales Charge"). In addition, advance payments made to
financial intermediaries may be subject to reclaim by the distributor for
accounts transferred to financial intermediaries which do not maintain investor
accounts on a fully disclosed basis and do not account for share ownership
periods.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds, in a minimum amount of $50, may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or individual
retirement accounts ("IRAs"). For further details, contact the Fund and consult
a tax adviser.
ELIMINATING THE SALES CHARGE
Class F Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES PURCHASED:
* through bank trust departments or investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients;
* by sales representatives, Directors, and employees of the Fund,
Federated Advisers, Federated Securities Corp. or their affiliates and
their immediate family members; or
* by any investment dealer who has a sales agreement with Federated
Securities Corp. and their immediate family members, or by any trusts or
pension or profit-sharing plans for these persons or retirement plans where
the third party administrator has entered into certain arrangements with
Federated Securities Corp. or its affiliates.
IN ADDITION, THE SALES CHARGE ON CLASS FSHARES CAN BE ELIMINATED BY:
* purchasing in quantity;
* combining concurrent purchases of:
* Shares by you, your spouse, and your children under age 21, or * Shares of two
or more Federated Funds (other than money market funds);
* accumulating purchases. In calculating the sales charge on an
additional purchase, you may count the current value of previous Share
purchases still invested in the Fund;
* signing a letter of intent to purchase a specific dollar amount of
Shares within 13 months; or
* using the reinvestment privilege within 120 days of redeeming Shares of an
equal or lesser amount.
Consult a financial intermediary or Federated Securities Corp. for details
on these programs. In order to eliminate the sales charge, Federated
Securities Corp. must be notified by the shareholder in writing or by a
financial intermediary at the time of purchase.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 100% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by the distributor. However, the distributor may offer to pay
dealers up to 100% of the sales charge retained by it. The sales charge for
Shares sold other than through registered broker/dealers will be retained by
Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts
and purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Class F Shares of
other Federated Funds on days on which the Fund computes its NAV. Shares are
redeemed at NAV less any applicable contingent deferred sales charge. Exchanges
are made at NAV. Shareholders who desire to automatically exchange Shares, of a
like Share class, in a pre-determined amount on a monthly, quarterly, or annual
basis may take advantage of a systematic exchange privilege. Information on this
privilege is available from the Fund or your financial intermediary. Depending
upon the circumstances, a capital gain or loss may be realized when Shares are
redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming or Exchanging Shares by Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the day that
a redemption or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having a NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete, the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class F Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge will be imposed on Shares redeemed
through this program within four years of their purchase dates.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
* representing a total or partial distribution from an IRA, Keogh Plan, or a
custodial account to a shareholder who has attained the age of 701U2;
* representing a total or partial distribution from a qualified plan, other
than an IRA, Keogh Plan, or a custodial account following retirement;
* which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;
* which are reinvested in the Fund under the reinvestment privilege; * of
Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
* of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the contingent deferred sales charge or any of
the above provisions, contact your financial intermediary or the Fund. The Fund
reserves the right to discontinue or modify these provisions.
Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of all transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Net long-term capital gains realized by the Fund, if any,
will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date NAV without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through approximately 4,000 financial institutions
nationwide.
Linda A. Duessel has been a portfolio manager of the Fund since February
1997. Ms. Duessel joined Federated Investors in 1991 and has been a Vice
President of the Fund's Adviser since 1995. Ms. Duessel was an Assistant
Vice President of the Fund's Adviser from 1991 until 1995. Ms. Duessel is a
Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.
Steven J. Lehman has been a portfolio manager of the Fund since September 1997.
Mr. Lehman joined the Fund's Adviser in May 1997, as a Vice President. From 1986
to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Chicago. Both the Fund and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to the
Fund's shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Directors,
and could result in severe penalties.
DISTRIBUTION OF CLASS F SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount,
computed at an annual rate of 0.25% of the average daily net asset value of
Class F Shares to finance any activity which is principally intended to result
in the sale of shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
Class F Shares to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services, will either perform shareholder services
directly or will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, for distribution
and/or administrative services, an amount equal to 1.00% of the offering price
of the Shares acquired by their clients or customers on purchases up to
$1,999,999, 0.50% of the offering price on purchases of $2,000,000 to
$4,999,999, and 0.25% of the offering price on purchases of $5,000,000 or more.
(This fee is in addition to the 1.00% sales charge on purchases of less that $1
million.) The financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
Furthermore, in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp. and Federated
Shareholder Services, from their own assets may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services. The support may
include sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the Adviser will generally utilize those who
are recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote. As of May 5, 1998, the
following shareholder of record owned 25% or more of the outstanding Class C
Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as record owner holding
Class C Shares for its clients), Jacksonville, Florida, owned approximately
3,281,724 Class C Shares (35.32%) and, therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and yield for Class F
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class F Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class F Shares is calculated by dividing the net investment income
per Share (as defined by the SEC) earned by Class F Shares over a thirty-day
period by the maximum offering price per Share of Class F Shares on the last day
of the period. This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by Class F Shares, and
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge, contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. Expense differences between Class A
Shares, Class B Shares, and Class C Shares may affect the performance of each
class.
From time to time, advertisements for the Class A Shares, Class B Shares, Class
C Shares, and Class F Shares of the Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, Class C Shares, and Class F
Shares to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Class A Shares, Class B
Shares, and Class C Shares which are all sold primarily to customers of
financial institutions subject to certain differences.
Class A Shares are sold subject to a front-end sales charge and a Shareholder
Services Agreement. Investments in Class A Shares are subject to a minimum
initial investment of $1500, unless the investment is in a retirement account,
in which the minimum investment is $250. Class A Shares are subject to a 12b-1
Plan, however it is not currently making payments, nor does it anticipate doing
so in the immediate future.
Class B Shares are sold at net asset value and are subject to a 12b-1 Plan and a
Shareholder Services Agreement. Investments in Class B Shares are subject to a
minimum initial investment of $1,500, unless the investment is in a retirement
account, in which the minimum investment is $250. A contingent deferred sales
charge is imposed on certain shares which are redeemed within six full years of
purchase.
Class C Shares are sold at net asset value and are subject to a 12b-1 Plan and a
Shareholder Services Agreement. Investments in Class C Shares are subject to a
minimum investment of $1,500, unless the investment is in a retirement account,
in which the minimum investment is $250. A contingent deferred sales charge is
imposed on assets redeemed within the first full 12 months following purchase.
Class A Shares, Class B Shares, Class C Shares, and Class F Shares are
subject to certain of the same expenses, however, the front-end sales load for
Class F Shares is lower than that for Class A Shares. Expense differences,
however, between Class A Shares, Class B Shares, Class C Shares, and Class F
Shares may affect the performance of each class. To obtain more information
and a combined prospectus for Class A Shares, Class B Shares, and Class C
Shares, investors may call 1-800-341-7400 or contact their financial
institution.
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC--Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C--The rating "C" typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is being
paid.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing. FITCH IBCA, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment or interest or principal.
DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
[Graphic]
Federated Equity
Income Fund, Inc.
Class F Shares
PROSPECTUS
MAY 31, 1998
An Open-End, Diversified Management Investment Company
FEDERATED EQUITY INCOME FUND, INC.
CLASS F SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219
Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Cusip 313915407
8062806A-F (5/98)
[Graphic]
FEDERATED EQUITY INCOME FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus for
Class A Shares, Class B Shares, and Class C Shares, and the prospectus for Class
F Shares of Federated Equity Income Fund, Inc. (the "Fund"), dated May 29, 1998.
This Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement, if you received it electronically,
free of charge by calling 1-800-341-7400.
FEDERATED EQUITY INCOME FUND, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated May 29, 1998
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313915100 Cusip 313915209 Cusip 313915308 Cusip 313915407 8062806B
(5/98) [Graphic] TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND 1 INVESTMENT OBJECTIVES AND POLICIES 1
Convertible Securities 1 Temporary Investments 1 When-Issued and Delayed
Delivery Transactions 2 Repurchase Agreements 2 Futures and Options
Transactions 2 Restricted and Illiquid Securities 4 Real Estate Investment
Trusts 4 Lending of Portfolio Securities 4 Reverse Repurchase Agreements 4
Portfolio Turnover 5 Investing in Securities of Other Investment Companies 5
INVESTMENT LIMITATIONS 5 Buying on Margin 5 Selling Short 5 Issuing Senior
Securities and Borrowing Money 5 Pledging Assets 5 Investing in Real Estate 5
Investing in Commodities 5 Underwriting 5 Lending Cash or Securities 6
Concentration of Investments 6 Diversification of Investments 6 Arbitrage
Transactions 6 Acquiring Securities 6 Writing Covered Call Options and
Purchasing Put Options 6 Investing in Restricted and Illiquid Securities 6
FEDERATED EQUITY INCOME FUND, INC. MANAGEMENT 7 Fund Ownership 10 Director
Compensation 11 Director Liability 11 INVESTMENT ADVISORY SERVICES 11 Adviser
to the Fund 11 Advisory Fees 12 BROKERAGE TRANSACTIONS 12 OTHER SERVICES 12
Fund Administration 12 Custodian and Portfolio Accountant 12 Transfer Agent 12
Independent Auditors 12 PURCHASING SHARES 13 Quantity Discounts and Accumulated
Purchases 13 Concurrent Purchases 13 Letter of Intent 13 Reinvestment Privilege
13 Conversion of Class B Shares 14 Distribution Plan and Shareholder Services
14 Conversion to Federal Funds 15 Purchases by Sales Representatives, Fund
Directors, and Employees15 Exchanging Securities for Fund Shares 15 DETERMINING
NET ASSET VALUE 15 Determining Market Value of Securities 15 REDEEMING SHARES
16 Redemption in Kind 16 Contingent Deferred Sales Charge 16 TAX STATUS 16 The
Fund's Tax Status 16 Shareholders' Tax Status 16 TOTAL RETURN 17 YIELD 17
CURRENT DISTRIBUTIONS 18 PERFORMANCE COMPARISONS 18 Economic and Market
Information 19 ABOUT FEDERATED INVESTORS 19 Mutual Fund Market 20 Institutional
Clients 20 Bank Marketing 20 Broker/Dealers and Bank Broker/Dealer Subsidiaries
20 FINANCIAL STATEMENTS 20
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On February 26, 1996, the Board of Directors (the "Directors") approved an
amendment to the Articles of Incorporation of the Fund to change the name of the
Fund from Liberty Equity Income Fund, Inc. to Federated Equity Income Fund, Inc.
Shares of the Fund are offered in four classes known as Class A Shares, Class B
Shares, Class C Shares, and Class F Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to all four of the above-mentioned classes of
Shares. INVESTMENT OBJECTIVES AND POLICIES The Fund's investment
objective is to pursue above average income and capital appreciation. The
investment objective cannot be changed without approval of shareholders.
CONVERTIBLE SECURITIES
DECS (Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock
when issued as a debt security), or similar instruments marketed under different
names, offer a substantial dividend advantage with the possibility of unlimited
upside potential if the price of the underlying common stock exceeds a certain
level. DECS convert to common stock at maturity. The amount received is
dependent on the price of the common at the time of maturity. DECS contain two
call options at different strike prices. The DECS participate with the common up
to the first call price. They are effectively capped at that point unless the
common rises above a second price point, at which time they participate with
unlimited upside potential.
PERCS (Preferred Equity Redemption Cumulative Stock, an equity issue that pays a
high cash dividend, has a cap price and mandatory conversion to common stock at
maturity), or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common falls, while the cap price limits gains when the common rises.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are not
limited to:
* commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2
by Moody's Investors Service, Inc., or F-1 or F-2 by Fitch IBCA, Inc., and
Europaper rated A-1, A-2, Prime-1, or Prime-2. In the case where commercial
paper or Europaper has received different ratings from different rating
services, such commercial paper or Europaper is an acceptable temporary
investment so long as at least one rating is one of the preceding
high-quality ratings and provided the Fund's investment adviser, Federated
Advisers (the "Adviser"), has determined that such investment presents
minimal credit risks;
* instruments of domestic and foreign banks and savings associations if they
have capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured by the Federal Deposit
Insurance Corporation. These instruments may include Eurodollar
Certificates of Deposits ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs"), and Eurodollar Time Deposits ("ETDs");
* obligations of the U.S. government, or its agencies, or
instrumentalities;
* repurchase agreements; and
* other short-term instruments which are not rated but are determined by the
Adviser to be of comparable quality to the other temporary obligations in
which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these risks
include international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks, such
as reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, and the public availability of information. These factors will be
carefully considered by the Adviser in selecting investments for the Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made
to secure what is considered to be an advantageous price or yield for the Fund.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction has
been settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more than
20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Directors. FUTURES
AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. In the fixed-income securities
market, price moves inversely to interest rates. A rise in rates means a drop in
price. Conversely, a drop in rates means a rise in price. In order to hedge its
holdings of fixed-income securities against a rise in market interest rates, the
Fund could enter into contracts to deliver securities at a predetermined price
(i.e., "go short") to protect itself against the possibility that the prices of
its fixed-income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the future at
a predetermined price) to hedge against a decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
The Fund would purchase put options on futures contracts to protect portfolio
securities against decreases in value resulting from an anticipated increase in
market interest rates. Generally, if the hedged portfolio securities decrease in
value during the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the Fund
for the original option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the premium paid
for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed call
options on futures contracts to hedge its portfolio against an increase in
market interest rates. When the Fund writes a call option on a futures contract,
it is undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can offset the drop
in value of the Fund's fixed-income portfolio which is occurring as interest
rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in readily marketable
securities with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions. Initial margin
is in the nature of a performance bond or good-faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. A futures contract held by
the Fund is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash, called "variation
margin," equal to the daily change in value of the futures contract. This
process is known as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).
RESTRICTED AND ILLIQUID SECURITIES
SECTION 4(2) COMMERCIAL PAPER
The Trust may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as the
Trust, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Trust through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Trust believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees of the Trust are quite liquid. As a matter
of operating policy, the Trust intends, therefore, to treat the restricted
securities which meet the criteria for liquidity established by the Trustees,
including Section 4(2) commercial paper, as determined by the Trust's investment
adviser, as liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Trust intends to not subject such paper to the limitation applicable
to restricted securities.
LIQUIDITY DETERMINATION
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and * the nature of
the security and the nature of the marketplace trades.
REAL ESTATE INVESTMENT TRUSTS
The Fund may purchase interests in equity, mortgage, and hybrid real estate
investment trusts. Equity real estate investment trusts purchase or lease real
estate. They generate income primarily from rental income and realize capital
gains or losses from appreciated or depreciated property values. Mortgage real
estate investment trusts are interests in real estate mortgages and generate
income from interest payments on mortgage loans.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Securities in the Fund's portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The Adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the Fund's
portfolio turnover rate and transaction costs. For the fiscal years ended March
31, 1998 and 1997, the portfolio turnover rates were 69% and 75%, respectively.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
INVESTMENT LIMITATIONS
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as are necessary for clearance of transactions. The deposit
or payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not considered
the purchase of a security on margin.
SELLING SHORT
The Fund will not sell securities short unless during the time the short
position is open, it owns an equal amount of the securities sold or securities
readily and freely convertible into or exchangeable, without payment of
additional consideration, for securities of the same issue as, and equal in
amount to, the securities sold short; and not more than 10% of the Fund's net
assets (taken at current value) is held as collateral for such sales at any one
time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while any borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing. Margin deposits for the purchase and
sale of financial futures contracts and related options are not deemed to be a
pledge.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, except that it may purchase
portfolio instruments issued by companies that invest in or sponsor such
interests.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the purchase
or holding of corporate bonds, debentures, notes, certificates of indebtedness
or other debt securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment objectives and
policies.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase portfolio instruments if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in any
one industry.
DIVERSIFICATION OF INVESTMENTS
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.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
ARBITRAGE TRANSACTIONS
The Fund will not engage in arbitrage transactions.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of exercising
control or management. However, the Fund may purchase up to 10% of the voting
securities of any one issuer and may exercise its voting powers consistent with
the best interests of the Fund. In addition, the Fund, other companies advised
by the Adviser, and other affiliated companies may together buy and hold
substantial amounts of voting stock of a company and may vote together in regard
to such company's affairs. In some cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some cases,
Directors and other persons associated with the Fund and its affiliates might
possibly become directors of companies in which the Fund holds stock.
WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment. The Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio. The Fund will not commit
more than 5% of the value of its total assets to premiums on open option
positions. INVESTING IN RESTRICTED AND ILLIQUID SECURITIES The Fund
will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities (except for Section 4(2) commercial
paper and restricted securities which the Adviser believes can be sold within
seven days), non-negotiable time deposits in repurchase agreements providing for
settlement in more than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money, invest in reverse repurchase agreements, pledge
securities, or sell securities short in excess of 5% of the value of its total
assets during the last fiscal year and has no present intention to do so in the
current fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
FEDERATED EQUITY INCOME FUND, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Equity Income Fund, Inc., and principal occupations.
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 and Director of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Member of Executive Committee, 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 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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Director
Formerly, Partner, Anderson Worldwide SC; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza23rd 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.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Director
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.
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.
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.
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.
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.
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.
* 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; 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 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 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; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; 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; WCT Funds; and World Investment Series,
Inc. FUND OWNERSHIP As of May 5, 1998, the following shareholder of
record owned 5% or more of the outstanding Class A Shares of the Fund: Merrill
Lynch Pierce Fenner & Smith (as record owner holding Class A Shares for its
clients), Jacksonville, Florida, owned approximately 2,251,722 Class A Shares
(5.25%).
As of May 5, 1998, the following shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class B Shares for its clients), Jacksonville, Florida,
owned approximately 3,932,343 Class B Shares (7.16%).
As of May 5, 1998, the following shareholder of record owned 5% or more of the
outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class C Shares for its clients), Jacksonville, Florida,
owned approximately 3,281,724 Class C Shares
(35.32%).
As of May 5, 1998, the following shareholder of record owned 5% or more of the
outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as
record owner holding Class F Shares for its clients), Jacksonville, Florida,
owned approximately 1,446,842 Class F Shares
(21.99%).
DIRECTOR COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX+
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
and Director in the Fund Complex
Thomas G. Bigley $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
John T. Conroy, Jr. $2,090.23 $122,362 for the Fund and
Director 56 other investment companies
in the Fund Complex
Nicholas P. Constantakis** $527.65 $0 for the Fund and
Director 36 other investment companies
in the Fund Complex
William J. Copeland $2,090.23 $122,362 for the Fund and
Director 56 other investment companies
in the Fund Complex
James E. Dowd $2,090.23 $122,362 for the Fund and
Director 56 other investment companies
in the Fund Complex
Lawrence D. Ellis, M.D. $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
Edward L. Flaherty, Jr. $2,090.23 $122,362 for the Fund and
Director 56 other investment companies
in the Fund Complex
Peter E. Madden $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
John E. Murray, Jr. $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
Wesley W. Posvar $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
Marjorie P. Smuts $1,899.92 $111,222 for the Fund and
Director 56 other investment companies
in the Fund Complex
* Information is furnished for the fiscal year ended March 31, 1998.
** Mr. Constantakis became a member of the Board of Directors on February
23, 1998.
# The aggregate compensation is provided for the Fund which was comprised of one
portfolio, as of March 31, 1998.
+ The information is provided for the last calendar year.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the respective prospectuses. During the fiscal years ended
March 31, 1998, 1997, and 1996, the Fund's Adviser earned $9,452,360,
$4,100,883, and $1,573,643, respectively, of which $0, $0, and $418,318,
respectively, were voluntarily waived because of undertakings to limit the
Fund's expenses. BROKERAGE TRANSACTIONS The Adviser may select brokers
and dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended March 31, 1998, 1997, and 1996, the Fund paid total brokerage
commissions of $1,772,687, $1,109,630, and $511,535, respectively. Although
investment decisions for the Fund are made independently from those of the other
accounts managed by the Adviser, investments of the type the Fund may make may
also be made by those other accounts. When the Fund and one or more other
accounts managed by the Adviser are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to participate
in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
respective prospectuses. From March 1, 1994 to March 1, 1996, Federated
Administrative Services, a subsidiary of Federated Investors, served as the
Fund's Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
March 31, 1998, 1997, and 1996, the Administrators earned $1,188,800, $516,371,
and $214,999, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh, PA.
PURCHASING SHARES
Except under certain circumstances described in the respective prospectuses,
Shares are sold at their net asset value (plus a sales charge if applicable) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the respective prospectuses under "Investing
in the Fund" and "Purchasing Shares." For further information on any of the
programs listed below, please contact your financial intermediary or Federated
Securities Corp.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectuses, larger purchases of the same Share class
reduce or eliminate the sales charge paid. For example, the Fund will combine
all purchases made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge. This
combined purchase option is available within Class F Shares as well. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase into the same Share class is made, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the public
offering price of $90,000 and he purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase according to the
schedule now in effect would be 3.75%, not 4.50%.
In addition, the Fund will also combine purchases for the purpose of reducing
the contingent deferred sales charge imposed on Class F Share redemptions. For
example, if a shareholder already owns Class F Shares having current value at
the public offering price of $1 million and purchases an additional $1 million
at the current public offering price, the applicable contingent deferred sales
charge would be reduced to 0.50% of those additional Class F Shares.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares or Class F Shares are already
owned or that purchases are being combined. The Fund will reduce or eliminate
the sales charge after it confirms the purchases.
CONCURRENT PURCHASES
Shareholders have the privilege of combining concurrent purchases of the same
Share class of two or more funds in the Federated Complex in calculating the
applicable sales charge. To receive this sales charge reduction or
elimination, Federated Securities Corp. must be notified by the shareholder in
writing or by his financial intermediary at the time the concurrent purchases
are made. The Fund will reduce or eliminate the sales charge after it confirms
the purchases.
LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13-month period in order to combine such
purchases in calculating the applicable sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.
The letter of intent for Class F Shares also includes a provision for reductions
in the contingent deferred sales charge and holding period depending on the
amount actually purchased within the 13-month period.
While this letter of intent will not obligate the shareholder to purchase Class
A Shares or Class F Shares, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Class A
Shares or Class F Shares of any Federated Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards fulfillment of
the letter of intent. The letter may be dated as of a prior date to include any
purchase made within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share class. Class A and Class F Shareholders who redeem from the Fund may
reinvest the redemption proceeds back into the same Share class at the next
determined net asset value without any sales charge. The original Shares must
have been subject to a sales charge and the reinvestment must be within 120
days.
Similarly, Class C Shares and Class F Share holders who redeem may reinvest
their redemption proceeds in the same Share class within 120 days. Class B
Shares also may be reinvested within 120 days of redemption, although such
reinvestment will be made into Class A Shares. Shareholders would not be
entitled to a reimbursement of the contingent deferred sales charge if paid at
the time of redemption on any Share class. However, such reinvested Shares would
not be subject to a contingent deferred sales charge, if otherwise applicable,
upon later redemption.
In addition, if Shares were reinvested through a financial intermediary, the
financial intermediary would not be entitled to an advanced payment from
Federated Securities Corp. on the reinvested Shares, if otherwise applicable.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial intermediary of the reinvestment in order to eliminate a sales
charge or a contingent deferred sales charge. If the shareholder redeems Shares
in the Fund, there may be tax consequences.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. For purposes of conversion to
Class A Shares, Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such a ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares for
an indefinite period.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to all classes of Shares, the Fund has adopted a Distribution Plan
in accordance with Investment Company Act Rule 12b-1. Additionally, the Fund has
adopted a Shareholder Services Agreement with respect to all classes of Shares.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales. Other benefits, which may be realized under
either arrangement, may include: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and (4)
responding promptly to shareholders' requests and inquiries concerning their
accounts. For the fiscal year ended March 31, 1998, payments in the amounts
of $5,291,320 (Class B Shares), $1,012,511 (Class C Shares), and $273,046 (Class
F Shares), were made pursuant to the Distribution Plans. The Fund is not
currently making payments under the Distribution Plan for Class A Shares, nor
does it anticipate doing so in the immediate future. In addition, for the fiscal
year ended March 31, 1998, payments in the amounts of $1,564,088 (Class A
Shares), $1,763,773 (Class B Shares), $337,504 (Class C Shares), and $273,046
(Class F Shares), were made pursuant to the Shareholder Services Agreement, of
which no waivers were made. CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Shareholders Services acts as the shareholder's agent
in depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
The following individuals and their immediate family members may buy Class A
Shares and Class F Shares at net asset value without a sales charge:
* Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. and its affiliates;
* Federated Life Members (Class A Shares only);
* any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
* trusts, pensions, or profit-sharing plans for these individuals.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of securities and
cash for Shares. The securities and any cash must have a market value of at
least $25,000. Any securities to be exchanged must meet the investment objective
and policies of the Fund, must have a readily ascertainable market value, and
must not be subject to restrictions on resale. The Fund reserves the right to
determine the acceptability of securities to be exchanged. Securities accepted
by the Fund are valued in the same manner as the Fund values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp. Share purchased by exchange of U.S. government securities
cannot be redeemed by telephone for fifteen business days to allow time for the
transfer to settle.
An investor should forward the securities in negotiable form with an authorized
letter of transmittal to Federated Securities Corp. The Fund will notify the
investor of its acceptance and valuation of the securities within five business
days of their receipt by State Street Bank.
The basis of the exchange will depend upon the net asset value of Shares on the
day the securities are valued. One Share of the Fund will be issued for each
equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividend, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities. Exercise of this exchange privilege is treated as a sale
for federal income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
The Fund's net asset value per Share fluctuates and is based on the market value
of all securities and other assets of the Fund. The net asset value for each
class of Shares may differ due to the variance in daily net income realized by
each class. Net asset value is not determined on (i) days on which there are
not sufficient changes in the value of the Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no Shares
are tendered for redemption and no orders to purchase Shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* according to the last sale price on a national securities exchange, if
available, or on the basis of prices provided by an independent pricing
service;
* for most short-term obligations, according to the average of the last offer
to buy and the last offer to sell the security, as provided by independent
pricing services;
* for options traded in the over-the-counter market, according to the mean
between the last bid and the last asked price for the option as provided by
an investment dealer or other financial institution that deals in the
option;
* for short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost; or
* at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
respective prospectuses under "Redeeming and Exchanging Shares." Although the
transfer agent does not charge for telephone redemptions, it reserves the right
to charge a fee for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Directors determine to be fair and
equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; and (3) Shares held for fewer than six years with respect to
Class B Shares and for less than one full year from the date of purchase with
respect to Class C Shares on a first-in, first-out basis.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* invest in securities within certain statutory limits; and * distribute to
its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio securities and
as a result of discounts from par value on securities held to maturity.
Sales would generally be made because of:
* the availability of higher relative yields; * differentials in market
values; * new investment opportunities; * changes in creditworthiness of an
issuer; or * an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the Shares. Any loss by a shareholder on Shares held for
less than six months and sold after a capital gains distribution will be treated
as a long-term capital loss to the extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended March 31, 1998, were:
DATE OF INITIAL
PUBLIC
SHARE CLASS INVESTMENT ONE-YEAR FIVE-YEARS TEN-YEARS SINCE INCEPTION
Class A 12/30/86 24.53% 17.09% 15.68% 14.12%
Class B 9/27/94 25.02% N/A N/A 22.59%
Class C 5/3/93 29.80% N/A N/A 18.16%
Class F 11/12/93 29.12% N/A N/A 18.08%
The average annual total return for all classes of
Shares of the Fund is the average compounded rate of return for a given period
that would equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per Share
at the end of the period. The number of Shares owned at the end of the period is
based on the number of Shares purchased at the beginning of the period with
$1,000, less any applicable sales charge, adjusted over the period by any
additional Shares, assuming a quarterly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted from
the ending value of the investments based on the lesser of the original purchase
price or the offering price of Shares redeemed. YIELD
The Fund's yields for the thirty-day period ended March 31, 1998, were:
SHARE CLASS YIELD
Class A 1.29%
Class B 0.63%
Class C 0.63%
Class F 1.11%
The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per Share of any class of Shares on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by any
class of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
CURRENT DISTRIBUTIONS
Class A Shares, Class B Shares, Class C Shares, and Class F Shares average net
annualized current distributions rate for the thirty days ended March 31, 1998,
were 1.92%, 1.36%, 1.36%, and 4.30%, respectively.
Each class of Shares calculates its current distributions daily based upon its
past twelve months' income dividends and short-term capital gains distributions
per Share divided by its offering price per Share on that day. Each class of
Shares may reduce the time period upon which it bases its calculation of current
distributions if the Adviser believes a shortened period would be more
representative in light of current market conditions.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested; * changes in
interest rates and market value of portfolio securities; * changes in the
Fund's or a class of Shares' expenses; and * various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
The Fund may compare the performance of equity income funds to other types of
stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time. From time to time, the Fund will quote its Lipper ranking in the
convertible securities and fixed income funds categories in advertising and
sales literature.
* DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA index is a leading economic indicator for the stock
market as a whole.
* STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS is a
composite index of common stocks in industry, transportation, and financial
and public utility companies which compares total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestment of all dividends paid by
stocks listed on the index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated, in the Standard &
Poor's figures.
* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
* LEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed rate,
publicly issued, noninvestment grade debt registered with the SEC. All
bonds included in the High Yield Index must be dollar-denominated and
nonconvertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities must
be rated Ba1 or lower by Moody's Investors Service, including defaulted
issues. If no Moody's rating is available, bonds must be rated BB+ or lower
by S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch Investor's Service. A small number of unrated
bonds is included in the index; to be eligible they must have previously
held a high-yield rating or have been associated with a high-yield issuer,
and must trade accordingly.
In addition, the Fund will, from time to time, use the following standard
convertible securities indices against which it will compare its performance:
Goldman Sachs Convertible 100; Kidder Peabody Convertible Bond Index; Value Line
Convertible Bond Index; and Dow Jones Utility Index.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on quarterly reinvestment of dividends over a specified
period of time.
From time to time, the Fund may advertise the performance of any class of Shares
using charts, graphs, and descriptions, compared to federally insured bank
products, including certificates of deposit and time deposits, and to money
market funds using the Lipper Analytical Services money market instruments
average. In addition, advertising and sales literature for the Fund may use
charts and graphs to illustrate the principals of dollar-cost averaging and may
disclose the amount of dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of a sales charge or contingent deferred sales charge, as applicable.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as business and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making structured, straightforward, and consistent. This
has resulted in a history of competitive performance with a range of competitive
investment products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the equity sector, Federated Investors has more
than 27 years experience. As of December 31, 1997, Federated Investors managed
29 equity funds totaling approximately $11.7 billion in assets across growth,
value, equity income, international, index, and sector (i.e. utility) styles.
Federated's value-oriented management style combines quantitative and
qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1997, Federated Investors
managed 12 money market funds, and 16 bond funds with assets approximating $17.1
billion, and $5.6 billion, respectively. Federated's corporate bond decision
makingbased on intensive, diligent credit analysis--is backed by over 22 years
of experience in the corporate bond sector. In 1972, Federated Investors
introduced one of the first high-yield bond funds in the industry. In 1983,
Federated Investors was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwidewe have over 2,200 broker/dealer and bank/broker dealer relationships
across the countrysupported by more wholesalers than any other mutual fund
distributor. Federated Investor's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1998, are
incorporated herein by reference to the Annual Report of the Fund dated March
31, 1998 (File Nos. 33-6901 and 811-4743). A copy of this Report may be obtained
without charge by contacting the Fund.
* Source: Investment Company Institute
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (a-d) The Financial Statements for the
fiscal year ended March 31, 1998, are incorporated
herein by reference to the Fund's Annual
Report dated March 31, 1998.
(File Nos. 33-6901 and 811-4743)
(b) Exhibits:
(1) Copy of Articles of Incorporation of the Registrant, as
amended; (2)
(2) (i) Copy of By-Laws of the Registrant as Restated and
Amended; (3)
(ii) Copy of Amendment to By-Laws effective August 28,
1987; (4) (iii) Copy of Amendment to By-Laws effective
November 19, 1987; (4)
(iv) Copy of Amendment to By-Laws effective May 4, 1993; +
(3) Not applicable; (4) Copies of Specimen Certificates for
Shares of Capital
Stock for Class A Shares, Class B Shares, Class C
Shares, and Class F Shares of the Registrant; (12)
(5) Conformed copy of Investment Advisory Contract of the
Registrant; (5)
(6) (i) Conformed copy of Distributor's Contract through
and including Exhibit C; (11)
(ii) Conformed copy of Exhibit D to the Distributor's
Contract; (12)
(iii) The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement from Item
4(b)(6) of the Cash Trust Series II Registration
Statement on Form N-1A, filed with the Commission on
July 24, 1995. (File Nos. 33-38550 and 811-6269);
(iv) Conformed copy of Distributor's Contract (Class B
Shares) including Exhibit 1 and Schedule A; +
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract of the
Registrant; (10)
- ---------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed December 15, 1986 (File Nos.
33-6901 and 811-4743).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 18, 1988 (File Nos. 33-6901 and
811-4743).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901 and
811-4743).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed July 28, 1989 (File Nos. 33-6901 and
811-4743).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed May 24, 1995 (File Nos. 33-6901 and
811-4743).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed May 29, 1996 (File Nos. 33-6901 and
811-4743).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed May 30, 1997 (File Nos. 33-6901 and
811-4743).
<PAGE>
(ii) Conformed Copy of Custody Fee Schedule; +
(9) (i) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement of the Registrant; (11)
(ii) The responses described in Item 24(b)(6) are
hereby incorporated by reference;
(iii) Conformed copy of Principal Shareholder Servicer's
Agreement (Class B Shares) including
Exhibit 1 and Schedule A; +
(iv) Conformed copy of Shareholders Services Agreement
(Class B Shares) including Exhibit 1 and
Schedule A; +
(v) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder
Services from Item 24(b)(9)(iii) of the Federated
GNMA Trust Registration Statement on Form N-1A,
filed with the Commission on March 26, 1996.
(File Nos. 2-75670 and 811-3375);
(10) Not applicable;
(11) Conformed Copy of Consent of Independent Auditors; + (12)
Not applicable; (13) Copy of Initial Capital Understanding; (2)
(14) Not applicable; (15) (i) Copy of Dealer Agreement; (3)
(ii) Copy of Rule 12b-1 Plan of the Registrant, through
and including Exhibit B; (11)
(iii) Conformed Copy of Exhibit C to the Rule 12b-1 Plan;
(12)
(iv) Conformed copy of Exhibit 1 and Schedule A to the
12b-1 Distribution Plan (Class B
Shares) of the Registrant; +
(v) The responses described in Item 24(b)(6)(iii) are
hereby incorporated by reference;
(16) Schedule for Computation of Performance Data; (4)
(17) Copy of Financial Data Schedules; + (18) The Registrant
hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item 24(b)(18)
of the World Investment series, Inc. Registration
Statement on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed copy of Power of Attorney. (13)
- ---------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed December 15, 1986 (File Nos.
33-6901 and 811-4743).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 18, 1988 (File Nos. 33-6901 and
811-4743).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901 and
811-4743).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed May 29, 1996 (File Nos. 33-6901 and
811-4743).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed May 30, 1997 (File Nos. 33-6901 and
811-4743).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.24 on Form N-1A filed March 26, 1998 (File Nos. 33-6901 and
811-4743).
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 5, 1998
Shares of capital stock
($0.001 per Share par value)
Class A Shares 39,081
Class B Shares 72,064
Class C Shares 8,466
Class F Shares 5,655
Item 27. Indemnification: (5)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "Fund Information - Management of the Fund" in
Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under "Federated Equity Income Fund,
Inc. Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
5. Response is incorporated by reference to Registrant's Post-effective
Amendment No. 6 on Form N-1A filed July 28, 1989 (File Nos. 33-6901 and
811-4743).
<PAGE>
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents:
Stefanie L. Bachhuber
Arthur J. Barry
Robert E. Cauley
Lee R. Cunningham, II
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Natalie F. Metz
Joseph M. Natoli
Keith J. Sabol
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
111 Corcoran 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 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 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.; Regions Funds; Fixed Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; 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; SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder
Services Company P.O. Box 8600
("Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative
Services...... Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8600
Company Boston, MA 02266-8600
("Custodian")
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the 1940 Act with respect to the removal of Directors and the
calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, FEDERATED EQUITY INCOME
FUND, INC., certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
28th day of May, 1998.
FEDERATED EQUITY INCOME FUND, INC.
BY: /s/Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
May 28, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following person in the
capacity and on the date indicated:
NAME TITLE DATE
By:/s/Matthew S. Hardin. Attorney In Fact May 28, 1998
Matthew S. Hardin.... For the Persons
ASSISTANT SECRETARY.. Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President
J. Christopher Donahue* Executive Vice President and Director
John W. McGonigle* Treasurer, Executive Vice President and Secretary
(Principal Financial and Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
John E. Murray, Jr. Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 2 under Form N-1A
Exhibit 3(ii) under Item 601/Reg SK
LIBERTY EQUITY INCOME FUND, INC.
BY-LAWS
ARTICLE I
MEETING OF SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The Corporation is not required to hold an
annual meeting of Shareholders in any year in which the election of Directors is
not required to be acted upon under the Investment Company Act of 1940. If the
Corporation is required to hold a meeting of Shareholders to elect Directors,
the meeting shall be designated the annual meeting of Shareholders for that
year. If an annual meeting of Shareholders is held, it shall be held at a date
and time determined by the Board of Directors within 120 days after the
occurrence of the event requiring the meeting. Any other business may be
considered at the meeting.
Section 2. SPECIAL MEETINGS. Special Meetings of Shareholders of the
Company or of a particular Series or Class may be called by the Chairman, or by
the Board of Directors; and shall be called by the Secretary whenever ordered by
the Chairman, any Director, or as requested in writing by shareholders entitled
to cast at least 10% of the voter shares entitled to be cast at the meetings.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on thereat, and no other business shall be transacted at any such
special meeting. The Secretary shall inform such Shareholders of the reasonably
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Corporation of such costs, the Secretary shall give not less than
ten nor more than 90 days' notice of the meeting. Unless required by
Shareholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at by special meeting of the
Shareholders held during the preceding 12 months.
Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the
Corporation or a particular Series or Class, shall be held at the office of the
Corporation in Pittsburgh, Pennsylvania, or at such other place within or
without the State of Maryland as may be fixed by the Board of Directors.
Section 4. NOTICE. Not less than ten nor more than ninety days before the
date of every Annual or Special Meeting of Shareholders the Secretary or an
Assistant Secretary shall give to each Shareholder of record of the Corporation
or of the relevant Series or Class written notice of such meeting. Such notice
shall be deemed to have been given when mailed to the Shareholder at his address
appearing on the books of the Corporation, which shall be maintained separately
for the shares of each Series or Class. It shall not be necessary to set forth
the business proposed to be transacted in the notice of any Annual Meeting
except that any proposal to amend the Charter of the Corporation shall be set
forth in such notice. Notice of a Special Meeting shall state the purpose or
purposes for which it is called.
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[bylaws]leif-new93
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Section 5. QUORUM. The presence in person or by proxy of holders of
one-third of the shares of stock of the Corporation entitled to vote without
regard to class shall constitute a quorum at any meeting of the shareholders,
except with respect to any matter which by law requires the approval of one or
more classes of stock, in which case the presence in person or by proxy of the
holders of one-third of the shares of stock of each class entitled to vote on
the matter shall constitute a quorum.
In the absence of a quorum at any meeting, a majority of those Shareholders
present in person or by proxy may adjourn the meeting from time to time to a
date not later than 120 days after the original record date without further
notice than by announcement to be given at the meeting until a quorum, as above
defined, shall be present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting originally called had
the same been held at the time so called.
Section 6. VOTING. At all meetings of Shareholders each Shareholder shall
be entitled to one vote or fraction thereof for each Share or fraction thereof
standing in his name on the books of the Corporation on the date for the
determination of Shareholders entitled to vote at such meeting. All shares of
each portfolio or class in the Corporation have equal voting rights, except that
in matters affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which is dated
more than eleven months before the meeting named therein shall be accepted.
Every proxy shall be in writing and signed by the Shareholder or his duly
authorized attorney in fact and dated, but need not be sealed, witnessed or
acknowledged.
Section 8. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at any meeting of Shareholders may be taken without a
meeting, if a consent in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof, and such
consent is filed with the records of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under the authority of the Board of Directors
except as conferred on or reserved to the Shareholders by law, by the Charter or
by these By-Laws.
Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF OFFICE.
The number of Directors of the Corporation can be changed from time to time to
not less than three or the number of Shareholders, whichever is less, nor more
than twenty. Directors need not be Shareholders. The term of office of a
Director shall not be affected by any decrease in the number of Directors made
by the Board pursuant to the foregoing authorization. Each Director shall hold
office until the Annual Meeting next held after he
<PAGE>
[bylaws]leif-new93
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becomes a director and until the election and qualification of his successor.
Section 3. PLACE OF MEETING. The Board of Directors may hold its meetings
at such place or places within or without the State of Maryland as the Board or
as the person or persons requesting said meeting to be called may from time to
time determine.
Section 4. ANNUAL MEETINGS. The Board of Directors shall meet annually for
the election of Officers and any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such intervals and on such dates as the Board may from time to
time designate, provided that any Director who is absent when such designation
is made shall be given notice of the designation.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at such times and at such places as may be designated at the call of
such meeting. Special meetings shall be called by the Secretary or Assistant
Secretary at the request of the Chairman or any Director. If the Secretary when
so requested refuses or fails for more than twenty-four hours to call such
meeting, the Chairman or such Director may in the name of the Secretary call
such meeting by giving due notice in the manner required when notice is given by
the Secretary.
Section 7. NOTICE. The Secretary or Assistant Secretary shall give, at
least two days before the meeting, notice of each meeting of the Board of
Directors, whether Annual, Regular or Special, to each member of the Board by
mail, telegram or telephone to his last known address. It shall not be necessary
to state the purpose or business to be transacted in the notice of any meeting.
Personal attendance at any meeting by a Director other than to protest the
validity of said meeting shall constitute a waiver of the foregoing requirement
of notice. In addition, notice of a meeting need not be given if a written
waiver of notice executed by such Director before or after the Meeting is filed
with the records of the meeting.
Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors may
adopt such rules and regulations for the conduct of their meetings and the
management of the affairs of the Corporation as they may deem proper and not
inconsistent with applicable law, the Charter of the Corporation or these
By-Laws.
Section 9. QUORUM. One-third of the entire Board of Directors but not less
than two directors shall constitute a quorum at any meeting of the Board of
Directors. The action of a majority of Directors present at any meeting at which
a quorum is present shall be the action of the Board of Directors unless the
concurrence of a greater proportion is required for such action by statute, the
Charter of the Corporation, or these By-Laws. In the absence of a quorum at any
meeting a majority of Directors present may adjourn the meeting from day to day
or for such longer periods as they may designate until a quorum shall be
present. Notice of any adjourned meeting need not be given other than by
announcement at the meeting.
Section 10. RESIGNATIONS. Any Director of the Corporation may resign
<PAGE>
[bylaws]leif-new93
-1-
at any time by written notice to the Chairman of the Board of Directors or to
the Secretary of the Corporation. The resignation of any Director shall take
effect at the time specified therein or, if no time is specified, when received
by the Corporation. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 11. REMOVAL. At any meeting of Shareholders duly called for the
purpose, any Director may by the vote of a majority of all of the Shares
entitled to vote be removed from office. At the same meeting, the vacancy in the
Board of Directors may be filled by the election of a Director to serve until
the next annual meeting of Shareholders and the election and qualification of
his successor.
Section 12. VACANCIES. Except as otherwise provided by law, any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of Directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum
and any vacancy occurring by reason of an increase in the number of Directors
may be filled by action of a majority of the entire Board of Directors. A
Director elected by the Board to fill a vacancy shall be elected to hold office
until the next Annual Meeting of Shareholders and until his successor is duly
elected and qualifies.
Section 13. COMPENSATION OF DIRECTORS. The Directors may receive
compensation for their services as Directors as determined by the Board of
Directors and expenses of attendance at each Meeting. Nothing herein contained
shall be construed to preclude any Director from serving the Corporation in any
other capacity, as an Officer, Agent or otherwise, and receiving compensation
therefor.
Section 14. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any Annual, Regular or Special Meeting of the Board of Directors
may be taken without a meeting if a written consent to such action is signed by
all members of the Board and such written consent is filed with the minutes of
proceedings of the Board.
Section 15. TELEPHONE CONFERENCE. Members of the Board of Directors or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and participation by such means shall constitute presence in person at the
meeting.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE. The Board
of Directors may appoint an Executive Committee, which shall consist of two (2)
or more Directors.
Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring in the
Executive Committee from any cause may be filled by the Board of Directors.
<PAGE>
[bylaws]leif-new93
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Section 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All action by the
Executive Committee shall be reported to the Board of Directors at its Meeting
next succeeding such action.
Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The Executive Committee shall
fix its own rules of procedure not inconsistent with these By-Laws or with any
directions of the Board of Directors. It shall meet at such times and places and
upon such notice as shall be provided by such rules or by resolution of the
Board of Directors. The presence of a majority shall constitute a quorum for the
transaction of business, and in every case the affirmative vote of a majority of
the members of the Committee present shall be necessary for the taking of any
action.
Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals between the
Meetings of the Board of Directors the Executive Committee, except as limited by
law or by specific directions of the Board of Directors, shall possess and may
exercise all the powers of the Board of Directors in the management and
direction of the business and conduct of the affairs of the Corporation.
Section 6. OTHER COMMITTEES. From time to time the Board of Directors may
appoint any other Committee or Committees which shall have such powers as shall
be specified in the resolution of appointment and may be delegated by law.
Section 7. COMPENSATION. The members of any duly appointed Committee shall
receive such compensation as from time to time may be fixed by the Board of
Directors and reimbursement of expenses.
Section 8. INFORMAL ACTION BY EXECUTIVE COMMITTEE OR OTHER COMMITTEES. Any
action required or permitted to be taken at any meeting of the Executive
Committee or any other duly appointed Committee may be taken without a meeting
if written consent to such action is signed by all Members of such Committee and
such written consent is filed with the minutes of the proceedings of such
Committee.
Section 9. ADVISORY BOARD. The Directors may appoint an Advisory Board to
consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Directors or Officers and need not be
Shareholders. Members of this Board shall hold office for such period as the
Directors may by resolution provide. Any Member of such Board may resign
therefrom by written instrument signed by him which shall take effect upon
delivery to the Directors. The Advisory Board shall have no legal powers and
shall not perform functions of Directors in any manner, said Board being
intended to act merely in an advisory capacity. Such Advisory Board shall meet
at such times and upon such notice as the Board of Directors may by resolution
provide. The compensation of the Members of the Advisory Board, if any, shall be
determined by the Board of Directors.
-1-
ARTICLE IV
OFFICERS
Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be a
Chairman, a President, one or more Vice Presidents, a Treasurer, and a
Secretary. The Board of Directors may elect or appoint other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. The same person may hold any
two offices except those of President and Vice President.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers shall
be elected annually by the Board of Directors at its Annual Meeting. Each
Officer shall hold office for one year and until the election and qualification
of his successor. Any vacancy in any of the offices may be filled for the
unexpired portion of the term by the Board of Directors at any Regular or
Special Meeting of the Board. The Board of Directors may elect or appoint
additional Officers or agents at any Regular or Special Meeting of the Board.
Section 3. REMOVAL. Any Officer elected by the Board of Directors may be
removed with or without cause at any time by the Board of Directors. Any other
employee of the Corporation may be removed or dismissed at any time by the
President.
Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any Office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws for
regular election or appointment to such Office.
Section 6. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors, if there be a Chairman, shall preside at the meetings of Shareholders
and of the Board of Directors. He shall receive such information and reports as
he may request from the Officers of the Corporation. He shall counsel and advise
the President on matters of major importance.
Section 7. PRESIDENT. The Chairman for Liberty Equity Income Fund, Inc.
shall be the chief executive officer of the Corporation. He shall, unless other
provisions are made therefor by the Board or Executive Committee, employ and
define the duties of all employees of the Corporation, shall have the power to
discharge any such employees, shall exercise general supervision over the
affairs of the Corporation and shall perform such other duties as may be
assigned to him from time to time by the Board of Directors. In the absence of
the Chairman of the Board of Directors, the President or an officer or Director
appointed by the President, shall preside at all meetings of Shareholders.
<PAGE>
[bylaws]leif-new93
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Section 8. VICE PRESIDENT. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform all duties
and may exercise any of the powers of the President subject to the control of
the Board. Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Board of Directors, the Executive
Committee, or the President.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept in books
provided for the purpose the Minutes of the Meetings of the Shareholders, and of
the Board of Directors; shall see that all Notices are duly given in accordance
with the provisions of these By-Laws and as required by Law; shall be custodian
of the records and of the Seal of the Corporation and see that the Seal is
affixed to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized; shall keep directly or through a transfer
agent a register of the post office address of each Shareholder, and make all
proper changes in such register, retaining and filing his authority for such
entries; shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed; and in
general shall perform all duties incident to the Office of Secretary and such
other duties as may, from time to time, be assigned to him by the Board of
Directors, the Executive Committee, or the President.
Section 10. TREASURER. The Treasurer shall have supervision of the custody
of all funds and securities of the Corporation, subject to applicable law. He
shall perform such other duties as may be from time to time assigned to him by
the Board of Directors, the Executive Committee, or the President.
Section 11. ASSISTANT VICE PRESIDENT. The Assistant Vice President or Vice
Presidents of the Corporation shall have such authority and perform such duties
as may be assigned to them by the Board of Directors, the Executive Committee,
or the President of the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform
the duties of the Secretary and of the Treasurer respectively, in the absence of
those Officers and shall have such further powers and perform such other duties
as may be assigned to them respectively by the Board of Directors or the
Executive Committee or by the President.
Section 13. SALARIES. The salaries of the Officers shall be fixed from time
to time by the Board of Directors. No Officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES. All share certificates shall be signed by the
Chairman, the President, or any Vice President and by the Treasurer or Secretary
or any Assistant Treasurer or Assistant Secretary and may be sealed with the
seal of the Corporation. The signatures may be either
<PAGE>
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manual or facsimile signatures and the seal may be either facsimile or any other
form of Seal. Certificates for shares for which the Corporation has appointed an
independent Transfer Agent and Registrar shall not be valid unless countersigned
by such Transfer Agent and registered by such Registrar. In case any Officer who
has signed any certificate ceases to be an Officer of the Corporation before the
certificate is issued, the certificate may nevertheless be issued by the
Corporation with the same effect as if the Officer had not ceased to be such
Officer as of the date of its issuance. Share certificates shall be in such form
not inconsistent with law and these By-Laws as may be determined by the Board of
Directors.
Section 2. TRANSFER OF SHARES. Shares of each Series and Class shall be
transferable on the books of the Corporation by the holder thereof in person or
by duly authorized attorney upon surrender of the certificate representing the
shares to be transferred properly endorsed.
Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Board of
Directors may fix in advance a date as the record date for the purpose of
determining Shareholders of a Series or Class entitled to notice of or to vote
at any Meeting of Shareholders or Shareholders to receive payment of any
dividend. Such date shall in any case not be more than 90 days and in case of a
Meeting of Shareholders not less than l0 days prior to the date on which the
particular action requiring such determination of Shareholders is to be taken.
Only Shareholders of record on the record date shall be entitled to notice of
and to vote at such meeting or to receive such dividends or rights, as the case
may be. In lieu of fixing a record date the Board of Directors may provide that
the share transfer books of the Corporation shall be closed for a stated period
not to exceed in any case 20 days. If the share transfer books are closed for
the purpose of determining Shareholders entitled to notice of or to vote at a
Meeting of Shareholders such books shall be closed for at least l0 days
immediately preceding such meeting.
Section 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case any Share
certificate is lost, mutilated or destroyed the Board of Directors may issue a
new certificate in place thereof upon indemnity to the relevant Series or Class
against loss and upon such other terms and conditions as the Board may deem
advisable.
Section 5. TRANSFER AGENT AND REGISTRAR: REGULATIONS. The Board of
Directors shall have power and authority to make all such rules and regulations
as they may deem expedient concerning the issuance, transfer and registration of
Share certificates and may appoint a Transfer Agent and/or Registrar of Share
certificates of each Series or Class, and may require all such Share
certificates to bear the signature of such Transfer Agent and/or of such
Registrar.
ARTICLE VI
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. AGREEMENTS, ETC. The Board of Directors or the Executive
Committee may authorize any Officer or Officers, or Agent or Agents of the
Corporation to enter into any Agreement or execute and deliver any
<PAGE>
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instrument in the name of the Corporation and such authority may be general or
confined to specific instances; and, unless so authorized by the Board of
Directors or by the Executive Committee or by these By-Laws, no Officer, Agent
or Employee shall have any power or authority to bind the Corporation by any
Agreement or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be signed by
such Officer or Officers, Employee or Employees, or Agent or Agents as shall be
from time to time designated by the Board of Directors or the Executive
Committee, or as may be specified in or pursuant to the agreement between the
Corporation on behalf of any Series or Class and the Bank or Trust Company
appointed as custodian.
Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee or directions
for the transfer of securities belonging to the Corporation shall be made by
such Officer or Officers, Employee or Employees, or Agent or Agents as may be
authorized by the Board of Directors or the Executive Committee.
ARTICLE VII
BOOKS AND RECORDS
Section 1. LOCATION. The books and records of the Corporation, including
the Stock ledger or ledgers, may be kept in or outside the State of Maryland at
such office or agency of the Corporation as may be from time to time determined
by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
Section 1. SEAL. The Seal of the Corporation shall consist of a flat-faced
die with the word "Maryland," together with the name of the Corporation and the
year of its organization cut or engraved thereon, but unless otherwise required
by the Directors, the Seal shall not be necessary to be placed on, and its
absence shall not impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Corporation.
Section 2. FISCAL YEAR. The Fiscal Year of the Corporation shall be
designated from time to time by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who while serving as directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. The indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director of officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. This Article shall not protect any such person against any liability to
the Corporation or any Shareholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. ADVANCES. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance, or (c) a majority of a
quorum of directors of the Corporation who are neither 'interested persons' as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall be determined, based on a
review of facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 3. PROCEDURE. At the request of any person claiming indemnification
under this Article, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland General Corporation Law,
whether the standards required by this Article have been met. Indemnification
shall be made only following: (a) a final decision on the merits by a court or
other body before whom the proceeding was brought
<PAGE>
that the person to be indemnified was not liable by reason of disabling conduct
or (b) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by (i) the vote of a majority of a quorum of
disinterested non-party directors or (ii) an independent legal counsel in a
written opinion.
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents
who are not officers or directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. OTHER RIGHTS. The Board of Directors may make further provisions
consistent with law for indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article IX shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of Shareholders or disinterested directors or otherwise.
Section 6. AMENDMENTS. References in this Article are to the Maryland
General Corporation Law and to the Investment Company Act of 1940, as from time
to time amended. No amendment of these By-Laws shall affect any right of any
person under this Article based on any event, omission or proceeding prior to
the amendment.
ARTICLE X
AMENDMENTS
Section 1. The Board of Directors shall have the power to alter, amend or
repeal any By-Laws of the Corporation and to make new By-Laws.
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios and Classes of Shares
listed on Schedule A to Exhibit 1, as may be amended from time to time,
having their principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation. Each of the Exhibits hereto is incorporated herein in its
entirety and made a part hereof. In the event of any inconsistency between
the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. Each of the Investment Companies hereby appoint FSC as agent to sell and
distribute shares of the Investment Companies which may be offered in
one or more series (the "Funds") consisting of one or more classes (the
"Classes") of shares (the "Shares"), as described and set forth on one
or more exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current Prospectuses of the
Funds. FSC hereby accepts such appointment and agrees to provide such
other services for the Investment Companies, if any, and accept such
compensation from the Investment Companies, if any, as set forth in the
applicable exhibits to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the applicable Investment Company it is in its best
interest to do so.
3. Neither FSC nor any other person is authorized by the Investment
Companies to give any information or to make any representation
relative to any Shares other than those contained in the Registration
Statement, Prospectuses, or Statements of Additional Information
("SAIs") filed with the Securities and Exchange Commission, as the
same may be amended from time to time, or in any supplemental
information to said Prospectuses or SAIs approved by the Investment
Companies. FSC agrees that any other information or representations
other than those specified above which it or any dealer or other
person who purchases Shares through FSC may make in connection with
the offer or sale of Shares, shall be made entirely without liability
on the part of the Investment Companies. No person or dealer, other
than FSC, is authorized to act as agent for the Investment Companies
for any purpose. FSC agrees that in offering or selling Shares as
agent of the Investment Companies, it will, in all respects, duly
conform to all applicable state and federal laws and the rules and
regulations of the National Association of Securities Dealers, Inc.,
including its Rules of Fair Practice. FSC will submit to the
Investment Companies copies of all sales literature before using the
same and will not use such sales literature if disapproved by the
Investment Companies.
4. This Agreement is effective with respect to each Class as of the date
of execution of the applicable exhibit and shall continue in effect
with respect to each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the initial
term of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Trustees/Directors of the Investment
Companies including a majority of the members of the Board of
Trustees/Directors of the Investment Companies who are not interested
persons of the Investment Companies and have no direct or indirect
financial interest in the operation of any Distribution Plan relating
to the Investment Companies or in any related documents to such Plan
("Disinterested Trustees/Directors") cast in person at a meeting
called for that purpose. If a Class is added after the first annual
approval by the Trustees/Directors as described above, this Agreement
will be effective as to that Class upon execution of the applicable
exhibit and will continue in effect until the next annual approval of
this Agreement by the Trustees/Directors and thereafter for successive
periods of one year, subject to approval as described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees/Directors or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the
Investment Company Act of 1940, as amended, provided, however, that FSC
may employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Investment Companies for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by
the Trustees/Directors of the Investment Companies including a majority
of the Disinterested Trustees/Directors of the Investment Companies cast
in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Investment
Companies agree to indemnify and hold harmless FSC and each person, if
any, who controls FSC within the meaning of Section 15 of the
Securities Act of 1933 and Section 20 of the Securities Act of 1934,
as amended, against any and all loss, liability, claim, damage and
expense whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectuses or SAIs (as from time to time
amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with
written information furnished to the Investment Companies about FSC by
or on behalf of FSC expressly for use in the Registration Statement,
any Prospectuses and SAIs or any amendment or supplement thereof.
If any action is brought against FSC or any controlling person thereof
with respect to which indemnity may be sought against any Investment
Company pursuant to the foregoing paragraph, FSC shall promptly notify
the Investment Company in writing of the institution of such action
and the Investment Company shall assume the defense of such action,
including the employment of counsel selected by the Investment Company
and payment of expenses. FSC or any such controlling person thereof
shall have the right to employ separate counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of FSC
or such controlling person unless the employment of such counsel shall
have been authorized in writing by the Investment Company in
connection with the defense of such action or the Investment Company
shall not have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be borne
by the Investment Company. Anything in this paragraph to the contrary
notwithstanding, the Investment Companies shall not be liable for any
settlement of any such claim of action effected without their written
consent. The Investment Companies agree promptly to notify FSC of the
commencement of any litigation or proceedings against the Investment
Companies or any of their officers or Trustees/Directors or
controlling persons in connection with the issue and sale of Shares or
in connection with the Registration Statement, Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the Investment Companies,
each of its Trustees/Directors, each of its officers who have signed
the Registration Statement and each other person, if any, who controls
the Investment Companies within the meaning of Section 15 of the
Securities Act of 1933, but only with respect to statements or
omissions, if any, made in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof in reliance
upon, and in conformity with, information furnished to the Investment
Companies about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof. In case any action shall be brought against any
Investment Company or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the
Investment Companies, and the Investment Companies and each other
person so indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person against
liability to the Investment Companies or their shareholders to which
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
duties of such person or by reason of the reckless disregard by such
person of the obligations and duties of such person under this
Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940, as amended, for
Trustees/Directors, officers, FSC and controlling persons of the
Investment Companies by the Trustees/Directors pursuant to this
Agreement, the Investment Companies are aware of the position of the
Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, the Investment Companies
undertakes that in addition to complying with the applicable
provisions of this Agreement, in the absence of a final decision on
the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in
the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of
non-party Disinterested Trustees/Directors, or (ii) by independent
legal counsel in a written opinion that the indemnitee was not liable
for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties. The Investment Companies further
undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Trustees/Directors, FSC or controlling person of the Investment
Companies will not be made absent the fulfillment of at least one of
the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Investment Companies is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a
quorum of non-party Disinterested Trustees/Directors or independent
legal counsel in a written opinion makes a factual determination that
there is reason to believe the indemnitee will be entitled to
indemnification.
11.FSC is hereby expressly put on notice of the limitation of liability as
set forth in the Declaration of Trust and agrees that the obligations assumed by
the Trust pursuant to this Agreement shall be limited "
11. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.
12. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
<PAGE>
Exhibit 1
to the
Distributor's Contract
The following provisions are hereby incorporated and made part of the
Distributor's Contract (the "Distributor's Contract") dated October 24, 1997,
between the Investment Companies and Federated Securities Corp. as principal
distributor (the "Principal Distributor") with respect to the Class B Shares of
the portfolios (the "Funds") set forth on the attached Schedule A. References
herein to this Distributor's Contract refer to the Distributor's Contract as
supplemented hereby and made applicable hereby to the Class B Shares of the
Funds. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Distributor's Contract, the terms of this Exhibit will govern.
Once effective in respect of the Class of Shares of any Fund set forth above,
the Distributors Contract as amended by this Exhibit shall be effective in
respect of all shares of such class outstanding whether issued prior to or after
such effectiveness.
1. The Investment Companies hereby appoints the Principal Distributor to
engage in activities principally intended to result in the sale of Class B
Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Distributor is authorized to select a group of financial
institutions ("Financial Institutions") to sell Class B Shares of a Fund
at the current offering price thereof as described and set forth in the
respective prospectuses of the Fund.
2. (a) In consideration of the Principal Distributor's services under this
Distributor's Contract in respect of each Fund the Investment Companies
on behalf of the Fund agree: (I) to pay the Principal Distributor or at
its direction its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") equal to 0.75 of 1% per annum of the average
daily net asset value of the Class B Shares of the Fund outstanding
from time to time, and (II) to withhold from redemption proceeds in
respect of Class B Shares of the Fund such Principal Distributor's
Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs")
payable in respect of such redemption as provided in the Prospectus for
the Fund and to pay the same over to such Principal Distributor or at
its direction at the time the redemption proceeds in respect of such
redemption are payable to the holder of the Class B Shares redeemed.
(b)The Principal Distributor will be deemed to have performed all
services required to be performed in order to be entitled to receive
its Allocable Portion of the Distribution Fee payable in respect of the
Class B Shares of a Fund upon the settlement of each sale of a
"Commission Share" (as defined in the Allocation Schedule attached
hereto as Schedule B) of the Fund taken into account in determining
such Principal Distributor's Allocable Portion of such Distribution
Fees.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract or (to the extent waiver thereof is
permitted thereby) applicable law, the Investment Companies' obligation
to pay the Principal Distributor's Allocable Portion of the
Distribution Fees payable in respect of the Class B Shares of a Fund
shall not be terminated or modified for any reason (including a
termination of this Distributor's Contract as it relates to Class B
Shares of a Fund) except to the extent required by a change in the
Investment Company Act of 1940 (the "Act") or the Conduct Rules of the
National Association of Securities Dealers, Inc., in either case
enacted or promulgated after May 1, 1997, or in connection with a
"Complete Termination" (as hereinafter defined) of the Distribution
Plan in respect of the Class B Shares of a Fund.
(d)The Investment Companies will not take any action to waive or change
any CDSC in respect of the Class B Shares of a Fund, except as provided
in the Investment Companies' prospectus or statement of additional
information as in effect as of the date hereof without the consent of
the Principal Distributor and the permitted assigns of all or any
portion of its right to its Allocable Portion of the CDSCs.
(e)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract, or (to the extent waiver thereof is
permitted thereby) applicable law, neither the termination of the
Principal Distributor's role as principal distributor of the Class B
Shares of a Fund, nor the termination of this Distributor's Contract
nor the termination of the Distribution Plan will terminate such
Principal Distributor's right to its Allocable Portion of the CDSCs in
respect of the Class B Shares of a Fund.
(f)Notwithstanding anything to the contrary in this Exhibit, the
Distributor's Contract, or (to the extent waiver thereof is permitted
thereby) applicable law, the Principal Distributor may assign, sell or
pledge (collectively, a "Transfer") its rights to its Allocable Portion
of the Distribution Fees and CDSCs earned by it (but not its
obligations to the Investment Companies under this Distributor's
Contract) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the distribution of Class B Shares of
the Fund and in connection therewith upon receipt of notice of such
Transfer, the Investment Companies shall pay, or cause to be paid to
the assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Principal Distributor's
Allocable Portion of the Distribution Fees and CDSCs in respect of the
Class B Shares of the Fund so Transferred. Except as provided in (c)
above and notwithstanding anything to the contrary set forth elsewhere
in this Exhibit, the Distributor's Contract, or (to the extent waiver
thereof is permitted thereby) applicable law, to the extent the
Principal Distributor has Transferred its rights thereto to raise funds
as aforesaid, the Investment Companies' obligation to pay to the
Principal Distributor's Transferees the Principal Distributor's
Allocable Portion of the Distribution Fees payable in respect of the
Class B Shares of each Fund shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense
whatsoever, including without limitation, any of the foregoing based on
the insolvency or bankruptcy of the Principal Distributor (it being
understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such
claims against the assets of such Principal Distributor other than the
Distributor's right to the Distribution Fees, CDSCs and servicing fees,
in respect of the Class B Shares of any Fund which have been so
transferred in connection with such Transfer). The Fund agrees that
each such Transferee is a third party beneficiary of the provisions of
this clause (f) but only insofar as those provisions relate to
Distribution Fees and CDSCs transferred to such Transferee.
(g)For purposes of this Distributor's Contract, the term Allocable
Portion of Distribution Fees payable in respect of the Class B Shares
of any Fund shall mean the portion of such Distribution Fees allocated
to such Principal Distributor in accordance with the Allocation
Schedule attached hereto as Schedule B.
(h)For purposes of this Distributor's Contract, the term "Complete
Termination" of the Plan in respect of any Fund means a termination of
the Plan involving the complete cessation of the payment of
Distribution Fees in respect of all Class B Shares of such Fund, and
the termination of the distribution plans and the complete cessation of
the payment of distribution fees pursuant to every other Distribution
Plan pursuant to rule 12b-1 of the Investment Companies in respect of
such Fund and any successor Fund or any Fund acquiring a substantial
portion of the assets of such Fund and for every future class of shares
which has substantially similar characteristics to the Class B Shares
of such Fund including the manner of payment and amount of sales
charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
3. The Principal Distributor may enter into separate written agreements with
various firms to provide certain of the services set forth in Paragraph 1
herein. The Principal Distributor, in its sole discretion, may pay
Financial Institutions a lump sum fee on the settlement date for the sale
of each Class B Share of the Fund to their clients or customers for
distribution of such share. The schedules of fees to be paid such firms or
Financial Institutions and the basis upon which such fees will be paid
shall be determined from time to time by the Principal Distributor in its
sole discretion.
4. The Principal Distributor will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Financial
Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract between the Investment Companies and the Principal Distributor, the
Principal Distributor and the Investment Companies hereby execute and deliver
this Exhibit with respect to the Class B Shares of the Fund.
<PAGE>
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary` Title: Executive Vice President
ATTEST: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTOR'S CONTRACT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of MARCH 1, 1998:
Federated Stock Trust
Class B Shares
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
DOMESTIC CUSTODY
FEE SCHEDULE
FEDERATED FUNDS
I. Custody Services
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.
ANNUAL FEES
ASSET
Per Fund .25 Basis Points
Wire Fees $3.00 per wire
Settlements:
o Each DTC Transaction $5.00
o Each Federal Reserve Book Entry Transaction $3.75
o Each Repo Transaction (All Repo) $3.75
o Each Physical Transaction (NY/Boston, Private Placement) $15.00
o Each Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
o Government Paydowns $5.00
o Maturity Collections $8.00
o PTC Transactions $6.00
II. Special Services
Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
III. Balance Credit
Municipal Funds
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.
Transfer Agent
A balance credit equal to 100% of the average balance in the transfer
agent demand deposit accounts, less the reserve requirement and applicable
related expenses, times 75% of the 30 average Fed Funds Rate.
IV. Payment
The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds' offices.
V. Term of Contract
The parties agree that this fee schedule shall become effective January 1,
1997.
FEDERATED SERVICES COMPANY STATE STREET
BY: /s/ Douglas L. Hein BY: /s/ Michael E. Hagerty
TITLE: Senior Vice President TITLE: Vice President
DATE: April 15, 1997 DATE: April 8, 1997
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as it may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
and Federated Securities Corp.("FSC"), a Pennsylvania Corporation, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS"). Each of the Exhibits hereto
is incorporated herein in its entirety and made a part hereof. In the event of
any inconsistency between the terms of this Agreement and the terms of any
applicable Exhibit, the terms of the applicable Exhibit shall govern.
1. FSC as Principal Servicer (Principal Servicer") hereby contracts with FSS
to render or cause to be rendered personal services to shareholders and/or
the maintenance of accounts of shareholders of each Class of the Funds to
which this Agreement is made applicable by an Exhibit hereto ("Services").
In addition to providing Services directly to shareholders of the Funds,
FSS is hereby appointed the Investment Companies' agent to select,
negotiate and subcontract for the performance of Services. FSS hereby
accepts such appointment. FSS agrees to provide or cause to be provided
Services which, in its best judgment (subject to supervision and control of
the Investment Companies' Boards of Trustees or Directors, as applicable),
are necessary or desirable for shareholders of the Funds. FSS further
agrees to provide the Investment Companies, upon request, a written
description of the Services which FSS is providing hereunder. The
Investment Companies, on behalf of the Funds and each Class subject hereto
consents to the appointment of FSS to act in its capacity as described
herein and agrees to look solely to FSS for performance of the Services.
2. The term of the undertaking of FSS to render services hereunder in respect
of any Class of any Fund and the manner and amount of compensation to be
paid in respect thereof shall be specified in respect of each Class of the
Funds to which this Agreement is made applicable by an Exhibit hereto. FSS
agrees to look solely to the Principal Servicer for its compensation
hereunder.
3. This Agreement shall become effective in respect of any Class of Shares of
a Fund upon execution of an Exhibit relating to such Class of the Fund.
Once effective in respect of any Class of shares, this Agreement shall
continue in effect for one year from the date of its execution, and
thereafter for successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each Investment
Company, including a majority of the members of the Board of the
Investment Company who are not interested persons of the Investment
Company ("Independent Board Members") cast in person at a meeting called
for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) By any Investment Company as to any Fund at any time, without the
payment of any penalty, by the vote of a majority of the Independent
Board Members of any Investment Company or by a vote of a majority of
the outstanding voting securities of any Fund as defined in the
Investment Company Act of 1940 on sixty (60) days' written notice to
the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Investment Company or
its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Investment Company in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. FSS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for such Investment Company) on
all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FSS, who may be or become a
member of such Investment Company's Board, officer, employee or agent of
any Investment Company, shall be deemed, when rendering services to such
Investment Company or acting on any business of such Investment Company
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such
Investment Company and not as an officer, trustee, partner, employee or
agent or one under the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Investment Company that is a
Massachusetts business trust and agrees that the obligations assumed by
each such Investment Company pursuant to this Agreement shall be limited
in any case to such Investment Company and its assets and that FSS shall
not seek satisfaction of any such obligations from the shareholders of
such Investment Company, the Trustees, Officers, Employees or Agents of
such Investment Company, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
<PAGE>
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the parties hereto. Nothing in this Section 13 shall
prevent FSS from delegating its responsibilities to another entity to the
extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
Federated Shareholder Services
Attest:/s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Federated Securities Corp.
Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
EXHIBIT 1
TO SHAREHOLDER SERVICES AGREEMENT
FOR CLASS B SHARES OF
THE INVESTMENT COMPANIES
1. The Shareholder Services Agreement for Shares of the Investment
Companies on behalf of the portfolios (individually referred to as a "Fund" and
collectively as "Funds") and the classes of shares ("Classes") listed on the
attached Schedule A dated October 24, 1997 among Federated Securities Corp.
("Principal Servicer"), Federated Shareholder Services ("Class Servicer") and
the Investment Companies is hereby made applicable on the terms set forth herein
to the Class B Shares of the above-referenced Funds. In the event of any
inconsistency between the terms of this Exhibit and the Shareholder Services
Agreement, the terms of this Exhibit shall govern.
2. In connection with the Services to be rendered to holders of Class B
Shares of each Fund, the Principal Servicer and Class Servicer agree that the
Principal Servicer shall retain and compensate the Class Servicer for its
Services in respect of the Class B Shares of the Fund on one of the following
alternative basis as the Principal Servicer shall elect:
ALTERNATIVE A3: The Principal Servicer shall pay the Class Servicer
a dollar amount as set forth on Schedule A per Class B Commission Share
(as defined in the Principal Shareholder Servicer's Agreement) of the
Fund. Class Servicer agrees that upon receipt of such payment (which shall
be deemed to be full and adequate consideration for an irrevocable service
commitment (the "Irrevocable Service Commitment") of Class Servicer
hereunder), Class Servicer shall be unconditionally bound and obligated to
either: (1) provide the Services in respect of such Commission Share and
all other Shares derived therefrom via reinvestment of dividends, free
exchanges or otherwise for so long as the same is outstanding or (2) in
the event the Class Servicer for the Class B Shares is terminated by the
Investment Company, to arrange for a replacement Class Servicer
satisfactory to the Investment Company to perform such services, at no
additional cost to the Fund.
ALTERNATIVE B4: If Alternative A is not elected, the Principal
Servicer shall pay the Class Servicer twenty five basis points (0.25%) per
annum on the average daily net asset value of each Class B Share of the
Fund monthly in arrears. The Class Servicer agrees that such payment is
full and adequate consideration for the Services to be rendered by it to
the holder of such Class B Share.
3. In the event pursuant to paragraph 2 above, Alternative A has been
elected and the Class Servicer is terminated as Class Servicer for the Class B
Shares of the Fund, the Class Servicer agrees to pay to any successor Class
Servicer for the Class B Shares of the Fund any portion of the excess, if any,
of (A) the Servicing Fees received by it hereunder in respect of Class B Shares
of the Fund plus interest thereon at the percent as set forth on Schedule A per
annum minus (B) the costs it incurred hereunder in respect of the Class B Shares
of the Fund prior to such termination.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
Attest: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Attest: FEDERATED SHAREHOLDER SERVICES
By:/s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
Attest: INVESTMENT COMPANIES
(listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
<PAGE>
Schedule A
Date: 10/24/97 SHAREHOLDER SERVICES AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of MARCH 1, 1998:
Federated Stock Trust
Class B Shares
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained it is hereby
agreed by and between the parties hereto as follows.
1. The Investment Companies hereby appoint the Principal Servicer as their
agent to select, negotiate and contract for the performance of and arrange
for the rendition of personal services to shareholders and/or the
maintenance of accounts of shareholders of each Class of the Funds as to
which this Agreement is made applicable (The Principal Servicer's duties
hereunder are referred to as "Services"). The Principal Servicer hereby
accepts such appointment and agrees to perform or cause to be performed the
Services in respect of the Classes of the Funds to which this Agreement has
been made applicable by an Exhibit. The Principal Servicer agrees to cause
to be provided shareholder services which, in its best judgment (subject to
supervision and control of the Investment Companies' Boards of Trustees or
Directors, as applicable), are necessary or desirable for shareholders of
the Funds. The Principal Servicer further agrees to provide the Investment
Companies, upon request, a written description of the shareholder services
for which the Principal Servicer is arranging hereunder.
2. During the term of this Agreement, each Investment Company will pay the
Principal Servicer and the Principal Servicer agrees to accept as full
compensation for its services rendered hereunder a fee as set forth on the
Exhibit applicable to the Class of each Fund subject to this Agreement.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Class of a Fund, there shall be an
appropriate proration of the monthly fee on the basis of the number of
days that this Agreement is in effect with respect to such Class of the
Fund during the month.
3. This Agreement is effective with respect to each Class of a Fund as of the
date of execution of the applicable Exhibit and shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year only if the form of this Agreement is approved at
least annually by the Board of each Investment Company, including a
majority of the members of the Board of the Investment Company who are not
interested persons of the Investment Company ("Independent Board Members")
cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated with regard to
a particular Class of a Fund as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Investment Company
or by a vote of a majority of the outstanding voting securities of
any Fund as defined in the Investment Company Act of 1940 on sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. The Principal Servicer agrees to arrange to obtain any taxpayer
identification number certification from each shareholder of the Funds to
which it provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to
provide each Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.
6. The Principal Servicer shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any Investment Company in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. the Principal Servicer
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, trustee, partner, employee
or agent of the Principal Servicer, who may be or become a member of such
Investment Company's Board, officer, employee or agent of any Fund, shall
be deemed, when rendering services to such Fund or acting on any business
of such Fund (other than services or business in connection with the duties
of the Principal Servicer hereunder) to be rendering such services to or
acting solely for such Fund and not as an officer, trustee, partner,
employee or agent or one under the control or direction of the Principal
Servicer even though paid by the Principal Servicer.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. The Principal Servicer is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Investment
Company that is a Massachusetts business trust and agrees that the
obligations assumed by each such Investment Company pursuant to this
Agreement shall be limited in any case to such Investment Company and its
assets and that the Principal Servicer shall not seek satisfaction of any
such obligations from the shareholders of such Investment Company, the
Trustees, Officers, Employees or Agents of such Investment Company, or any
of them.
9. The execution and delivery of this Agreement have been authorized by the
Directors of the Principal Servicer and signed by an authorized officer of
the Principal Servicer, acting as such, and neither such authorization by
such Directors nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this Agreement
are not binding upon any of the Directors or shareholders of the Principal
Servicer, but bind only the property of the Principal Servicer as provided
in the Articles of Incorporation of the Principal Servicer.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to the
Principal Servicer at Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the Principal Servicer in the case of assignment by any
Investment Company, or of the Investment Companies in the case of
assignment by the Principal Servicer, except that any party may assign to
a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 13 shall prevent the Principal Servicer from
delegating its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
Federated Securities Corp.
Attest: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Exhibit 1
to the
Principal Shareholder Servicer's Agreement
Related to Class B Shares of
the Funds
The following provisions are hereby incorporated and made part of the
Principal Shareholder Servicer's Agreement (the "Principal Shareholder
Servicer's Agreement") as of the 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Exhibit and the terms of the Principal Shareholder
Servicer's Agreement, the terms of this Exhibit shall govern.
1. Each Investment Company hereby appoints the Principal Servicer to arrange
for the rendition of the shareholder services in respect of Class B Shares
("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Servicer is authorized to select various companies including but
not limited to Federated Shareholder Services ("Companies or a Company ")
to provide such services.
2. (a) In consideration of the Principal Servicer's Services under this
Agreement in respect of the Class B Shares each Fund agrees to pay the
Principal Servicer or at its direction its "Allocable Portion" (as
hereinafter defined) of a fee (the "Servicing Fee") equal to 0.25 of 1%
per annum of the average daily net asset value of the Class B Shares of
the Fund outstanding from time to time, provided however, that in the
event the Fund operates as a fund of funds (a "FOF Fund") by investing
the proceeds of the issuance of its Class B Shares in Class A Shares of
another fund (the "Other Fund") and the Principal Shareholder Servicer
receives a servicing fee in respect of the Class A Shares of the Other
Fund so acquired by the FOF Fund, the Servicing Fee payable in respect
of such Class B Shares of the FOF Fund will be reduced by the amount of
the servicing fee actually received by the Principal Shareholder
Servicer or its assign from the Other Fund in respect of the Class A
Shares of the Other Fund acquired with the proceeds of such Class B
Shares of the FOF Fund.
(b)(i) The Principal Servicer will be deemed to have fully earned its
Allocable Portion (computed as of any date) of the Servicing Fee
payable in respect of the Class B Shares of a Fund (and to have
satisfied its obligation to arrange for shareholder services in respect
of such Class B Shares) on the date it has arranged for shareholder
services to be performed by Federated Shareholder Services by payment
of the lump sum contemplated by Alternative A to Exhibit 1 to the
Shareholder Services Agreement among the Principal Servicer, Federated
Shareholder Services and the Fund dated as of the date hereof (the
"Shareholder Services Agreement") to Federated Shareholder Services
(whose obligations are fully supported by its parent company) in
respect of each "Commission Share" (as defined in the Allocation
Schedule attached hereto in Schedule B) of the Fund, taken into account
in determining such Principal Servicer's Allocable Portion of such
Servicing Fees as of such date. The Principal Servicer shall not be
deemed to have any other duties in respect of the Shares and its
Allocable Portion of the Servicing Fees to which the preceding sentence
applies and such arrangements shall be deemed a separate and distinct
contractual arrangement from that described in clause (ii).
(ii) The Principal Servicer will be deemed to have fully earned any
Servicing Fees not included in its Allocable Portion (i.e., those
attributable to Shares in respect of which Alternative A under Exhibit
1 to the Shareholder Services Agreement is not applicable) as such
services are performed in respect of such Shares.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Principal Shareholder Agreement, or (to the extent waiver thereof
is permitted thereby) applicable law, each Investment Company's
obligation to pay the Principal Servicer's Allocable Portion of the
Servicing Fees payable in respect of the Class B Shares of a Fund shall
not be terminated or modified for any reason (including a termination
of this Principal Shareholder Servicer's Agreement as it relates to the
Fund) except to the extent required by a change in the Investment
Company Act of 1940 (the "Act") or the Conduct Rules of the National
Association of Securities Dealers, Inc., in either case enacted or
promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) in respect of the Class B Shares
of such Fund.
(d)Notwithstanding anything to the contrary in this Exhibit, the
Principal Shareholder Agreement, or (to the extent waiver thereof is
permitted thereby) applicable law, the Principal Servicer may assign,
sell or pledge (collectively, "Transfer") its rights to its Allocable
Portion of the Servicing Fees (but not its obligations to the
Investment Companies under this Principal Shareholder Servicer's
Agreement) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the Services and in connection
therewith upon receipt of notice of such Transfer, the Investment
Company shall pay to the assignee, purchaser or pledgee (collectively
with their subsequent transferees, "Transferees") such portion of the
Principal Servicer's Allocable Portion of the Servicing Fees in respect
of the Class B Shares of the Fund so Transferred. Except as provided in
(c) above and notwithstanding anything to the contrary set forth
elsewhere in this Exhibit, the Principal Shareholder Agreement, or (to
the extent waiver thereof is permitted thereby) applicable law, to the
extent the Principal Servicer has Transferred its rights thereto to
raise funds as aforesaid, the Investment Companies' obligation to pay
to the Principal Servicer's Transferees the Principal Servicer's
Allocable Portion of the Servicing Fees payable in respect of the Class
B Shares of each Fund shall be absolute and unconditional and shall not
be subject to dispute, offset, counterclaim or any defense whatsoever,
including without limitation, any of the foregoing based on the
insolvency or bankruptcy of the Principal Servicer, Federated
Shareholder Services (or its parent) or the failure of Federated
Shareholder Services (or its parent) to perform its Irrevocable Service
Commitment (it being understood that such provision is not a waiver of
the Investment Companies' right to pursue such Principal Servicer and
enforce such claims against the assets of such Principal Servicer other
than the Principal Servicer's right to the Distribution Fees, Servicing
Fees and CDSCs in respect of the Class B Shares of the Fund which have
been so transferred in connection with such Transfer). The Fund agrees
that each such Transferee is a third party beneficiary of the
provisions of this clause (d) but only insofar as those provisions
relate to Servicing Fees transferred to such Transferee.
(e)For purposes of this Principal Shareholder Servicer's Agreement, the
term Allocable Portion of Servicing Fees payable in respect of the
Class B Shares of any Fund shall mean the portion of such Servicing
Fees allocated to such Principal Servicer in accordance with the
Allocation Schedule attached hereto as Schedule B.
(f)For purposes of this Principal Shareholder Servicer's Contract, the
term "Complete Termination" of shareholder servicing arrangements in
respect of Class B Shares of a Fund means a termination of shareholder
servicing arrangements involving the complete cessation of payments of
Servicing Fees in respect of all Class B Shares, and the complete
cessation of payments of servicing fees for every existing and future
class of shares of the Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of the Fund ,which has
substantially similar characteristics to the Class B Shares taking into
account the manner and amount of sales charge, servicing fee,
contingent deferred sales charge or other similar charge borne directly
or indirectly by the holders of such shares.
3. The Principal Servicer may enter into separate written agreements with
Companies to provide the services set forth in Paragraph 1 herein. The
schedules of fees to be paid such Companies and the basis upon which such
fees will be paid shall be determined from time to time by the Principal
Servicer in its sole discretion.
4. The Principal Servicer will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Companies and
the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Principal
Shareholder Servicer's Contract, the Principal Servicer and the Investment
Companies hereby execute and deliver this Exhibit with respect to the Class B
Shares of each Fund.
<PAGE>
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /s/ S. Elliott Cohan By: /s/ John W. McGonigle
Title: Assistant Secretary Title: Executive Vice President
ATTEST: FEDERATED SECURITIES CORP.
By: /s/ Leslie K. Platt By: /s/ Byron F. Bowman
Title: Assistant Secretary Title: Vice President
<PAGE>
Schedule A
Date: 10/24/97 PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of MARCH 1, 1998:
Federated Stock Trust
Class B Shares
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF Ernst & Young LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
in Post-Effective Amendment Number 25 to the registration Statement (Form N-1A
No. 33-6901) and the related Prospectuses of Federated Equity Income Fund, Inc.
dated May 29, 1998, and to the incorporation therein of our report dated May 15,
1998, on the financial statements and financial highlights of Federated Equity
Income Fund, Inc. included in its Annual Report to Shareholders for the year
ended March 31, 1998.
By: /s/ ERNST & YOUNG
Ernst & Young
Pittsburgh, Pennsylvania
May 28, 1998
Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit 1
Amendment to the
Distribution Plan for
the Investment Companies
Class B Shares
1. This amendment to the Distribution Plan, ("Plan") is adopted by the
Board of Trustees/Directors of the Investment Companies with respect to the
Class of Shares of the portfolios ("Funds") of the Investment Companies set
forth on the attached Schedule A as to which the Plan has been adopted. This
Exhibit is hereby incorporated into the Plan in its entirety and made a part
thereof. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Plan, the terms of this Exhibit shall govern. References herein
to the Plan shall mean the Plan as amended by this Exhibit. The terms of the
Plan as amended when effective in respect of the Class of Shares set forth above
shall apply to all amounts payable to the Principal Distributor in respect of
such Class of Shares whether arising out of sales of such Class of Shares before
or after such effective date.
2. In compensation for the services provided pursuant to this Plan, the
Investment Companies on behalf of the Fund shall pay the Principal Distributor
its "Allocable Portion" (as defined in its Distributor's Contract as it relates
to the Class B Shares of the Fund) of a fee (the "Distribution Fee") computed at
the annual rate of 0.75 of 1% per annum on the average daily aggregate net asset
value of the Class B Shares of those Funds listed on Schedule A outstanding,
which fee shall be paid monthly in arrears.
3. The Distributor's Contract in respect of the Class B Shares of each
Fund set forth above shall provide that: (I) the Principal Distributor in
respect of such Distributor's Contract will be deemed to have performed all
services required to be performed in order to be entitled to receive its
Allocable Portion of the Distribution Fees payable in respect of the Class B
Shares of such Fund upon the settlement date of each sale of a "Commission
Share" (as defined below) of such Fund taken into account in determining such
Principal Distributor's Allocable Portion of such Distribution Fees; (II) the
Investment Companies' obligation to pay such Principal Distributor its Allocable
Portion of the Distribution Fees payable in respect of the Class B Shares of
such Fund shall not be terminated or modified for any reason (including a
termination of the Distributor's Contract between such Principal Distributor and
such Fund) except to the extent required by a change in the Act or the Conduct
Rules of the National Association of Securities Dealers, Inc., in each case
enacted or promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) of this Plan in respect of the Class B
Shares of such Fund; (III) the Investment Companies will not take any action to
waive or change any CDSC in respect of the Class B Shares of such Fund, except
as provided in the Funds' prospectus or statement of additional information
without the consent of the Principal Distributor and its assigns; (IV) neither
the termination of such Principal Distributor's role as Principal Distributor of
the Class B Shares of such Fund, nor the termination of such Distributor's
Contract nor the termination of this Plan will terminate such Principal
Distributor's right to its Allocable Portion of the CDSCs; and (V) such
Principal Distributor may assign, sell or pledge (collectively, "Transfer") its
rights to its Allocable Portion of the Distribution Fees and CDSCs (but not such
Principal Distributor's obligations to the Investment Companies under the
Distributor's Contract) to raise funds to make the expenditures related to the
distribution of Class B Shares of such Fund and in connection therewith, upon
receipt of notice of such Transfer, the Investment Companies shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees") or third party beneficiaries such portion of the Principal
Distributor's Allocable Portion of the Distribution Fees or CDSCs in respect of
the Class B Shares of such Fund so sold or pledged and except as provided in
(II) above and notwithstanding anything of the contrary set forth in this
Exhibit or the Plan or in the Distributor's Contract, to the extent the
Principal Distributor has Transferred its right thereto as aforesaid, the
Investment Companies' obligation to pay to the Principal Distributor's
Transferee such Principal Distributor's Allocable Portion of the Distribution
Fees and CDSCs payable in respect of the Class B Shares of such Fund shall be
absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever, including without limitation, any of the
foregoing based on the insolvency or bankruptcy of the Principal Distributor (it
being understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such claims
against the assets of such Principal Distributor other than its right to the
Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of
any Fund transferred in connection with such Transfer. For purposes of this
Plan, the term Allocable Portion of Distribution Fees or CDSCs payable in
respect of the Class B Shares of any Fund as applied to any Principal
Distributor shall mean the portion of such Distribution Fees or CDSCs payable in
respect of such Fund allocated to such Principal Underwriter in accordance with
the Allocation Schedule (as defined in the Distributor's Contract as it relates
to the Class B Shares of the Fund)). For purposes of this Plan, the term
"Complete Termination" of this Plan in respect of any Fund means a termination
of this Plan involving the complete cessation of the payment of Distribution
Fees in respect of all Class B Shares of such Fund, and the termination of the
distribution plans and the complete cessation of the payment of distribution
fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the
Investment Companies in respect of such Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of such Fund and for every future
class of shares which has substantially similar characteristics to the Class B
Shares of such Fund taking into account the manner of payment and amount of
sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
Witness the due execution hereof this execution date.
Investment Companies (listed on Schedule A)
By: /s/ John W. McGonigle
Title: Executive Vice President
Date: October 24,1997
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTION PLAN
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of December 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
The following Funds were added as of MARCH 1, 1998:
Federated Stock Trust
Class B Shares
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Federated Equity Income Fund,
Inc.
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 1,735,661,601
<INVESTMENTS-AT-VALUE> 2,115,542,486
<RECEIVABLES> 21,210,724
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,136,753,210
<PAYABLE-FOR-SECURITIES> 9,003,197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,298
<TOTAL-LIABILITIES> 12,822,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,710,283,232
<SHARES-COMMON-STOCK> 42,277,075
<SHARES-COMMON-PRIOR> 27,656,479
<ACCUMULATED-NII-CURRENT> 129,300
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,405,383
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,112,800
<NET-ASSETS> 809,103,152
<DIVIDEND-INCOME> 40,930,923
<INTEREST-INCOME> 11,733,752
<OTHER-INCOME> 0
<EXPENSES-NET> 23,737,353
<NET-INVESTMENT-INCOME> 28,927,322
<REALIZED-GAINS-CURRENT> 74,063,229
<APPREC-INCREASE-CURRENT> 298,409,164
<NET-CHANGE-FROM-OPS> 401,399,715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,769,552
<DISTRIBUTIONS-OF-GAINS> 29,798,530
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,665,520
<NUMBER-OF-SHARES-REDEEMED> 8,880,080
<SHARES-REINVESTED> 1,835,156
<NET-CHANGE-IN-ASSETS> 1,083,932,515
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,924,551
<OVERDISTRIB-NII-PRIOR> (819,524)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,452,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,737,353
<AVERAGE-NET-ASSETS> 1,575,400,000
<PER-SHARE-NAV-BEGIN> 15.590
<PER-SHARE-NII> 0.400
<PER-SHARE-GAIN-APPREC> 4.410
<PER-SHARE-DIVIDEND> 0.390
<PER-SHARE-DISTRIBUTIONS> 0.870
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.140
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Federated Equity Income
Fund, Inc.
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 1,735,661,601
<INVESTMENTS-AT-VALUE> 2,115,542,486
<RECEIVABLES> 21,210,724
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,136,753,210
<PAYABLE-FOR-SECURITIES> 9,003,197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,298
<TOTAL-LIABILITIES> 12,822,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,710,283,232
<SHARES-COMMON-STOCK> 53,027,041
<SHARES-COMMON-PRIOR> 26,847,803
<ACCUMULATED-NII-CURRENT> 129,300
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,405,383
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,112,800
<NET-ASSETS> 1,015,339,433
<DIVIDEND-INCOME> 40,930,923
<INTEREST-INCOME> 11,733,752
<OTHER-INCOME> 0
<EXPENSES-NET> 23,737,353
<NET-INVESTMENT-INCOME> 28,927,322
<REALIZED-GAINS-CURRENT> 74,063,229
<APPREC-INCREASE-CURRENT> 298,409,164
<NET-CHANGE-FROM-OPS> 401,399,715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,269,214
<DISTRIBUTIONS-OF-GAINS> 33,144,518
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,472,174
<NUMBER-OF-SHARES-REDEEMED> 4,569,309
<SHARES-REINVESTED> 2,276,373
<NET-CHANGE-IN-ASSETS> 1,083,932,515
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,924,551
<OVERDISTRIB-NII-PRIOR> (819,524)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,452,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,737,353
<AVERAGE-NET-ASSETS> 1,575,400,000
<PER-SHARE-NAV-BEGIN> 15.590
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> 4.420
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0.870
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.150
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Federated Equity Income Fund,
Inc.
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 1,735,661,601
<INVESTMENTS-AT-VALUE> 2,115,542,486
<RECEIVABLES> 21,210,724
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,136,753,210
<PAYABLE-FOR-SECURITIES> 9,003,197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,298
<TOTAL-LIABILITIES> 12,822,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,710,283,232
<SHARES-COMMON-STOCK> 9,082,399
<SHARES-COMMON-PRIOR> 6,514,433
<ACCUMULATED-NII-CURRENT> 129,300
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,405,383
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,112,800
<NET-ASSETS> 173,900,162
<DIVIDEND-INCOME> 40,930,923
<INTEREST-INCOME> 11,733,752
<OTHER-INCOME> 0
<EXPENSES-NET> 23,737,353
<NET-INVESTMENT-INCOME> 28,927,322
<REALIZED-GAINS-CURRENT> 74,063,229
<APPREC-INCREASE-CURRENT> 298,409,164
<NET-CHANGE-FROM-OPS> 401,399,715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,956,444
<DISTRIBUTIONS-OF-GAINS> 6,381,098
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,775,445
<NUMBER-OF-SHARES-REDEEMED> 1,629,464
<SHARES-REINVESTED> 421,985
<NET-CHANGE-IN-ASSETS> 1,083,932,515
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,924,551
<OVERDISTRIB-NII-PRIOR> (819,524)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,452,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,737,353
<AVERAGE-NET-ASSETS> 1,575,400,000
<PER-SHARE-NAV-BEGIN> 15.590
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> 4.420
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0.870
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.150
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> Federated Equity Income Fund,
Inc.
Class F Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 1,735,661,601
<INVESTMENTS-AT-VALUE> 2,115,542,486
<RECEIVABLES> 21,210,724
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,136,753,210
<PAYABLE-FOR-SECURITIES> 9,003,197
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,298
<TOTAL-LIABILITIES> 12,822,495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,710,283,232
<SHARES-COMMON-STOCK> 6,558,559
<SHARES-COMMON-PRIOR> 5,672,243
<ACCUMULATED-NII-CURRENT> 129,300
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33,405,383
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,112,800
<NET-ASSETS> 125,587,968
<DIVIDEND-INCOME> 40,930,923
<INTEREST-INCOME> 11,733,752
<OTHER-INCOME> 0
<EXPENSES-NET> 23,737,353
<NET-INVESTMENT-INCOME> 28,927,322
<REALIZED-GAINS-CURRENT> 74,063,229
<APPREC-INCREASE-CURRENT> 298,409,164
<NET-CHANGE-FROM-OPS> 401,399,715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,112,295
<DISTRIBUTIONS-OF-GAINS> 5,258,251
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,262,627
<NUMBER-OF-SHARES-REDEEMED> 751,681
<SHARES-REINVESTED> 375,370
<NET-CHANGE-IN-ASSETS> 1,083,932,515
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,924,551
<OVERDISTRIB-NII-PRIOR> (819,524)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,452,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,737,353
<AVERAGE-NET-ASSETS> 1,575,400,000
<PER-SHARE-NAV-BEGIN> 15.590
<PER-SHARE-NII> 0.360
<PER-SHARE-GAIN-APPREC> 4.420
<PER-SHARE-DIVIDEND> 0.350
<PER-SHARE-DISTRIBUTIONS> 0.870
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.150
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
