SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Federated Equity Income Fund, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
7
FEDERATED EQUITY INCOME FUND, INC.
Proxy Statement - Please Vote!
TIME IS OF THE ESSENCE. . .VOTING ONLY TAKES A FEW MINUTES AND YOUR
PARTICIPATION IS IMPORTANT! ACT NOW TO HELP THE FUND AVOID ADDITIONAL EXPENSE.
Federated Equity Income Fund, Inc., will hold a special meeting of shareholders
on November 30, 1999. It is important for you to vote on the issues described in
this Proxy Statement. We recommend that you read the Proxy Statement in its
entirety; the explanations will help you to decide on the issues.
Following is an introduction to the process and the proposals.
Why am I being asked to vote?
Mutual funds are required to obtain shareholders' votes for certain types of
changes, like those included in this Proxy Statement. You have a right to vote
on these changes.
How do I vote my shares?
You may vote by telephone at 1-800-690-6903, or through the Internet at
www.proxyvote.com. You may also vote in person at the meeting or complete and
return the enclosed Proxy Card. If you:
1. choose to help save the Fund time and postage costs by voting
through the Internet or by telephone, please don't return your
Proxy Card.
2. do not respond at all, we may contact you by telephone to request that you
cast your vote. 3. sign and return the Proxy Card without indicating a
preference, your vote will be cast "for" all the
proposals.
4. if you check more than one box for each proposal, you invalidate your vote
for that proposal.
What are the issues?
The proposals include:
o the election of Directors;
o changes to the Fund's fundamental investment policies;
o amendments to, and restatement of, the Fund's Articles of Incorporation.
Why are individuals recommended for election to the Board of Directors?
The Fund is devoted to serving the needs of its shareholders, and the Board is
responsible for managing the Fund's business affairs to meet those needs. The
Board represents the shareholders and can exercise all of the Fund's powers,
except those reserved only for shareholders.
Directors are selected on the basis of their education and professional
experience. Candidates are chosen based on their distinct interest in, and
capacity for understanding the complexities of, the operation of a mutual fund.
These individuals bring considerable experience to the impartial oversight of a
fund's operation.
The Proxy Statement includes a brief description of each nominee's history and
current position with the Fund, if applicable.
Why are the Fund's "fundamental policies" being changed or eliminated?
Every mutual fund has certain investment policies that can be changed only with
the approval of its shareholders. These are referred to as "fundamental"
investment policies.
In some cases, these policies were adopted to reflect regulatory, business, or
industry conditions that no longer exist or no longer are necessary. In other
cases, advances in the securities markets and the economy have created different
procedures and techniques that affect the Fund's operations.
By reducing the number of "fundamental policies," the Fund may be able to
minimize the costs and delays associated with frequent shareholder meetings.
Also, the investment adviser's ability to manage the Fund's assets may be
enhanced and investment opportunities increased.
The proposed amendments will:
o reclassify as operating policies those fundamental policies that are
not required to be fundamental by the Investment Company Act of 1940,
as amended ("1940 Act");
o simplify and modernize the policies that are required to be "fundamental"
by the 1940 Act; and
o eliminate fundamental policies that are no longer required by the
securities laws of individual states.
Federated Investment Management Company, the Fund's adviser, is a conservative
money manager. Its highly trained professionals are dedicated to making
investment decisions in the best interest of the Fund and its shareholders. The
Board believes that the proposed changes will be applied responsibly by the
adviser.
Why are some "fundamental policies" being reclassified as "operating policies"?
As noted above, some "fundamental policies" have been redefined as "operating
policies." Operating policies do not require shareholder approval to be changed.
This gives the Fund's Board additional flexibility to determine whether to
participate in new investment opportunities and to meet industry changes
promptly.
Who do I call if I have questions about the Proxy Statement? Call your
Investment Professional or a Federated Client Service Representative.
Federated's toll-free number is 1-800-341-7400.
After careful consideration, the Board of Directors has
unanimously approved these proposals. The Board recommends
that you read the enclosed materials
carefully and vote for all proposals.
<PAGE>
DEFINITIVE
FEDERATED EQUITY INCOME FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 30, 1999
A special meeting of the shareholders of Federated Equity
Income Fund, Inc. (the "Fund") will be held at 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7000, at 2:00 p.m. (Eastern time), on November 30, 1999 to
consider proposals:
(1) To elect four Directors.
(2) To make changes to the Fund's fundamental investment
policies:
(a) To amend the Fund's fundamental investment policy
regarding diversification;
(b) To amend the Fund's fundamental investment
policy regarding borrowing money and issuing
senior securities;
(c) To amend the Fund's fundamental investment
policy regarding investments in real estate;
(d) To amend the Fund's fundamental investment
policy regarding investments in commodities;
(e) To amend the Fund's fundamental investment
policy regarding underwriting securities;
(f) To amend the Fund's fundamental investment policy
regarding lending by the Fund;
(g) To amend the Fund's fundamental investment
policy regarding concentration of the Fund's
investments in the securities of companies in
the same industry;
(h) To amend, and to make non-fundamental, the
Fund's fundamental investment policy regarding
buying securities on margin; and
(i) To amend, and to make non-fundamental, the
Fund's fundamental investment policy regarding
pledging assets.
(3) To eliminate the Fund's fundamental investment policy
on selling securities short.
(4) To approve amendments to, and a restatement of, the
Fund's Articles of Incorporation:
(a) To require the approval of a "1940 Act" majority
of shareholders in the event of the sale or
conveyance of the assets of the Fund to another
corporation or trust, to the extent permitted
under Maryland law; and
(b) To permit the Board of Directors to liquidate
the assets of the Fund, or of a series or class,
and distribute the proceeds of such assets to
the holders of such shares representing such
interests, without seeking shareholder approval,
to the extent permitted under Maryland law.
To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed September 21, 1999 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of Directors,
John W. McGonigle
Secretary
October 12, 1999
YOU CAN HELP THE FUND AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
TABLE OF CONTENTS
About the Proxy Solicitation and the Special Meeting......................7
Election of Four Directors................................................7
About the Election of Directors...........................................8
Directors Standing for Election...........................................8
Approval of Changes to the Fund's Fundamental Investment
Policies.............................................................9
Approval of the Elimination of the Fund's Fundamental Investment
Policy on Selling Securities Short..................................16
Approval of Amendments to, and a Restatement of, the Fund's
Articles of Incorporation...........................................17
Information About the Fund...............................................19
Proxies, Quorum and Voting at the Special Meeting........................19
Share Ownership of the Directors.........................................20
Director Compensation....................................................21
Officers and Incumbent Directors of the Fund.............................22
Other Matters and Discretion of Attorneys Named in the Proxy.............26
<PAGE>
DEFINITIVE
PROXY STATEMENT
FEDERATED EQUITY INCOME FUND, INC.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
About the Proxy Solicitation and the Special Meeting
The enclosed proxy is solicited on behalf of the Board of Directors of
the Fund (the "Board" or "Directors"). The proxies will be voted at a special
meeting of shareholders of the Fund to be held on November 30, 1999, at 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (such special
meeting and any adjournment or postponement thereof are referred to as the
"Special Meeting").
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Fund. In addition to solicitations through
the mails, proxies may be solicited by officers, employees, and agents of the
Fund or, if necessary, a communications firm retained for this purpose. Such
solicitations may be by telephone, telegraph, through the Internet or otherwise.
Any telephonic solicitations will follow procedures designed to ensure accuracy
and prevent fraud, including requiring identifying shareholder information,
recording the shareholder's instructions, and confirming to the shareholder
after the fact. Shareholders who communicate proxies by telephone or by other
electronic means have the same power and authority to issue, revoke, or
otherwise change their voting instruction as shareholders submitting proxies in
written form. The Fund may reimburse custodians, nominees, and fiduciaries for
the reasonable costs incurred by them in connection with forwarding solicitation
materials to the beneficial owners of shares held of record by such persons.
The Board has reviewed the proposed changes recommended in both the
investment policies of the Fund and in the Articles of Incorporation of the
Fund, and has approved them, subject to shareholder approval. The purposes of
the Special Meeting are set forth in the accompanying Notice. The Directors know
of no business other than that mentioned in the Notice that will be presented
for consideration at the Special Meeting. Should other business properly be
brought before the Special Meeting, proxies will be voted in accordance with the
best judgment of the persons named as proxies. This Proxy Statement and the
enclosed proxy card are expected to be mailed on or about October 12, 1999, to
shareholders of record at the close of business on September 21, 1999 (the
"Record Date"). On the Record Date, the Fund had outstanding 130,672,728 of
shares of common stock.
The Fund's annual report, which includes audited financial statements
for the fiscal year ended March 31, 1999, was previously mailed to shareholders.
The Fund will promptly provide, without charge and upon request, to each person
to whom this Proxy Statement is delivered, a copy of the Fund's annual report.
Requests for an annual report may be made by writing to the Fund's principal
executive offices or by calling the Fund. The Fund's principal executive offices
are located at Federated Investors Funds, 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7000. The Fund's toll-free telephone number is
1-800-341-7400.
PROPOSAL #1: ELECTION OF FOUR DIRECTORS
The persons named as proxies intend to vote in favor of the election of
Nicholas P. Constantakis, John F. Cunningham, Charles F. Mansfield, Jr. and John
S. Walsh (collectively, the "Nominees") as Directors of the Fund. All of the
Nominees are presently serving as Directors. Please see "About the Election of
Directors" below for current information about the Nominees, and "Officers and
Incumbent Directors of the Fund" in this Proxy Statement for information about
the Directors who have previously been elected by shareholders.
Mr. Constantakis was appointed a Director on February 23, 1998 to fill a
vacancy resulting from the decision to expand the size of the Board. Messrs.
Cunningham, Mansfield and Walsh were appointed Directors on January 1, 1999,
also to fill vacancies resulting from the decision to expand the size of the
Board.
All Nominees have consented to serve if elected. If elected, the
Directors will hold office without limit in time until death, resignation,
retirement, or removal or until the next annual meeting of shareholders to elect
Directors and the election and qualification of their successors. Election of a
Director is by a plurality of the votes cast by shareholders of the Fund at the
Special Meeting. The four individuals receiving the greatest number of votes at
the Special Meeting will be deemed to be elected Directors.
If any Nominee for election as a Director named above shall by reason
of death or for any other reason become unavailable as a candidate at the
Special Meeting, votes pursuant to the enclosed proxy will be cast for a
substitute candidate by the proxies named on the proxy card, or their
substitutes, present and acting at the Special Meeting. Any such substitute
candidate for election as a Director who is an "interested person" (as such term
is defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of the Fund shall be nominated by the Executive Committee. The selection of any
substitute candidate for election as a Director who is not an "interested
person" shall be made by a majority of the Directors who are not "interested
persons" of the Fund. The Board has no reason to believe that any Nominee will
become unavailable for election as a Director.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE TO ELECT AS DIRECTORS THE NOMINEES FOR ELECTION
TO THE BOARD OF DIRECTORS OF THE FUND
About the Election of Directors
Maryland law does not require the election of the Fund's Directors each
year, and shareholders should anticipate that, prior to election of successor
Directors, incumbent Directors will hold office during the lifetime of the Fund,
except that: (a) any Director may resign; and (b) a Director may be removed at
any special meeting of the shareholders by a vote of a majority of the
outstanding voting shares of the Fund. In case a vacancy shall exist for any
reason, the remaining Directors will fill such vacancy by appointment of another
Director. The Directors will not fill any vacancy by appointment if, immediately
after filling such vacancy, less than two-thirds of the Directors then holding
office would have been elected by the shareholders. If, at any time, less than a
majority of the Directors holding office have been elected by the shareholders,
the Directors then in office will call a shareholders' meeting for the purpose
of electing Directors. Otherwise, there will normally be no meeting of
shareholders called for the purpose of electing Directors.
Directors Standing for Election
Set forth below is a listing of Directors standing for election, along
with their addresses, birth dates, present positions with the Fund, and
principal occupations during the past five years:
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birth date: September 3, 1939
Director
Director of Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC.
John F. Cunningham
353 El Brillo Way
Palm Beach, FL
Birth date: March 5, 1943
Director
Director or Trustee of some of the Funds in the Federated Fund Complex;
Chairman, President and Chief Executive Officer, Cunningham & Co., Inc.
(strategic business consulting); Trustee Associate, Boston College; Director,
Iperia Corp. (communications/software); formerly, Director, Redgate
Communications and EMC Corporation (computer storage systems). Previous
Positions: Chairman of the Board and Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First
National Bank of Boston; Director, Apollo Computer, Inc.
Charles F. Mansfield, Jr.
80 South Road
Westhampton Beach, NY
Birth date: April 10, 1945
Director
Director or Trustee of some of the Funds in the Federated Fund Complex;
Management Consultant. Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP);
Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra
University.
John S. Walsh
2007 Sherwood Drive
Valparaiso, IN
Birth date: November 28, 1957
Director
Director or Trustee of some of the Funds in the Federated Fund Complex;
President and Director, Heat Wagon, Inc. (manufacturer of construction temporary
heaters); President and Director, Manufacturers Products, Inc. (distributor of
portable construction heaters); President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy highway
contractor); formerly, Vice President, Walsh & Kelly, Inc.
APPROVAL OF CHANGES TO THE FUND'S
FUNDAMENTAL INVESTMENT POLICIES
Introduction to Proposals #2(a) to #2(i) and #3.
The 1940 Act (which was adopted to protect mutual fund shareholders)
requires investment companies such as the Fund to adopt certain specific
investment policies or restrictions that can be changed only by shareholder
vote. An investment company may also elect to designate other policies or
restrictions that may be changed only by shareholder vote. Both types of
policies and restrictions are often referred to as "fundamental policies." These
policies and restrictions limit the investment activities of the Fund's
investment adviser.
After the Fund was formed in 1986, legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions imposed by
state laws and regulations were preempted by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, the Fund is
subject to fundamental policies that are no longer required to be fundamental,
and to other policies that are no longer required at all. Accordingly, the
Directors have authorized the submission to the Fund's shareholders for their
approval, and recommend that shareholders approve, the amendment,
reclassification and/or elimination of certain of the Fund's fundamental
policies.
The proposed amendments would:
(i) simplify, modernize and standardize the fundamental policies that
are required to be stated under the 1940 Act;
(ii) reclassify as operating policies those fundamental policies
that are not required to be fundamental under the 1940 Act;
and
(iii) eliminate those fundamental policies that are no longer
required by the securities laws of the various states.
By reducing the number of policies that can be changed only by
shareholder vote, the Directors believe that the Fund would be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The Directors
also believe that the investment adviser's ability to manage the Fund's assets
in a changing investment environment will be enhanced and that investment
management opportunities will be increased by these changes. The chart that
follows briefly describes the differences between fundamental policies and
non-fundamental policies.
<TABLE>
<CAPTION>
<S> <C> <C>
Fundamental Policies Non-Fundamental Policies
-------------------------------------- ---------------------------------------
Who must approve changes in the Board of Directors and shareholders Board of
Directors policies?
How quickly can a change in the Fairly slowly, since a vote of Fairly quickly, because the change
policies be made? shareholders is required can be accomplished by action of the
Board of Directors
What is the relative cost to Costly to change because a Less costly to change because a
change a policy? shareholder vote requires holding a change can be accomplished by action
meeting of shareholders of the Board of Directors
</TABLE>
The recommended changes are specified below. Each Proposal will be
voted on separately, and the approval of each Proposal will require the approval
of a majority of the outstanding voting shares of the Fund as defined in the
1940 Act. (See "Proxies, Quorum and Voting at the Special Meeting" below.)
Description of Proposed Changes
The proposed standardized fundamental investment policies cover those
areas for which the 1940 Act requires the Fund to have a fundamental
restriction. They satisfy current regulatory requirements and are written to
provide flexibility to respond to future legal, regulatory, market or technical
changes. The proposed standardized changes will not affect the Fund's investment
objective. Although the proposed changes in fundamental policies will allow the
Fund greater flexibility to respond to future investment opportunities, the
Board of Directors of the Fund does not anticipate that the changes,
individually or in the aggregate, will result at this time in a material change
in the level of investment risk associated with investment in the Fund. Nor does
the Board of Directors anticipate that the proposed changes in fundamental
investment policies will, individually or in the aggregate, change materially
the manner in which the Fund is managed.
The following is the text and a summary description of the proposed
changes to the Fund's fundamental policies and restrictions. Any non-fundamental
policy may be modified or eliminated by the Directors at any future date without
any further approval of shareholders. Shareholders should note that certain of
the fundamental policies that are treated separately below currently are
combined within a single existing fundamental policy.
Presently, if the Fund adheres to a fundamental or non-fundamental
percentage restriction at the time of an investment or transaction, a later
increase or decrease in the percentage resulting from a change in the value of
the Fund's portfolio securities or the amount of its total assets does not
create a violation of the policy. This policy will continue to apply for any of
the proposed changes that are approved.
PROPOSAL #2: APPROVAL OF AMENDMENTS TO THE FUND'S
FUNDAMENTAL INVESTMENT POLICIES
PROPOSAL #2(a): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING DIVERSIFICATION
Under the 1940 Act, the Fund's policy relating to the diversification
of its investments must be fundamental. The 1940 Act prohibits a "diversified"
mutual fund from purchasing securities of any one issuer if, at the time of
purchase, more than 5% of the fund's total assets would be invested in
securities of that issuer or the fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
fund's total assets may be invested without regard to this limitation. The 5%
limitation does not apply to securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities or to securities issued by other
open-end investment companies.
The Fund's present policy regarding diversification states:
"The Fund will not invest more that 5% of the value of its total assets
in securities of one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or acquire more than 10%
of any class of voting securities of any issuer. For these purposes,
the Fund takes all common stock and all preferred stock on an issuer
each as a single class, regardless of priorities, series, designations,
or other differences."
In order to afford the Fund's investment adviser maximum flexibility in
managing the Fund's assets, the Directors propose to amend the Fund's
diversification policy to be consistent with the definition of a diversified
investment company under the 1940 Act. The restated policy complies with the
U.S. Securities and Exchange Commission's (the "SEC" or the "Commission")
general definition of diversification. The new policy would specifically add
securities of other investment companies to the list of issuers which are
excluded from the 5% limitation.
Upon approval of the Fund's shareholders, the fundamental investment
policy governing diversification for the Fund will be amended as follows:
"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 securities of that issuer, or the Fund would own more than 10% of
the outstanding voting securities of that issuer."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(b): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR SECURITIES
The 1940 Act requires the Fund to have a fundamental investment policy
defining its ability to borrow money or issue senior securities. In general,
limitations on borrowing are designed to protect shareholders and their
investments by restricting the Fund's ability to subject its assets to any
claims of creditors or senior security holders who would be entitled to
dividends or rights on liquidation of the Fund prior to the rights of
shareholders.
Shareholders of the Fund are being asked to approve a new standardized
fundamental policy for borrowing and the issuance of senior securities designed
to reflect all current regulatory requirements. The Fund's current policy
states:
"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 where the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings are outstanding."
Senior Securities-Generally. A "senior security" is an obligation of a mutual
fund with respect to its earnings or assets that takes precedence over the
claims of the fund's shareholders with respect to the same earnings or assets.
The 1940 Act generally prohibits a fund from issuing senior securities, in order
to limit the use of leverage. In general, an investment company uses leverage
when it borrows money to enter into securities transactions, or acquires an
asset without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types
of transactions which might otherwise be considered to create "senior
securities" or "leverage," so long as the fund meets certain collateral
requirements designed to protect shareholders. For example, some transactions
that may create senior security concerns include short sales, certain options
and futures transactions, reverse repurchase agreements and securities
transactions that obligate a fund to pay money at a future date (such as
when-issued, forward commitment or delayed delivery transactions). When engaging
in such transactions, a fund must set aside money or securities to meet the SEC
staff's collateralization requirements. This procedure effectively eliminates a
fund's ability to engage in leverage for these types of transactions.
Borrowing-Generally. Under the 1940 Act, an investment company is permitted to
borrow up to 5% of its total assets for temporary purposes. A fund may borrow
only from banks. If borrowings exceed 5%, the fund must have assets totaling at
least 300% of the borrowing when the amount of the borrowing is added to the
fund's other assets. The effect of this provision is to allow a fund to borrow
from banks in amounts up to one-third (33 1/3%) of its total assets (including
the amount borrowed). Investment companies typically borrow money to meet
redemptions in order to avoid a forced, unplanned sale of portfolio securities.
This technique allows a fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations. The costs of borrowing, however, can also reduce the fund's
total return.
The borrowing restrictions of the Fund permit borrowing only as a
temporary, extraordinary or emergency measure, and restrict the purchase of
portfolio securities while any borrowings are outstanding. The proposed
investment policy would provide greater flexibility, and would permit the Fund
to borrow money, directly or indirectly (such as through reverse repurchase
agreements, as permitted by the Fund's present policy), and issue senior
securities within the limits established under the 1940 Act or under any rule or
regulation of the Commission, or any SEC staff interpretation thereof. If the
new policy is approved by shareholders, the Fund does not presently anticipate
changing its current practices relating to borrowing money and issuing senior
securities. As a matter of operating policy, the Fund does not presently intend
to engage in leveraging.
Upon shareholder approval, the fundamental investment policy governing
borrowing money and issuing senior securities for the Fund will state:
"The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(c): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENTS IN REAL ESTATE
Under the 1940 Act, the Fund's policy concerning investments in real
estate must be fundamental. The Fund currently has a fundamental investment
policy prohibiting the purchase or sale of real estate which states:
"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." The proposed fundamental investment policy will
not permit the Fund to purchase real estate directly,
but will permit the purchase of securities whose payments of interest or
principal are secured by mortgages or other rights to real estate in the event
of default. The investment policy will also enable the Fund to invest in
companies within the real estate industry, provided such investments are
consistent with the Fund's investment objective and policies. If the new policy
is approved by shareholders, the Fund does not presently anticipate changing its
current practices relating to investing in real estate.
Upon shareholder approval, the fundamental investment policy of the
Fund governing investments in real estate will state:
"The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Fund may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(d): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENTS IN COMMODITIES
Under the 1940 Act, the Fund's policy concerning investments in
commodities must be fundamental. The Fund is currently subject to a fundamental
restriction prohibiting the purchase or sale of commodities that states:
"The Fund will not purchase or sell commodities, except that the Fund
may purchase and sell financial futures contracts and related options."
Historically, the most common types of commodities have been physical
commodities such as wheat, cotton, rice and corn. However, under federal law,
futures contracts are considered to be commodities and, therefore, financial
futures contracts, such as futures contracts related to currencies, stock
indices or interest rates are considered to be commodities. Financial futures
contracts enable an investment company to buy (or sell) the right to receive the
cash difference between the contract price for an underlying asset or index and
the future market price, if the market price is higher. If the future price is
lower, the investment company is obligated to pay (or, if the investment company
sold the contract, the investment company receives) the amount of the decrease.
Investment companies often desire to invest in financial futures contracts and
options related to such contracts for hedging or other investment reasons.
The proposed policy would provide appropriate flexibility for the Fund
to invest in financial futures contracts and related options. As proposed, the
policy is broad enough to permit investment in financial futures instruments for
either investment or hedging purposes. Using financial futures instruments can
involve substantial risks, and would be utilized only if the Fund's investment
adviser determined that such investments are advisable and such practices were
disclosed in the Fund's prospectus or statement of additional information. Gains
or losses on investments in financial futures instruments depend on the
direction of securities prices, interest rates and other economic factors, and
losses from engaging in these types of transactions are potentially unlimited.
At the present time, the Fund does not intend to engage in these activities
beyond what is disclosed in the Fund's current prospectus. As a matter of
non-fundamental operating policy, for purposes of the proposed policy,
investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
Upon shareholder approval, the standardized fundamental investment
policy governing investments in commodities for the Fund will state:
"The Fund may not purchase or sell physical commodities, provided that
the Fund may purchase securities of companies that deal in
commodities."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(e): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING UNDERWRITING SECURITIES
Under the 1940 Act, the Fund's policy relating to underwriting is
required to be fundamental. The Fund currently is subject to a fundamental
investment policy prohibiting it from acting as an underwriter of the securities
of other issuers, which states:
"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."
A person or company generally is considered an underwriter under the
federal securities laws if it participates in the public distribution of
securities of other issuers, usually by purchasing the securities from the
issuer and re-selling the securities to the public. From time to time, a mutual
fund may purchase a security for investment purposes which it later sells or
redistributes to institutional investors or others under circumstances where the
Fund could possibly be considered to be an underwriter under the technical
definition of underwriter contained in the securities laws.
Upon shareholder approval, the fundamental investment policy concerning
underwriting will state:
"The Fund may not underwrite the securities of other issuers, except
that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities
Act of 1933."
This does not constitute a substantive change in the Fund's fundamental policy.
Rather, it reflects a restatement to the standardized language now to be used by
the Federated Funds, and is submitted to shareholders for approval as a result
of the 1940 Act's requirements.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(f): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
LENDING BY THE FUND
Under the 1940 Act, the Fund's policy concerning lending must be
fundamental. The Fund currently is subject to a fundamental investment policy
limiting its ability to make loans which states:
"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."
In order to ensure that the Fund may invest in certain debt securities
or repurchase agreements, which could technically be characterized as the making
of loans, the Fund's current fundamental policy specifically permits such
investments. Securities lending is a practice that has become common in the
mutual fund industry and involves the temporary loan of portfolio securities to
parties who use the securities for the settlement of securities transactions.
The collateral delivered to the Fund in connection with such a transaction is
then invested to provide the Fund with additional income it might not otherwise
have.
Securities lending involves certain risks if the borrower fails to
return the securities. However, management believes that with appropriate
controls, such as 100% or greater collateralization of the loan and regular
monitoring of the creditworthiness of the counterparty, the ability to engage in
securities lending does not materially increase the risks to which the Fund
currently is subject. In addition, securities on loan cannot generally be sold
until the term of the loan is over.
Upon approval of the Fund's shareholders, the fundamental investment
policy governing lending assets by the Fund will state:
"The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(g): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
CONCENTRATION OF THE FUND'S INVESTMENTS IN THE SECURITIES OF COMPANIES IN THE
SAME INDUSTRY
Under the 1940 Act, the Fund's policy relating to the concentration of
its investments in securities of companies in a single industry must be
fundamental. The SEC staff considers a mutual fund to "concentrate" its
investments if 25% or more of its total assets are invested in a particular
industry (not counting U.S. government securities, bank instruments issued by
domestic banks and municipal securities).
The Fund currently is subject to a fundamental investment policy
prohibiting it from concentrating its investments in a single industry. This
policy provides:
"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."
Upon the approval by the Fund's shareholders, the fundamental
investment policy governing concentration for the Fund will provide:
"The Fund will not make investments that will result in the
concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal
securities and bank instruments will not be deemed to constitute an
industry. To conform to the current view of the SEC staff that only
domestic bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund will not
exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will constitute
"`concentration.'"
The Fund's Board has also approved related non-fundamental policies for
the Fund, which will be adopted if the new fundamental policy is approved by
shareholders. These policies provide that in applying the concentration
restriction: (1) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (2) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (3) asset-backed securities will be classified according to the
underlying assets securing such securities.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(h): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING SECURITIES ON MARGIN
The Fund is not required to have a fundamental investment restriction
on margin transactions. Accordingly, it is proposed that the Fund's existing
fundamental policy be replaced with a non-fundamental restriction. The Fund's
current policy provides:
"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."
The proposed non-fundamental policy makes some changes in wording from
the existing fundamental restriction, and contemplates that the Fund may engage
in the same types of transactions as it is presently authorized to do. Upon the
approval of the elimination of the existing fundamental policy on engaging in
margin transactions, the Fund would become subject to the following
non-fundamental policy:
"The Fund will not purchase securities on margin, provided that the
Fund may obtain short-term credits necessary for the clearance of
purchases and sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions, and other financial contracts or derivative instruments."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(i): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING PLEDGING ASSETS
The Fund is not required to have a fundamental investment restriction
with respect to the pledging of assets. To maximize the Fund's flexibility in
this area, the Board of the Fund believes the policy on pledging assets should
be made non-fundamental. The non-fundamental policy would be similar to the
fundamental policy proposed to be eliminated, which states:
"The 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."
The Board does not expect this change to have a material impact on the
Fund's operations. Establishing the policy as non-fundamental, however, would
enable the Board to change this policy in the future without shareholder
approval. Upon the approval of the elimination of the existing fundamental
policy on pledging assets, the Fund would become subject to the following
non-fundamental policy:
"The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3: ELIMINATION OF THE FUND'S
FUNDAMENTAL INVESTMENT POLICY ON SELLING SECURITIES SHORT
The Board has determined that the Fund's current fundamental
investment policy pertaining to selling securities short is unnecessary and
should be removed. Until NSMIA was adopted in 1996, the securities laws of
several states required every investment company which intended to sell its
shares in those states to adopt policies governing a variety of operational
issues, including a policy prohibiting short sales of securities. As a
consequence of those restrictions, the Fund adopted an investment policy related
to selling securities short, and agreed that the policy would be changed only
upon the approval of shareholders. The policy provides:
"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."
Since the prohibition on short sales is no longer required under
current law, and in order to maximize the Fund's flexibility in this area, the
management of the Fund has recommended, and the Board has determined, that the
policy should be removed. Notwithstanding the elimination of this fundamental
restriction, the Fund expects to continue not to engage in short sales of
securities, except to the extent that the Fund contemporaneously owns or has the
right to acquire, at no additional cost, securities identical to, or convertible
into or exchangeable for, those sold short.
This Proposal will require the affirmative vote of a majority of the
outstanding voting shares of the Fund as defined in the 1940 Act. (See "Proxies,
Quorum and Voting at the Special Meeting" below.)
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4: TO APPROVE AMENDMENTS TO, AND A RESTATEMENT OF, THE FUND'S
ARTICLES OF INCORPORATION
Mutual funds, such as the Fund, are required to organize under the laws
of a state and to create and be bound by organizational documents outlining how
they will operate. In the case of the Fund, these organizational documents are
the Articles of Incorporation and the By-Laws. Since the adoption of the Fund's
Articles of Incorporation in 1986, the market for mutual funds has evolved,
requiring mutual funds to be more flexible in their operation so that they may
respond quickly to changes in the market. Certain items in the Fund's Articles
of Incorporation, described below, prohibit the Fund from responding quickly and
favorably to changing markets without going to the expense and delay of holding
a shareholder meeting.
Accordingly, the Directors have approved, and have authorized the
submission to the Fund's shareholders for their approval, certain amendments to
the Fund's Articles of Incorporation. If these amendments are approved by
shareholders, it is contemplated that the Amended and Restated Articles of
Incorporation will, following Board approval, be filed in Maryland following the
Special Meeting. The approval of each proposed amendment will require the
affirmative vote of a majority of the aggregate number of the shares of the Fund
entitled to vote on each proposal. (See "Proxies, Quorum and Voting at the
Special Meeting" below.)
PROPOSAL #4(a): TO REQUIRE THE APPROVAL OF A "1940 ACT" MAJORITY OF
SHAREHOLDERS IN THE EVENT OF THE SALE OR CONVEYANCE OF THE ASSETS OF THE FUND
TO ANOTHER CORPORATION OR TRUST, TO THE EXTENT PERMITTED UNDER MARYLAND LAW
The Articles of Incorporation currently require the favorable vote of
the holders of a majority of the shares of the Fund to take any action or to
authorize any action, including the sale or conveyance of the Fund's assets to
another corporation or trust. To reduce the likelihood of greater expenses in a
proposed solicitation for the approval of such a sale and conveyance, the
Directors have adopted an amendment that would permit, to the extent permitted
under applicable laws, a "1940 Act" majority vote to approve these types of
transactions. A "1940 Act" majority vote means the affirmative vote of: (a) 67%
or more of the voting securities present at the meeting, if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy; or (b) more than 50% of the outstanding voting securities, whichever is
less.
There is currently no plan to sell and convey shares of the Fund to any
other open-end management investment company. To provide the Fund with greater
flexibility, and in the event circumstances would change, and the Directors
would determine that a sale and conveyance of assets would be in the best
interest of the Fund, the Directors are recommending that shareholders approve
the adoption of this proposed amendment to the Amended and Restated Articles of
Incorporation.
If approved by shareholders, the Amended and Restated Articles of
Incorporation would provide substantially to the effect that:
"Notwithstanding any provision of the laws of the State of Maryland
requiring a shareholder vote of a greater proportion, the Directors,
with the concurrence of a majority of the aggregate number of votes
entitled to be cast thereon with respect to any or all series or
classes (or, to the extent permitted under Maryland law, approval of a
vote of the holders of a majority of the outstanding voting securities
of any or all series or classes, as defined in Section 2(a)(42) of the
1940 Act), may sell and convey the assets of the Corporation, or a
class or series of the Corporation, to another trust or corporation
organized under the laws of any state of the United States, which is a
diversified open-end management investment company as defined in the
1940 Act, for an adequate consideration which may include the
assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Corporation, or each class or series of
the Corporation, and which may include shares of beneficial interest or
stock of such trust or corporation. Upon making provision for the
payment of all the Corporation's liabilities, by such assumption or
otherwise, the Directors shall distribute the remaining proceeds
ratably among the holders of the shares of the Corporation then
outstanding."
In the event that this amendment to the Amended and Restated Articles
of Incorporation is not approved by shareholders, the provisions of the Amended
and Restated Articles of Incorporation shall remain as they are presently in the
Articles of Incorporation, and the Board of Directors will consider what action,
if any, should be taken.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(b): TO PERMIT THE BOARD OF DIRECTORS TO LIQUIDATE
THE ASSETS OF THE FUND, OR OF A SERIES OR CLASS, AND DISTRIBUTE THE PROCEEDS
OF SUCH ASSETS TO THE HOLDERS OF SUCH SHARES REPRESENTING SUCH INTERESTS,
WITHOUT SEEKING SHAREHOLDER APPROVAL, TO THE EXTENT PERMITED UNDER
MARYLAND LAW
Shareholders are being asked to approve amendments to the Fund's
Articles of Incorporation to permit the Directors, to the extent permissible
under Maryland law, from time to time, to sell and convert into money (i.e.,
liquidate) all of the assets of the Fund, or of a class or series of the Fund,
and then redeem all outstanding shares of any series or class of the Fund.
Currently, a vote of shareholders is required to liquidate the Fund or a series
thereof. The Directors have determined that the current restriction presents a
cumbersome structure under which the best interest of all of the Fund's
shareholders may not be served. By requiring the Directors to solicit a
shareholder vote, by means of a proxy solicitation for a meeting of
shareholders, the Articles of Incorporation as currently in effect greatly
hinder the Directors' ability to effectively act on decisions about the
continued viability of the Fund or of a series or class thereof. If it is
determined that it is no longer advisable to continue the Fund, or a series or
class thereof, it may not be in the best interest of shareholders to incur the
substantial additional expense of a shareholder meeting when it is more
important to preserve for shareholders those assets that remain. Depending on
the terms of Maryland corporate law, which may change from time to time, if this
proposal is approved by shareholders, the Directors may be authorized to
liquidate the Fund or a class or series of the Fund, by Board action without a
further shareholder vote. The Directors have no present intention of liquidating
the Fund.
If approved by shareholders, the Amended and Restated Articles of
Incorporation would provide substantially to the effect that:
"To the extent permitted under Maryland law, without the vote of the
shares of any class of stock of the Corporation then outstanding, the
Corporation may, upon approval of a majority of the Board of Directors,
sell and convert into money all the assets of any class or series of
the Corporation. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, belonging to the Corporation, or any class or series
thereof, the Directors shall distribute the remaining assets of the
Corporation ratably among the holders of the outstanding shares of the
Corporation or any affected class or series thereof."
In the event that this amendment to the Articles of Incorporation to
allow the Directors to liquidate the Fund, or a series or class thereof, as set
forth above is not approved by the shareholders, the provisions of the Articles
of Incorporation shall remain as they are presently, and the Directors will
consider what action, if any, should be taken.
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSAL
INFORMATION ABOUT THE FUND
Proxies, Quorum and Voting at the Special Meeting
Only shareholders of record on the Record Date will be entitled to vote
at the Special Meeting. Each share is entitled to one vote. Fractional shares
are entitled to proportionate shares of one vote. Under the Investment Company
Act of 1940, the favorable vote of: (a) the holders of 67% or more of the
outstanding voting securities present at the Special Meeting, if the holders of
50% or more of the outstanding voting securities of the Fund are present or
represented by proxy; or (b) the vote of the holders of more than 50% of the
outstanding voting securities, whichever is less, is required to approve all of
the proposals, except the election of Directors and the amendments to the
Articles of Incorporation. Directors are elected by a plurality vote. The
amendments to the Articles of Incorporation must be approved by the affirmative
vote of a majority of the aggregate number of shares of the Fund entitled to
vote on each proposal.
Any person giving a proxy has the power to revoke it any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of the Fund. In addition, although mere
attendance at the Special Meeting will not revoke a proxy, a shareholder present
at the Special Meeting may withdraw his or her proxy and vote in person. All
properly executed and unrevoked proxies received in time for the Special Meeting
will be voted in accordance with the instructions contained in the proxies. If
no instruction is given on the proxy, the persons named as proxies will vote the
shares represented thereby in favor of the matters set forth in the attached
Notice.
In order to hold the Special Meeting, a "quorum" of shareholders must
be present. Holders of a majority of the total number of outstanding shares of
the Fund entitled to vote without regard to class, present in person or by
proxy, shall be required to constitute a quorum for the purpose of voting on the
proposals.
For purposes of determining a quorum for transacting business at the
Special Meeting, abstentions and broker "non-votes" (that is, proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. For this reason, abstentions and broker non-votes will have the
effect of a "no" vote for purposes of obtaining the requisite approval of some
of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies that have been received to adjourn the Special Meeting to a later date.
In the event that a quorum is present but sufficient votes in favor of one or
more of the proposals have not been received, the persons named as proxies may
propose one or more adjournments of the Special Meeting to permit further
solicitations of proxies with respect to such proposal(s). All such adjournments
will require the affirmative vote of a majority of the shares present in person
or by proxy at the session of the Special Meeting to be adjourned. The persons
named as proxies will vote AGAINST an adjournment those proxies that they are
required to vote against the proposal, and will vote in FAVOR of such an
adjournment all other proxies that they are authorized to vote. A shareholder
vote may be taken on the proposals in this proxy statement prior to any such
adjournment if sufficient votes have been received for approval.
As referred to in this Proxy Statement, the "Federated Fund Complex,"
"The Funds" or "Funds" includes the following investment companies: Cash Trust
Series, Inc.; Cash Trust Series II; CCB Funds; 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 Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Edward D. Jones & Co. Daily Passport Cash Trust; Liberty Term Trust, Inc. -
1999; Liberty U.S. Government Money Market Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; Tax-Free Instruments Trust; The
Planters Funds; WesMark Funds; WCT Funds; and World Investment Series, Inc.
Share Ownership of the Directors
Officers and Directors of the Fund own less than 1% of the Fund's outstanding
shares.
At the close of business on the Record Date, the following person owned, to the
knowledge of management, more than 5% of the outstanding Class B shares of the
Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL, on behalf of
various customer accounts, owned approximately 4,535,804 shares (6.92%).
At the close of business on the Record Date, the following person owned, to the
knowledge of management, more than 5% of the outstanding Class C shares of the
Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL, on behalf of
various customer accounts, owned approximately 3,091,524 shares (30.44%).
At the close of business on the Record Date, the following person owned, to the
knowledge of management, more than 5% of the outstanding Class F shares of the
Fund: Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL, on behalf of
various customer accounts, owned approximately 1,321,217 shares (20.55%).
<TABLE>
<CAPTION>
<S> <C> <C>
Director Compensation
Name and Position Aggregate Total Compensation Paid From Fund Complex+
With Fund Compensation
From Fund #1
- -------------------------------------- ---------------------- -------------------------------------------------------
John F. Donahue*@ $0 $0 for the Fund and 54 other investment companies in
Chairman and Director the Fund Complex
Thomas G. Bigley $2,345.33 $113,860.22 for the Fund and 54 other investment
Director companies in the Fund Complex
John T. Conroy, Jr. $2,580.26 $125,264.48 for the Fund and 54 other investment
Director companies in the Fund Complex
Nicholas P. Constantakis $2,345.33 $47,958.02 for the Fund and 29 other
Director investment companies in the Fund Complex
John F. Cunningham** $583.03 $0 for the Fund and 43 other investment companies in
Director the Fund Complex
J. Christopher Donahue* $0 $0 for the Fund and 16 other investment companies in
Executive Vice President the Fund Complex
and Director
Lawrence D. Ellis, M.D.* $2,345.33 $113,860.22 for the Fund and 54 other investment
Director companies in the Fund Complex
Peter E. Madden $2,403.73 $113,860.22 for the Fund and 54 other investment
Director companies in the Fund Complex
Charles F. Mansfield, Jr.** $583.03 $0 for the Fund and 50 other investment companies in
Director the Fund Complex
John E. Murray, Jr., J.D., S.J.D.@ $2,403.73 $113,860.22 for the Fund and 54 other investment
Director companies in the Fund Complex
Marjorie P. Smuts $2,345.33 $113,860.22 for the Fund and 54 other investment
Director companies in the Fund Complex
John S. Walsh** $583.03 $0 for the Fund and 48 other investment companies in
Director the Fund Complex
</TABLE>
1 Information is furnished for the fiscal year ended March 31, 1999.
+ The information is provided for the last calendar year.
# The aggregate compensation is provided for the Fund which is comprised of one
portfolio.
* This Director is deemed to be an "interested person" as defined in the 1940
Act.
** Messrs. Cunningham, Mansfield and Walsh became Directors of the Fund on
January 1, 1999. They did not receive any fees from the Fund Complex as of the
last calendar year.
@ Member of the Executive Committee.
During the fiscal year ended March 31, 1999, there were four meetings
of the Board of Directors. The interested Directors, other than Dr. Ellis, do
not receive fees from the Fund. Dr. Ellis is an interested person by reason of
the employment of his son-in-law by Federated Securities Corp. All Directors
were reimbursed for expenses for attendance at Board of Directors meetings.
The Executive Committee of the Board of Directors handles the
responsibilities of the Board between meetings of the Board. Other than its
Executive Committee, the Fund has one Board committee, the Audit Committee.
Generally, the function of the Audit Committee is to assist the Board of
Directors in fulfilling its duties relating to the Fund's accounting and
financial reporting practices and to serve as a direct line of communication
between the Board of Directors and the independent auditors. The specific
functions of the Audit Committee include recommending the engagement or
retention of the independent auditors, reviewing with the independent auditors
the plan and the results of the auditing engagement, approving professional
services provided by the independent auditors prior to the performance of such
services, considering the range of audit and non-audit fees, reviewing the
independence of the independent auditors, reviewing the scope and results of the
Fund's procedures for internal auditing, and reviewing the Fund's system of
internal accounting controls.
Messrs. Conroy, Madden and Murray serve on the Audit Committee. These
Directors are not interested Directors of the Fund. During the fiscal year ended
March 31, 1999, there were four meetings of the Audit Committee. All of the
members of the Audit Committee were present for each meeting. Each member of the
Audit Committee receives an annual fee of $100 plus $25 for attendance at each
meeting and is reimbursed for expenses of attendance.
Officers and Incumbent Directors of the Fund
The executive officers of the Fund are elected annually by the Board of
Directors. Each officer holds the office for one year and until qualification of
his successor. The names and birth dates of the executive officers of the Fund,
as well as the incumbent Directors of the Fund who have previously been elected
by shareholders, and their principal occupations during the last five years, are
set forth below:
John F. Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: July 28, 1924
Chairman and Director
Dates Became a Director and an Officer: June 30, 1986 and October 10, 1986
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Investment Management Company; Chairman and Director, Federated
Investment Counseling and Federated Global Investment Management Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Fund and Director.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh PA
Birth date: February 3, 1934
Director
Date Became a Director: October 1, 1995
Director or Trustee of the Federated Fund Complex; Director, Member of the
Executive Committee, Children's Hospital of Pittsburgh; Director, Robroy
Industries, Inc. (coated steel conduits/computer storage equipment); formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr.
Wood/IPC Commercial Dept.
John R. Wood Associates, Inc. Realtors
3255 Tamiami Trail North
Naples, FL
Birth date: June 23, 1937
Director
Date Became a Director: August 21, 1991
Director or Trustee of the Federated Fund Complex; 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.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue
Suite 1111
Pittsburgh, PA
Birth date: October 11, 1932
Director
Date Became a Director: August 26, 1987
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center-Downtown; Hematologist, Oncologist, and Internist, University of
Pittsburgh Medical Center; Member, National Board of Trustees, Leukemia Society
of America.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birth date: March 16, 1942
Director
Date Became a Director: August 21, 1991
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation. Previous Positions: Director, VISA
USA and VISA International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation; Director, The Boston Stock
Exchange.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birth date: December 20, 1932
Director
Date Became a Director: February 14, 1995
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; Director, Michael
Baker Corp. (engineering, construction, operations and technical services).
Previous Positions: Dean and Professor of Law, University of Pittsburgh School
of Law; Dean and Professor of Law, Villanova University School of Law.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birth date: June 21, 1935
Director
Date Became a Director: June 30, 1986
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning. Previous Positions: National
Spokesperson, Aluminum Company of America; television producer; business owner.
Richard B. Fisher
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: May 17, 1923
President
Date Became an Officer: October 10, 1986
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: April 11, 1949
Executive Vice President and Director
Dates Became an Officer and a Director: June 1, 1995 and June 30, 1986
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President, Chief
Executive Officer and Director, Federated Investors, Inc.; President and
Trustee, Federated Investment Management Company; President and Trustee,
Federated Investment Counseling; President and Director, Federated Global
Investment Management Corp.; President, Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company; Director, Federated Services Company.
Mr. Donahue is the son of John F. Donahue, Chairman and Director of the Fund.
Edward C. Gonzales
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: October 22, 1930
Executive Vice President
Date Became an Officer: June 1, 1995
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Investment Management Company, Federated Global Investment
Management Corp. and Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated Shareholder Services
Company.
John W. McGonigle
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: October 26, 1938
Executive Vice President and Secretary
Date Became an Officer: June 1, 1995
Executive Vice President and Secretary of the Federated Fund Complex; Executive
Vice President, Secretary and Director, Federated Investors, Inc.; Trustee,
Federated Investment Management Company; Trustee, Federated Investment
Counseling; Director, Federated Global Investment Management Corp.; Director,
Federated Services Company; Director, Federated Securities Corp.
J. Thomas Madden
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh PA
Birth date: October 22, 1945
Chief Investment Officer
Date Became an Officer: November 19, 1998
Chief Investment Officer of the Fund and various other Funds in the Federated
Fund Complex; Executive Vice President, Federated Investment Counseling,
Federated Global Investment Management Corp., Federated Investment Management
Company and Passport Research, Ltd.; Vice President, Federated Investors, Inc.;
formerly: Executive Vice President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio Management Services Division;
Senior Vice President, Federated Investment Management Company and Passport
Research Ltd.
Richard J. Thomas
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: June 17, 1954
Treasurer
Date Became an Officer: November 19, 1998
Treasurer of the Federated Fund Complex; Vice President - Funds Financial
Services Division, Federated Investors, Inc.; formerly: various management
positions within Funds Financial Services Division of Federated Investors, Inc.
Linda A. Duessel
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birth date: September 30, 1957
Vice President
Date Became an Officer: November 19, 1998
Vice President, Federated Investment Management Company; formerly, Analyst and
Assistant Vice President, Federated Investment Management Company.
None of the Officers of the Fund received salaries from the Fund during
the fiscal year ended March 31, 1999.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Fund is not required, and does not intend, to hold regular annual
meetings of shareholders. Shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for the next meeting of
shareholders should send their written proposals to Federated Equity Income
Fund, Inc., Federated Investors Funds, 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7000, so that they are received within a reasonable time
before any such meeting.
No business other than the matters described above is expected to come
before the Special Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment or postponement
of the Special Meeting, the persons named on the enclosed proxy card will vote
on such matters according to their best judgment in the interests of the Fund.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
John W. McGonigle
Secretary
October 12, 1999
<PAGE>
FEDERATED EQUITY INCOME FUND, INC.
Investment Adviser
FEDERATED INVESTMENT MANAGEMENT COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Distributor
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Administrator
FEDERATED SERVICES COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
Federated Equity Income Fund, Inc. (the "Fund"), hereby appoint Patricia F.
Conner, Gail Cagney, William Haas, Suzanne W. Land and Ann M. Scanlon, or any
one of them, true and lawful attorneys, with the power of substitution of each,
to vote all shares of the Fund which the undersigned is entitled to vote at the
Special Meeting of Shareholders (the "Special Meeting") to be held on November
30, 1999, at 5800 Corporate Drive, Pittsburgh, Pennsylvania, at 2:00 p.m., and
at any adjournment thereof.
The attorneys named will vote the shares represented by this proxy in accordance
with the choices made on this ballot. If no choice is indicated as to the item,
this proxy will be voted affirmatively on the matters. Discretionary authority
is hereby conferred as to all other matters as may properly come before the
Special Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FEDERATED EQUITY
INCOME FUND, INC. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSALS.
By checking the box "FOR" below, you will vote to approve each of the proposed
items in this proxy, and to elect each of the nominees as Directors of the Fund
For [ ]
Proposal 1 To elect Nicholas P. Constantakis, John F. Cunningham,
Charles F. Mansfield, Jr. and John S. Walsh as Directors of the Fund
FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY
TO VOTE [ ]
FOR ALL EXCEPT [ ]
If you do not wish your shares to be voted "FOR"
a particular nominee, mark the "For All Except"
box and strike a line through the name of each
nominee for whom you are NOT voting. Your shares
will be voted for the remaining nominees.
Proposal 2 To make changes to the Fund's fundamental investment policies:
2(a) To amend the Fund's fundamental investment policy regarding
diversification
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
2(b) To amend the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
2(c) To amend the Fund's fundamental investment
policy regarding investments in real estate
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2(d) To amend the Fund's fundamental investment
policy regarding investments in commodities
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2(e) To amend the Fund's fundamental investment
policy regarding underwriting securities FOR
[ ] AGAINST [ ] ABSTAIN [ ]
2(f) To amend the Fund's fundamental investment
policy regarding lending assets FOR [ ]
AGAINST [ ] ABSTAIN [ ]
2(g) To amend the Fund's fundamental investment policy regarding
concentration of the Fund's investments in the securities of
companies in the same industry
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
2(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding pledging assets
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
2(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding buying securities on margin
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
Proposal 3: To eliminate the Fund's fundamental investment policy on selling
securities short
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
Proposal 4: To approve amendments to, and a restatement of, the Fund's Articles
of Incorporation:
4(a) To require the approval of a "1940 Act" majority of
shareholders in the event of the sale or conveyance of the
assets of the Fund to another corporation or trust, to the
extent permitted under Maryland law
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4(b) To permit the Board of Directors to liquidate the assets of
the Fund, or of a series or class, and distribute the proceeds
of such assets to the holders of such shares representing such
interests, without seeking shareholder approval, to the extent
permitted under Maryland law
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
YOUR VOTE
IS
IMPORTANT
Please
complete,
sign and
return
this card
as soon
as
possible.
Dated
Signature
Signature (Joint Owners)
Please sign this proxy exactly as your name appears on the books of the Fund.
Joint owners should each sign personally. Directors and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
You may also vote your shares by touchtone phone
by calling 1-800-690-6903, or through the
Internet at www.proxyvote.com.
